Money, so they say…

29 06 2008

Recently, I’ve spent a lot of time thinking about the future of my family’s financial state. My husband and I are in our early thirties. After next week, the only debt we will have is our car loan and our mortgage (when the car loan is paid off, I plan to call the Dave Ramsey show and scream “We’re Debt Free!!”).

We save 15% of our income towards retirement and have (what I consider to be) a good amount of money set aside for our golden years. We have always put the 15% in our company funds, but today I spent some time changing our retirement strategy.

We will put up to the company match in our work funds and then put the rest into Roth IRAs. I have intended to do this for quite some time, but kept putting it off. On Friday, the financial implications of using this new strategy were demonstrated to me in a manner that really hit home.

If at age 30, a couple each invests $5000 annually into a Roth IRA earning 12% interest, they will have a nest egg of $5.4 million at age 65. This can be withdrawn tax free. If the same level of wealth was obtained via a 401(k) or IRA, the couple would be taxed on their withdrawals. Last year, my husband and I fell into the 28% tax bracket, so this would amount to more than $1.5 million in taxes.

Take advantage of your ability to contribute to a Roth IRA! I think the two hours I spent on putting this into place today will provide a great return on investment!

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3 responses

30 06 2008
i do not know me

Let me know where you are getting 12% interest and I will sign up! You might get 12% return, but interest implies something like a savings account where the interest in paid without regard to economic conditions. 12% return is high by historical standards. Certainly nothing wrong with saving, and you are no doubt well ahead of most, but 12% can only be seen through very rose colored glasses.

30 06 2008
Mistress of the Post

I did mean to type the word return instead of interest. I was actually reiterating a story I had heard on a finance show. Actually most of my international funds through T Rowe Price are getting MORE than 12%. Very high risk. Check out T Rowe Price Latin America fund.

30 06 2008
i do not know me

The most effective way to save for retirement is to remain a DINK. As an OIWK (one income with kids), it is tougher.

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