401k advice

[Waylander]

I'm 36 and I've been really slow to get much of a 401k going. I got a decent start years ago but got laid off my job and had to cash most of it out until I could find another job. I've had a Roth IRA for years but haven't put much into it either.
What's made me hesitant at my current job is there is no guaranteed match. They sometimes match anywhere from 0-50% of the first 6%.

I want stable investments not risky ones.

What would you recommend? Invest more in my Roth IRA, my 401k, or just stick to one or the other?

[Gutshot John]

It really depends on what you anticipate the future bringing.

If you anticipate earning significantly more moving forward on a career path, 401Ks are at something of a disadvantage as you'll end up paying more in taxes at the end (based on that income level). Roth or other post-tax investment is probably a better option.

If you don't think your income will raise all that much, 401Ks are a decent option. From a government perspective the 401K is a questionable option as government could turn around tomorrow and tax them when they need supplemental income to pay for entitlements...like Obamacare.

At age 36 you can afford to take some more risk, but diversification is never a bad idea. I'd consider a mix of high-cap stocks and precious metals (not Gold).

[Caeser25]

It really depends on the options available for the 401k to be invested in and if there's a match. Since the options aren't that great in mine, I only put what is matched 100% and will set up a Roth one of these days.

[Waylander]

I think the Roth may be a better option. The reason I set it up after college was the advantages mentioned assuming my income would steadily increase over my career. If my employer guaranteed a match I could see at least partly taking advantage of the 401k and the contribution. Them not guaranteeing a match makes me lean more toward the Roth. Right now I'm invested in a fairly safe mutual fund.

[eightmillimeter]

It's all going to come down to taxes. Since you are already 36 more than likely the regular 401K which is tax-deferred will give you the lowest tax burden...unless you still plan to be making significantly more money when you retire than now, in which case the Roth will work out better in the end.

If I were in your shoes I would go with the 401K, and pick some moderate to moderate-aggressive investment blends and just ride the market until about age 50, at which time then start scaling back. There is no such thing as investments that are not "risky" anymore, so you might as well try to take advantage of the time you have left to invest. Just my opinion.

[_Stormin_]

I recommend sitting down with a Financial Advisor at your local bank (if you bank with a national bank, they will have one), and pretty much listening to their advice over anyone's on the internet that isn't a licensed investment professional. Working in the industry, I can tell you that a meeting with an FA is usually complimentary for account holders, and going to provide you with a whole lot of valuable advice. I can't stress enough how much this should benefit you.

That said, your income while working will grow (hopefully) but your income in retirement will (hopefully) be nothing more than investment gains, and dividends. You don't need to care about making more money while working, you need to concern yourself if you're going to make more money when you're done working. You probably won't. That put's the 401K ahead of a Roth IRA. Then you add in tax deferred growth and the 401K absolutely destroys undeferred investment growth over time. You have about three decades of compound returns before retirement. For most people leveraging the ability to make money on the 25-35% that the government would take, and pay the taxes later, is a far better bet.

None of this is more than a friendly explanation of tax deferral and investment growth. You're local FA will be able to take a look at your 401K plan investment options and find the right mix of growth/income/risk strategies that will fit your investment goals and time horizon.

Retirement planning isn't a pair of gloves, where you just pick small/medium/large. You're retirement belongs in the custom build forum.

[Sensei]

It's all going to come down to taxes. Since you are already 36 more than likely the regular 401K which is tax-deferred will give you the lowest tax burden...unless you still plan to be making significantly more money when you retire than now, in which case the Roth will work out better in the end.

If I were in your shoes I would go with the 401K, and pick some moderate to moderate-aggressive investment blends and just ride the market until about age 50, at which time then start scaling back. There is no such thing as investments that are not "risky" anymore, so you might as well try to take advantage of the time you have left to invest. Just my opinion.

I agree 100%. Check with your employer and see if they use one of the bigger management companies such as Fidelity for their 401K. If so, they will have options to put your money in a managed fund that adjusts your risk as you approach retirement. This can be a lot easier than designing your own portfolio. I'm not a big fan of Roth IRA's since our future tax requirements are not certain (and I don't qualify).

Regardless of what vehicle you choose, 8-10% of your income should be set aside for retirement. If you don't do this and start NOW, then prepare yourself to work well into your seventies at a lower standard of living.

[Crow Hunter]

You need to determine an asset allocation based on your time horizon and your risk aversion (what will let you sleep at night). Once you determine what that is, you need to write down your investment plan and STICK TO IT, no matter what the market does.

You are only 36, you need to get in the market and let the magic of compound interest help you.

The problem with stable investments is they are stable. There is no "risk premium" paid for investing in stable assets. More importantly, with stable investments you will run the risk of inflation eroding what you save.

The only way to make money is going to be to take some risk. You can mitigate it somewhat, but if there is no risk, there will be little to no return.

Here is the best site on the net that I have found for investing and they have a definitely conservative (vs aggressive) investment strategy. They have lots of portfolio recommendations on how to structure, both simple and complicated.

http://www.bogleheads.org/wiki/Main_Page

They even have an investing forum, similar to M4Carbine, that has lots of investing SMEs that post good information and if you post your info, you will get help with your investments, if you want it.

Pay close attention to Mr. Taylor Larimore's posts. He is a 101st Airborne vet from WWII (he fought in Bastogne) and he has some extremely wise and useful investment and living life posts.

You have plenty of time to make up for lost ground, but you will have to do it right.

Personally:

I am 40, so similar in age to you. I am invested using Taylor's Lazy 3 Fund portfolio with a mix of 40% US Equities/40% International Equities/20% Total Bond Mkt. I will continue to creep my bond allocation to match my Age - 20 until I die and then I plan on having the money I have accumulated liquidated built a huge monument to myself on my farm including an endowment to keep it mowed and kept up in perpetuity. I am still working on a pithy statement for the inscription.

I also only sometimes get a company match on my 401k. Since the economy tanked I have been getting between nothing and 1.5%, however I put everything in my tax deferred accounts. I don't put anything in Roth because I believe a bird in the hand is worth 2 in the bush and I don't trust the future governemnt honoring any of its obligations related to Roth's being widthdrawn tax free and I know I am saving on taxes right now.

Hope this helps.

[Gutshot John]

I will modify my advice slightly as I do think that if your employer is "matching" it makes sense to do up to that amount, but no more. It is after all free money. Some employers will actually contribute to a 401K whether you match or not, this is particularly true with non-profits (equivalent of 401K).

Otherwise the tax issues do play out.

I think the advice to speak with a financial planner makes A LOT of sense.

[rjacobs]

If you had a solid match nailed down you could do some better planning.

Lets assume you get zero match on your 401k, since you dont know.

There are really 3 big differences between a Roth and a traditional 401k:
pre-tax vs. post tax
$17500 vs. 5500
set investments vs. unlimited choices

Lets look real quick at #1. It doesnt really matter in the end as far as how much money will be in the account. If you had 2 accounts and you invested equally in them, in equal investments, you will have the same $ amount in them. What you have to look at is what you think your tax rate will be then vs. what it is now.

On to #2. You can put 17500 pre-tax into a 401k. THIS IS HUGE and reduces your taxable income in that year thus lowering your taxes, possibly into a lower tax bracket(I put an extra 5% into my 401k which dropped me into a 10% lower tax bracket). You can only put 5500 into a roth and still get the tax advantages of it. If you put more than 5500 into it than you will possibly pay taxes on that money twice.

And now #3. 401k's typically have a very limited amount of investment choices and most suck in my experience. In my 401k, we have around 40 choices and all but 4 are garbage IMO. Almost every choice in my particular 401k is a straight stock pick or a target date fund with CRAZY fee's approaching 1%. We have the VINIX(tracks S&P 500), we have a stable value(cash) and we have 2 bond funds run by PIMCO. These are the only 4 that I think are worth a shit because they all charge basically no fee's. The fee's in a 401k will KILL YOU. A Roth is basically a brokerage fund with some added rule's so you can invest in anything you want.

The traditional thinking is put into a 401k what you get in a match, then put into a Roth to max it out, then more into the 401k or other investment vehicle. However in your case where your 401k match isnt set in stone(which is weird IMO) its harder to decide. You also with the Roth have to make sure you stay under the income limit otherwise you are not eligible(there are ways around this though).

I would try to get my employer to put into writing what the 401k match is, when you get it, etc... so that you can make a better decision. Once you can calculate some things out then the decision is easier.

Without knowing the match into a 401k you have to ask: tax advantages now or tax advantages later, because those really, without knowing your match, the biggest differences between the two accounts.