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I will be 32 years old this year. Starting my first full time job and would like to plan for retirement.

My job is currently paying $95K/year. My company doesn't offer a 401k plan but will contribute to 7.65% of my income toward retirement with no matching program. My current job will probably pay around $120K in 6 years and $150K in 12 years. I do have a start-up company on the side which will generate about $50K/year starting Jan 15. My spouse is currently making $50K. We have a son (5 yo). What retirement plan should I consider and what investment can I make in order to pay as little tax as possible until I retire? Thanks for your help

Jul 28, 2014 by Amani from Greer, SC in  |  Flag
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7 votes
Peter C. Karp Level 20

Amani,

First of all congratulations on thinking about your future and planning for retirement at an early age. I agree with the other advisors in that you should consult with a fee-only financial advisor that can help you create a roadmap to achieve your financial goals, including a college savings plan, insurance, retirement, emergency funds, etc. They can also help in identifying the best investment vehicles that are appropriate for you and your family given your entire financial picture and incorporate a tax advantage savings plan. You may want to also consider setting up a retirement plan for your new company as it can offer owners additional tax benefits.

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Comment   |  Flag   |  Aug 04, 2014 from San Francisco, CA

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Hi Amani! Good recommendations from Helen and Urban already. It seems you have a lot of irons in the fire for such a young age! Yes, your best bet is to speak with a fee-only planner and look at a comprehensive plan that covers your retirement, insurance, taxes, college planning, risk management, and estate planning. Just from your initial overview, it seems that you may have a need for these services even if they are not at the top of mind for you. Let me know if I can help. I'm not too far from Greer.

Comment   |  Flag   |  Jul 29, 2014 from River Hills, SC

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Hi Amani, Since you will have your own business, you have a tremendous opportunity as your can defer a good amount of money annually. I would suggest that you find a CFP(R) professional in your area who can help you build a solid retirement plan. Depending on your situation, your planner can help you determine the best retirement plan type for your business and help you plan your cash flow accordingly. Best wishes, Helen

Comment   |  Flag   |  Jul 28, 2014 from Fort Worth, TX

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Urban C Fleming Level 8

Amani,

It's not impossible to give you an idea of what to do, but you need to have a conversation with an advisor about this. If you are younger, a Roth IRA and or, a Roth 401(k) associated with you side business is worth talking about.

Consider the basics along with your thoughts on retirment. Do you have an emergency fund of 3 to 6 months of your income from all sources? Do you have enough disability/life insurance coverage in case you cannot work or die?

I think you are on the right path thinking about retirement, but build the foundation first.

Best, Urban

2 Comments   |  Flag   |  Jul 28, 2014 from Jacksonville, FL
Amani

Thank you for your input. I have a life insurance policy in place but no disability insurance. And no, I don't have a 3-6 emergency fund set aside in case something happens. Are you suggesting starting the emergency fund before investing in the Roth IRA?

Flag |  Jul 28, 2014 near Greer, SC
Urban C Fleming

Well, I'm giving you a general idea of what to do. Meet with Pam below, it's worth having a conversation. We all pay doctors, lawyers and accountants to help us make complex decisions in our life, why not an planner?

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Flag |  Jul 29, 2014 near Jacksonville, FL

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Peter Cacioppo Level 16

Successful clients do certain things. 1. Pay themselves 20% of their Gross Salary every month by automatic programs through their 401(k) or IRA plans, and automatic credits to a brokerage account. 2. Borrow money only to buy a home. 3. Set aside money monthly to accumulate dollars to be used when cars should be replaced. 4. Pay all credit card bills in full every month. 5. Revise their Net Worth statement twice a year, so as to ascertain progress and boost incentives. 6. Fund generous college saving programs. 7. Learn how to enjoy life monthly with what dollars are left to spend. 8. Exercise and eat sparingly. 9. Shop wisely including appropriate negotiating. 10. They organize paperwork including recommended legal documents. 11. Never pay taxes today that can be deferred as laws and circumstances can change in the years ahead to reduce or eliminate the taxes.

1 Comment   |  Flag   |  Aug 03, 2014 from La Jolla, CA
Peter Cacioppo

Setting up a plan is just one aspect. I have found that if the planner does not meet with the client a few times a year for a number of years the plan is not implemented 100% and thus the initial charge is wasted. My clients are either high income from salaries or have over 1 million in investments, or both. We base our fees on the complexity of the situation but start at $5,000 a year. Just getting our clients to maximize their tax deferred savings each year "pays for" our fees!

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Flag |  Sep 24, 2014 near La Jolla, CA

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Peter Cacioppo Level 16

2014 numbers (they change every year): If you are a “one” person company (spouse OK as an employee), we offer through Fidelity or T. Rowe Price a “Solo” or "Self-Employed" 401(k) that allows you to place up to $52,000 annually (if you make $175,000 net profit) into your 401(k)(& deduct the $52,000)($35,600 if you make $100M net profit, and can deduct the $35,600). You can add and deduct an additional $5,500 if you are age 50 or more. Fidelity and T. Rowe Price do not charge a set up fee, nor an annual fee. Individual securities can be purchased. If you have other employees, each needs to work 1,000 hours or less for you for your retirement plan to work as desired (you don’t cover the employees!). These are special IRS cleared plans that combine a normal 401(k) with a “profit sharing” plan but are set up to act/administer as a normal 401(k).

Comment   |  Flag   |  Aug 03, 2014 from La Jolla, CA

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Amani, you and I are about the same age. I work with a lot of people in their 30s just starting to establish careers and families and with people in their 20s finishing school and entering the professional world. I cover my financial planning order of operations with them.

1) make sure to pay off your high interest debt first, this mostly covers if you're borrowing money on your credit card and not paying the balance down to 0 each month; debt isn't necessarily bad (like mortgages or student loans for example), but high interest debt is the worst.
2) fund an emergency account; keep detailed track of your cash outflows each month, nail down an average for your family's monthly expenses and then multiple that figure by 4 - 6 months. The amount of months depends on a lot of factors, such as one or both spouses working, whether you have dependents or not, if you have an easily replaceable job if you happen to lose your current one. The bottom line is the more months you have saved up in your emergency fund (which should be in cash or cash like instruments, not stocks or real estate) the more comfortable you will be.
3) Now look to funding your retirement or your child's education. Choosing which to fund first can be tough: you need to take care of your own future before you start taking care of your child's future educational needs, you can't borrow money for retirement, but you can for college, but college comes a lot sooner than retirement. For retirement I would begin funding both a Roth IRA (if income allows for it) and a traditional IRA or just do the Roth IRA now while you're under the income phase out limit and hopefully some day you'll only be able to contribute to a traditional IRA. For college I would do a direct sold 529 college savings plan, personally I don't advise my clients to do 529 pre-paid tuition plans.

There's so much more that goes into answering your questions, hopefully this is a good foundation and consult with a fee-only financial planner, too.

Comment   |  Flag   |  Aug 07, 2014 from Lemont, IL

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