I have been contributing to my Roth 401k for the last year and am now considering looking for a new job so that I can make even more money and contribute even more to my retirement. When I leave my current employer I plan on rolling over both my Traditional 401k balance to a Traditional IRA and my Roth 401k balance to a Roth IRA.
Well I just sent in the form to change my Roth 401k withholding percentage from 17.5% to 20%. This change is the direct result of me following my plans laid out in my $100,000 by Age 30 post. Seeing as how I just got a raise this won’t hit the pocketbook as hard as it originally would have and really at the same time because of my raise 18 or 19% probably would have sufficed, but I’d rather just stick with my original plan and worst case scenario I end up with too much money. If anything I’d rather overdo it now as my money this year is worth a lot more money that next years (see waiting just 1 more year).
In Part I of this series I talked about how important it is to come up with an accurate rate of return when doing financial planning.
In Part II I talked about my asset allocation being 100% stocks and some of my rational for that and briefly touched on some of expected rates of returns for stocks and some of the reasons why most individual investors can’t attain those rates.
In Part III of this series I am going to try to justify why I am not following the smart path of investing in index funds.
As I mentioned in Part I in the comments, I am invested 100% in stocks. My rational for this, which could be flawed, is that stocks have historically without a question been the best long term investment vehicle for your money. Yes there area a lot of up and downs, but over periods of 10-20 years this volitility is less of an issue, so in my mind the risk is mitigated. Like I said I’m young and don’t know everything, but until someone proves me wrong this is the strategy I’m sticking with. In my mind I would be throwing money away by investing in bonds, real estate, gold, etc.
In producing the many excel spreadsheets that I have that tell me how much I need to save to in order to get x dollars x years down the road, I’m always kind of curious as to what I should put in there for my compound annual return rate. Certainly having a realistic and accurate return rate is vital to any kind of financial planning exercise. Especially seeing as how most of my calculations span 30 or more years of investment performance the return rate can drastically change the final numbers. If I were to set my expected return rate too high I would drastically over inflate my numbers and be poorly disappointed with my actual results.
How many years do you have till retirement? Thinking about putting off saving for retirement just one more year? Well check out the chart below to see what it will cost you.
When it comes to saving for retirement most people are pretty good at coming up with excuses as to why they can’t save for retirement right now. There’s the mortgage, the cost of raising kids, just not getting paid enough at work, need a new car, need to remodel the house, putting it off until they are older, don’t know how to invest, the stock market stinks right now, need to pay off the credit cards, really want to a buy a new (fill in the blank) first. I’ll admit it saving for retirement is not that easy. Especially if you haven’t been in the habit of saving before. It’s kind of like trying to get to the gym and exercise to lose those extra 20lbs you put on. There never seems to be enough time to get around to it and in the beginning it can be pretty overwhelming and you are likely to be fairly unsuccessful starting out so most people either never start or quit shortly after.