401k...learning the market

[nystripe96]

I haven't set up my retirement 401k plan yet. I'm 6 months in as a loader. I really never played the stock market and don't really know the best way to set up my savings because it all seems foreign to me at this point. Most people tell me learning how the market works is pretty simple however. If there are any pointers you guys can give me on the best way to setup my retirement that would be great.

 

[UpstateNYUPSer(Ret)]

http://www.retirement.prudential.com

The first step would be to register. Once that is done you need to decide how much you want to contribute and how you want that money allocated. The contribution rate is a % of your before tax pay and is deducted weekly.

How much to contribute and how you want it allocated are purely personal decisions. There is a tutorial on the website on the basics of a 401k which may help you.

You are a new employee with less than a year of service. You are probably bringing home $100-125/week. It may be tough for you to set aside money at this point in your life. You may be better served to hold off on funding your 401k until you have a few years under your belt and your take home pay has increased.

 

[rod]

The first thing you should learn is never take the financial advise of someone you don't know--------especially off the internet. Ask around your hometown for feedback about your local financial advisers and then go see one that is recommended by a friend.

 

[Brownslave688]

Not true at all upstate first you have two 401k options the first is a traditional. This one allows you to move money to your 401k before it gets taxed ( you will get taxed on it when you draw it out). The second is a Roth 401k. With this one your money comes out post taxes but grows "tax free". Upstate is right that you don't make a lot right now where he is wrong is telling you to hold off. If you choose a traditional 401k put at least 2% of your pay in because this money would otherwise be lost to taxes!!!! Also the dollars you put in now mean a lot more than the dollars you put in close to retirement because your money grows exponentially. And never under estimate how huge it is to take that first step and get started.

 

[UpstateNYUPSer(Ret)]

How many PTers with less than 6 months of service bringing home $100-125/weekly can afford to fund a Roth 401k? That is why I didn't mention it as it most likely is not an option.

Let's say stripe is making $10/hr and is getting his weekly minimum of 17.5 hours. That works out to $175 gross. 2% of that is $3.50. 3.5*52=$182. Yes, it is a start, but I still think he would be better served to hold off until he receives a few pay raises.

 

[air_dr]

I personally have everything in the S&P 500 index fund. The fund gives you diversity, at least when it comes to stock ownership across the spectrum of large American companies. In addition the expense ratio for the fund is very low so you keep more of your money.

If you are less than 40 years old and not making a ton of money, I would strongly encourage you to go with the "Roth" option. While you will not be able to deduct the contribution from your taxes, all of the money you make (your capital appreciation and dividends) will be completely tax free so long as you keep your money in a Roth 401k until age 59.5.

UpState made a good point in his post. Do you have enough income to be able to stash away some percentage of your earnings until age 59.5. If you are looking at saving up for a downpayment on a house, for example, you may want to hold off on a 401K in order to pursue that goal first.

Also, keep in mind you can contribute to a Roth IRA, where the rules are quite similar to those of a 401k. The difference being that the IRA is not through your employer and you simply write a check, up to $5000 per calendar year, for how much you wish to invest to the institution holding your money, hence the name Individual Retirement Account. If I were not parking at least the $5000 maximum into an IRA, I personally would want to fully fund my IRA before seeking to park additional funds in a 401K since UPS does not offer any kind of match to the 401K. For my IRA, I personally have an account with Vanguard. In short, I have found this to be an outstanding company with which to do business. vanguard.com

Another thing that I have found helpful when it comes to investing is to have a strong stomach. The market goes up and it goes down as well with the overall trend being up over long periods (decades) of time. Some people performance chase, meaning they tend to buy as the market is approaching a peak, and then, when it goes down, they panic and sell at a loss.

Hope all this helps you...In a rather recent post I tried to encourage someone with a hymn which had recently been sung in church...instead of being encouraging, it seemd like I ended up completely confusing the person since he did not appear to have the backround knowledge to properly understand the text. So I hope I have done a better job here at providing useful and understandable information.

 

[air_dr]

Not true at all upstate first you have two 401k options the first is a traditional. This one allows you to move money to your 401k before it gets taxed ( you will get taxed on it when you draw it out). The second is a Roth 401k. With this one your money comes out post taxes but grows "tax free". Upstate is right that you don't make a lot right now where he is wrong is telling you to hold off. If you choose a traditional 401k put at least 2% of your pay in because this money would otherwise be lost to taxes!!!! Also the dollars you put in now mean a lot more than the dollars you put in close to retirement because your money grows exponentially. And never under estimate how huge it is to take that first step and get started.

You make some good points here, though I think the Roth may be by far the better choice. Depending on his income nystripe may not be paying anything in taxes, or the amount may be very small, so "losing" money to taxes is not a concern at this point.

I do agree with your point about exponential growth. I saw a calculation once, don't recall the exact numbers, but anyway it was a comparison of two hypothetical individuals where one person invested $1000 per year at 9% between the ages of 20 and 30 and then stopped contributing but let the money continue to grow at the steady 9% return. The other person delayed investing $1000 per year at 9% until age 30 but continued investing $1000 per year until age 60. At age 60, the person who started investing at age 20 had more money.

 

[nystripe96]

Thanks upstate. I've been regularly making 20hr/week so my avg paycheck has been about $180 after taxes. I work In Queens so I log fairly decent hours plus I'm working another pt job as well. I def wanna start putting something into my retirement

 

[UpstateNYUPSer(Ret)]

I would think that $180 a week in Queens doesn't go very far; however, if you are able to set some money aside, you should.

Contributions to a traditional 401k are before tax and are credited against your income when you file your taxes. Withdrawals from a tradional 401k are taxable.

Contributions to a Roth 401k are after tax and have no effect on your taxes. Withdrawals from a Roth 401k are (currently) non-taxable.

The ideal would be to start with a set amount and to increase that amount every time you get a payraise. I would suggest starting with 2%, which is the amount your taxes have been cut thanks to the recently extended payroll tax cut, and then increase it every time you get a raise. You are single which does make it easier to save---when you get married and start a family you will find it more challenging to both save for retirement and raise children.

I was hired in 1989 and got my seniority in 1990. I did not start my 401k until 1992 and funded it on and off through 1998, which is when I got divorced and lost 1/2 of it. I worked very hard to pay down my debt and have begun to refocus on my 401k, funding it with 25% contribution and the 10% "catch up" contribution up to the IRS max of $22K. I currently have $63K and plan on having between $250-300K when I retire in 7 years.

 

[air_dr]

I can't remember now, is there some flat annual account custodial fee one has to pay to prudential? Like $23... 2% of the approximately $200 nystripe is piad weekly comes out to $4. Times 52 is like $200 for a year. Figure the custodial fee and he'll lose money...like 10% Why he'd be better of putting some money in an IRA savings account at a bank where he sure won't get much interest, but at least there won't be the fee.

 

[nystripe96]

2% is too low considering I have another pt job. I collect about $550/week after taxes between both jobs which comes out to nearly 30k/yr. I think I'll be able to get away with between 5-8% for now. Like upstate said, I'm single and just starting to get myself together financially. Living on 30k is tough, especially in nyc. I just want to make sure I make the most of it considering I'm looking to rent a place soon. Putting in 2% now won't make enough of a difference on the back end if I only bank $200 when the year is up.

 

[Nickfury7]

I just set my roth 401k and pre employment thig too. It has me so confused. I did 3% for roth 401k, 3% for pre employment, and 1% roth 401k option week, and 1% after taxes.. and I dont even understand what i did. Smh. Im 24. Any advice on what I should put it in? Im totally lost! I did 50% in Bright Horizon 2045, and 50% in government.

 

[Brownslave688]

^please seek professional help ASAP!!!! When you understand as little as it sounds like you do you need to have a sit down face to face with someone who knows what they are doing.

 

[klein]

My advise is a Nasdaq index Fund (mutual fund). It's been working great for me.
People are now addicted to "nasdaq" technology. Be it laptops, cell phones or even facebook and much more.
People will buy a new laptop or TV if it's broken rather then a new fridge (fridge can be bought used, but who really buys a used pc or cell phone) ?

Even some of the poorist countries/citizens have cell phones and internet connections.
It's one sector that is hard to bring down.

Of course, Natural resources are a great safe long term bet, too.

 

[moreluck]

Disclaimer!!!

No one on this site (that I know of) is a professional financial planner. Please don't base your investments on any advise given here.
Get professional help. It doesn't have to cost you money. There are always free seminars from professional financial planners. Go and listen and ask questions and pick someone you like to help you.
A little reading could help too.

 

[Jones]

The first thing you should learn is never take the financial advise of someone you don't know--------especially off the internet. Ask around your hometown for feedback about your local financial advisers and then go see one that is recommended by a friend.

Disclaimer!!!

No one on this site (that I know of) is a professional financial planner. Please don't base your investments on any advise given here.
Get professional help. It doesn't have to cost you money. There are always free seminars from professional financial planners. Go and listen and ask questions and pick someone you like to help you.
A little reading could help too.

Listen to the old folks.

 

[Brownslave688]

I agree with professional help but if you don't know what your doing in the first place you can get taken very easily. I have a good friend who is a financial planner and he admitted the first company he worked for had him completely brain washed that what he was selling was the best plan. I always told him I wouldn't buy what he was selling cause it was crap. Saw him a few years later and he was like wow you were right sorry I tried to push that stuff on you it was crap. Now I get lots of advice from him since he saw the light....lol. The problem with these part timers seeking professional help is the can't afford it. You should never hire someone who works on commissions a single fee based financial advisor is what people should be looking for.

 

[Brownslave688]

I just set my roth 401k and pre employment thig too. It has me so confused. I did 3% for roth 401k, 3% for pre employment, and 1% roth 401k option week, and 1% after taxes.. and I dont even understand what i did. Smh. Im 24. Any advice on what I should put it in? Im totally lost! I did 50% in Bright Horizon 2045, and 50% in government.

I will give you a small amount of advice if you know very little about what you are doing go with the bright horizon funds for your target retirement date. The fees are higher on these accounts but they are supposed do the work for you as far as moving you from more stocks in your younger years to more bonds ect. as you get closer to retirement.

 

[Conan04]

One place to start learning about this kind of stuff is "Nightly Business Report" on PBS ( I think that you can read the transcripts from the internet).

Don't buy anything you don't understand.

Be wary of someone who gets a commission to sell you something. (Includes but not limited to annuities from insurance salespeople)

Don't put too much money into a single companies stock. (about 5% max)

 

[brownelf]

When I was PT we had the thrift plan instead of all the options available now. Got into that back in the late 70's and am glad i kept my fingers off it the many times thru the years I had the opportunity to get at it as the company went public. What I'm getting at is to consider anything you put into your retirement fund untouchable money, especially in the beginning when money can and will get tight at times. Many like myself started small as you are doing now, and now 30+ years later and nearing retirement it's grown into something that will give me the chance to retire years earlier than planned. IMO the closest thing to the old thrift plan (ie put it in and forget about it) would be one of the Roth IRA Bright Horizon Funds. Although the fees are higher, it adjusts automatically without you doing a thing and if sometime in the future you desire to get a little more involved you can change it.