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My retirement planning confession

July 25th, 2008 at 06:45 pm

I have a confession!

While my husband is happy that I manage the finance for our family and pretty open to all of the ideas and methods that I have learned on this site. There is one thing he has asked me not to do.

Retirement vehicle! He wishes his income not to be in one. Ever since he started retirement vehicles, he pretty much loses his money in the 10 year span he was contributing. He is socking away money in a high yield savings account and the like now. He is pretty firm on his stand there and in some ways he might be right because he will always gain whether it is little or not.

In the meantime, I want to be able to max as much as I can each year to make sure we have enough to retire on together. It’s not a fun thought with the way the economy is going and my 401k rate of return is in the negatives. I have matching contribution while he has none. I am sure glad it is not the other way around.

10 Responses to “My retirement planning confession”

  1. momcents Says:

    Yes, I think it is best to maximize whatever "free" money you can (good thing DH isn't missing any) and it is important to have a system that you feel comfortable with. Does he have any confidence in the target funds offered through Vanguard?

  2. gruntina Says:

    The good thing is that my hubby is really good with listening. I can continue to inform him of all the options that are out there.

    It would be nice to have him overcome being burned up with his past retirement vehicles experiences.

  3. Broken Arrow Says:

    Ooooh. How many years is he from retiring?

    Sometimes, people focus too much on the price. I'll try to explain:

    Imagine if you will that you're not buying stocks or mutual funds. Instead, let's say you're stockpiling canned goods for when you retire.

    Ok, now, suppose canned goods are normally $1 per can. Suppose this week, they're on sale, and it's only $0.80 per can! What do you do? You're stockpiling for retirement, so the logical thing to do is to buy more right? Because they're on sale right?

    Now, suppose next week, they decided to put it on an even MORE sale, and are selling at $0.60 per can. What do you do then? Hopefully, you'll stock pile even more right? Because they're even more on discount than before.

    Now, would you kick yourself for wishing you could have (somehow read into the future and) bought them all when they were only at $0.60 per can? Yes?

    But you wouldn't kick yourself for looking at your stockpile of canned goods and say to yourself, "Awww, right now, they're all only worth $0.60 per can if I tried to sell them off." Why? Because you're looking at the size of your stockpile and not how much you sell them off right now. Right?

    Well, that's the problem a lot of people have when they look at their retirement accounts. They're not focusing on the number of shares or number of NAVs they have stockpiled. No, they're only looking at how much the market value of it is right now. And that's the problem!

    If you only look at it that way, you'll talk yourself out of one of the most important fundamental steps in investing: And that is to actually invest to begin with!

    Now, there's just one catch: If your husband really is planning to retire soon, then yes, price will matter. You want to get as good of a price as you can when you sell.

    However, even when a person is retired, I would argue that they still need perhaps half of their retirement funds into stocks and stock funds. The reason? Unless you plan to die early, your nest egg needs to continue to grow. Another retirement hazard to watch out for is making sure you don't outlive your money.

    I know cash investing (in savings) seems like a good idea right now, because the stock market doesn't seem very friendly. HOWEVER, I think in the long run, your husband is actually hurting his chances at a better retirement.

    By all means, please feel free to do what you guys feel is best, but for your future sake, at least give it some thought.

  4. Broken Arrow Says:

    Oh, and if you guys decide to still stick with bank savings, please don't forget that banks also offer IRAs (if you didn't know that already).

  5. gamecock43 Says:

    My SIL just graduated school and got a big job. My FIL (corporate financial type) told her to put her retirement funds in a money market account for now and wait till the market picks up. He says that with the company matching her 3% contribution she is already getting a 50% return, plus 3% from the money market, you cant complain about 53% return right now.

  6. monkeymama Says:

    Wow!! That's scary.

    Though I guess it could be manageable if you contribute more and invest aggressively. (MEaning in the long-term your money should grow a lot, and as his stagnates, you may hit a recommended 60/40 mix anyway). The unfair part is that if you were to ever split he would have cash and you would probably have more aggressive securities (though I Would argue you might fare better).

    I have a conservative side, but it is a small part of my portfolio. & just leaving it in a high yield savings is rather foolish. At least he should be locking in some CDs if he isn't going to touch it. Interest rates have been so abysmal since I graduated college that I locked in some 6% CDs - some to expire this year and some next. Smart move for me. Whereas if rates went up I wouldn't have any qualms of locking in a higher rate longer term, for security. But it's hard to see the wisdom of accepting say 3%-4% in this market.

    I guess the logical investor in me is screaming "Buy Low!!!!" Exactly what I am hoping to do when my CDs expire. I'll be either buying low or locking in higher interest rates. Ideally anyway.

  7. gruntina Says:

    BA- My hubby is only 35. While not young but the same time still have some years left in him if I can convince him. I like your story, I am thinking of sharing it with my hubby as it might be something that will shed a new light and make him ponder.

    Game - my company matches 40% on my first 10% contribution. I have half Roth 401k and half regular 401k at my company(to hedge my bet) My goal is to someday contribute up to 30 percent since that is the max I can contribute from my paycheck. I was thinking of opening a Roth IRA but have not because I can contribute a lot more than 5000 into my Roth 401k.

    Monkeymamma - I am not sure if my hubby is seeing it as”buy low rate" logic but rather seeing it as watching his money get flushed down the toilet and never recovering from that. That is what is scaring him and making him feels against retirement vehicles.

  8. Aleta Says:

    I like BA's analogy. It's a good visual way to look at investing. Although I call buying cans of food (my commodity buying).

    If your husband wants to continue with the savings, let him. Your portfolio will still be diversified. I have a retirement account that is in accordance with my retirement date time and it is divided into stock mutual funds and bonds. Occasionally they will add a small percentage of cash in there. You might really have the best of both worlds. It might be interesting to track both of your progress yearly to see how you both are doing. His can be the cash portion for you. Hopefully one day, you will both put the money together for tetirement. If not, if you have a retirement account, you will be diversified and should do well.

  9. Livingalmostlarge Says:

    Wow, you're a better woman than me! I would be flipping out because we'd be paying lots of taxes on that money not in a 401k. It would be more than your loss. We've lost 10% in our 401k this year but heck taxes alone on the money would be about 30%. I'm not crying about that.

  10. gruntina Says:

    Livingalmostlarge - My husband does not have an option of a 401k.

    He would have to open either an IRA or Roth IRA but he makes more than 85k.

    I have both Roth 401k and regular Roth 401k that I contribute at my employer. On the regular 401k, I will have to pay taxes later on it. The Roth 401k I am paying tax now and could be subject to pay tax on interest if regulation changes in the future.

    My husband cash we have to pay taxes on the interest he earns. He just does not get the higher rate of return that I will likely to get in my roth 401k and reg 401k.

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