Graduated Learning: Life after College

I got my degree, I got a job…now what?

A Graduate’s Guide to Being a Grownup: Retirement Plans June 30, 2013

This is the first in my “Graduate’s Guide to Being a Grownup” series.  I’m hoping to give some introductions as well as in-depth information to help newly minted graduates (and really, anyone who has questions) .

As a reminder/disclosure, I am NOT a financial advisor.  Nor am I an investing expert.  I’m just someone who has been there, done that, and (thinks I) know what I’m doing.

Retirement Plans.  They’re a big topic.  A confusing, frustrating, and sometimes depressing topic.

The basic idea is this:  You work for a while.  Then eventually you retire.  You want enough money to keep you going until you, erm, don’t need money anymore.  So you need to put money away now for WAY in the future, but you don’t really know how much, since expenses and prices will be different when you’re older, and you don’t know how long you’ll need money for.

See, I told you it’s a tough topic.

But here’s what you need to know about retirement plans.

Most of the ones that you get on your own or through work are ways to put away money now so that you’ll have money later.  The main benefit of most of these accounts (over a basic savings or investment account) relates to taxes.  Either you contribute money to your accounts with dollars that haven’t been taxed yet (like Traditional IRAs and 401(k)s) and then get taxed on the money you take out later, or you contribute money that has already been taxed (like Roth IRAs and Roth 401(k)s) and then get to take your money out tax-free when you retire.  For both of these, that means that you’re not paying taxes on the gains in your account EVERY YEAR at tax time.

Some additional benefits can include contributions to your account from your employer (often correlated to how much you contribute).

There are usually quite a few options for what to put into these accounts.  They might be mutual funds, individual stocks, bonds, or even just cash savings.  Basically, you’re saving and investing within an account, just as you would with regular saving and investing accounts.

There is a limit to how much you can contribute per year to different kinds of accounts.  There are income-related limits for some of the IRAs.  And there are maximums allowed for many accounts, though there are catch-up amounts allowed if you’re closer to retirement age (over 50 years old).

Most of these accounts will not let you take out the money until you’ve hit retirement age.  If you do, you may be required to pay penalties or additional taxes.  It’s NOT recommended in most cases to take the money out, though there are some exceptions (depending on account, the reason you are withdrawing)

I’ll go into more detail about the different retirement plans available (in the U.S.) in future posts.  This is just to get you started thinking about saving for your retirement.

For now, you can check out my past posts on IRAs and 401(k)s.  Once I finish the next posts, I’ll link to them below.

Short version:

Retirement plans are accounts you save and invest money in.

A main benefit over regular savings accounts or investment accounts is that you can save on taxes either when you contribute or when you withdraw your money (after you retire).

There are some limits to how much you can contribute each year.  There are maximum contribution limits as well as (in some cases) income limits.

The earlier you start saving, the (likely) better off you’ll be, thanks to compounding interest, or gains on top of reinvested gains.

Your balance can go up or down.  If you’re invested in pretty much any stock, bond, or other tradeable asset, there is risk involved.

This money is meant for your retirement, so there are penalties associated with early withdrawal.

Okay, how’s this so far?  What questions do you have (about retirement or any other post-graduate topics)?  Did I cover everything?  Miss something?  Let me know what you’d like to see in the next Graduate’s Guide to Being a Grownup!

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A Graduate’s Guide to Being A Grownup June 8, 2013

I was chatting with an old friend yesterday at one of the events at MIT’s Tech Reunions and she asked me how I got into all this personal finance stuff.  Well, as my blog’s sub-heading reads: “I got a degree, I got a job, now what?”  That’s really how it started.  I graduated (with a hefty pile of student loans), and started a job, and realized I had a lot to learn about this “being a grownup” stuff.  How should I attack the student debt?  What do I do with all these retirement plan options? WHAT DO I DO?!?!

So, that’s how it all started.

Well, this same friend told me that when she went through orientation on her first day of work, she also started having all these questions.  With new college hires getting training in the same class as experienced professionals, the topics discussed (401ks, health plans, etc.) were all things that the “grown ups” already knew about.  It felt awkward and confusing to try to learn when the “grown ups” were asking higher level questions about the benefits that the newbies didn’t even know about yet.  She wished there was a separate class just for the recent college grads so they could get into the basics and not feel intimidated.

She also wished there was a guidebook to life after college.

Well, here’s the thing.  There are TONS of books, blogs, websites, articles, etc. to guide you through your transition to being a grownup.  A lot of the personal finance blogs I’ve read over the years touch on these topics.  I consider my blog to be all about this, too.  After all, my blog is called Graduated Learning:  Life after College.  (Is it because I’m learning after graduation?  Or because I’m gradually learning new things?  MIND BLOWN!)  While I’ve touched on quite a few of these topics in the past, I figured I might as well kick off a new series to my blog.

That’s right.  Here it is.

A Graduate’s Guide to Being a Grownup.

I have a few specific topics in mind.  I’ll share what I know/learn, and invite comments on each post so others can share their thoughts, or ask more questions.  On this post, I invite you to comment with your own thoughts and ideas:

What do you wish had been explained to you when you graduated?  What did no one tell you on your first day of work that would have been helpful?  Are you a new graduate who has a million questions?  What resources have you found useful in your transition to the real world? (p.s. I’ve also heard really good things about Jenny Blake’s blog and book, Life After College)

If you’re a recent grad, or even a not-so-recent grad, I want to hear your questions!  We’ll get this figured out!

Commencement 2006

 

Paying someone to manage my portfolio: My review of Financial Engines February 21, 2013

Filed under: Personal Finance — Stephanie @ 10:05 pm
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A while back I discussed trying a portfolio managing service through my 401k.  Since they were giving me a 3-month free trial, I figured I’d try it out.

I had forgotten to write a review of the program until a friend of mine got a similar offer, and she wanted to hear what I thought of it.  So, here we go!

When I signed up, I think I told them my age, and what my other retirement accounts looked like, and I told them to go ahead and do their thing.  They changed the ratios of the funds that I’d “buy” each pay period.  Then every month, they’d slightly re-balance my portfolio, so as to not change everything over all at once.

The first time I called to cancel (before the 3 month trial period ended), they offered to give me another 3 months, so I kept it.  They hadn’t finished their re-balancing, so they wanted me to stay with the program to see if I’d like it more after they fully re-balanced my portfolio.  The 3 months passed, my portfolio got a bit less lopsided, but then it got to be a little over 3 months, so I ended up getting charged for some of the portfolio management (whoops!).   I paid a total of $9.25 in fees for my forgetfulness… not terrible, but annoying.  ALWAYS set a reminder for when you want to cancel something so you don’t get charged!

What I liked:  I got to be lazy, and let them make decisions for me.  I knew that my portfolio was  not set up very well, but I think I was a bit too chicken to actually change anything about it.  Knowing these people have experience in portfolio management and that they would do it in a smart way was helpful.  Because honestly, had I not signed up, my 401k would have remained very unbalanced and poorly planned. Let them worry, that’s their job!

What I didn’t like:  I couldn’t change anything on my own; I basically had signed over all control to them, so I couldn’t change anything directly myself.  So, if I wanted to change things, I’d probably have to call (which I didn’t).  They basically had a plan, and worked towards that plan (certain diversification plan).  Also, the way they do the reallocation, they do it bit by bit once a month, instead of all at once.  Which felt a bit slow to me, but I guess that’s a safer way to do it?

Also, having my 401(k) on autopilot, I sort of ignored my other retirement funds (my Rollover and Roth IRAs), and then realized once I stopped using Financial Engines, that I really should have been paying attention to all my accounts!

I think this program is good for getting your funds on the right track, and they do provide advice for your other accounts (they had ideas on my IRA since you could import your accounts for them to evaluate), but sometimes the advice doesn’t work (like recommending a fund that was unavailable required a huge minimum)

If you get a free trial for a portfolio management service, I think you should try it out, as long as you set a reminder for yourself before the trial period ends.  It’s a good way to make some changes to your portfolio that you may have been afraid to go ahead with, and if you don’t like it, you can cancel.  Keep in mind that the amount of time it will take for their entire re-allocation plan might be longer than the trial period.

Have you ever paid someone to manage your portfolio?  Or tried a program like Financial Engines? What did you think?  If you haven’t, would you?

 

Converting my IRA to a Roth IRA December 16, 2012

Filed under: Personal Finance — Stephanie @ 9:03 pm
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Back when I was laid off from my old job in 2008, I took the money that was in my 401(k) and rolled it over into an IRA.  And since 2008, I’ve had my Rollover IRA just sort of sitting there.

I started the rollover IRA with $5,026.80

I bought a bit of a target date fund (2045, so it would be different from the 2050 fund in my Roth…because I thought that would be diversifying…whoops!) and kept the rest in the Cash/Money Market fund.  When it started, the return on the money market was around 2.4%.  Now it’s 0.01%.  Bleh.  And then I never touched the account again.

So, with the ups and downs of the market, after 4 years, as of this posting, I now have $5,308.69 in that account.  So my money has grown ~5.6% total in the past 4 years.  It’s not terrible.  Especially considering the financial crash.  But it’s not fantastic.

But here’s the thing.  I want to do more with this money.  Not crazy “invest in the next bubble” more.  Just put it into something normal like an index fund.  And apparently most low-cost index funds available to me in my IRA have minimum investments of $10k.  Which is hard to do if you only have $5k.  So I’d like to roll over my IRA into my Roth IRA.

Another reason I want to roll my IRA over is because I assume my 401(k) will remain larger than my Roth IRA, since 401(k) plans have higher contribution limits, AND my company puts money in through a match and a defined contribution plan.  So I’d like to be able to diversify my tax liability when I retire (you know, have more options on what distributions to take and when), and so the more I have in my Roth, the better!

Lastly, there’s the taxes themselves.  Everyone’s freaking out about the Fiscal Cliff. I’m honestly not sure what tax rates might change to in 2013.  They could stay the same.  Or they could increase due to phasing out of tax cuts we’ve enjoyed for years.  I honestly don’t know.  What I do know is that if any of the tax rates go up, I might as well convert now, just in case.  Plus, I’m still in a pretty low tax bracket at this point in my life, so I might as well take advantage of these rates as well.  (yeah it’s only taxes on a tiny bit of money.  So I might as well do it now!  And I guess it wouldn’t matter much either way).

As a reminder, I’m not a financial advisor.  I’m just sorting out my personal finance thoughts on this blog.  So please don’t take this as financial advice.  I mean, you can still convert an IRA to a Roth IRA if you want.  But talk to your own tax/money people!

Saying that, here is something I learned from my tax/money people (i.e. customer service at Fidelity):

“At the time of your conversion, you will have the option to have taxes withheld. Many investors choose to pay the taxes due on the conversion from another source, as any taxes withheld from the conversion will be considered an IRA distribution and will be subject to any applicable taxes and an early withdrawal penalty if you are under the age of 59 1/2.”

I am planning on paying the taxes using another source.  The taxes I have to pay on this conversion I will pay for out of my regular bank accounts.  The other (not preferred) option is to pay the taxes out of the money you’re converting…which just seems like a horrible idea, because you have to pay a withdrawal penalty for that amount, and you’re lowering the amount of money you’re putting into your retirement account.  I guess some people do it if they have no other option.  Though I’ve also heard of people only partially converting to a Roth so that they can pay taxes on it bit by bit.

As a reminder:  Converting or contributing to a Roth IRA isn’t for everyone.  Depending on your income, your age, your tax liabilities, and plenty of other issues, you might stick with a traditional IRA or try something different.

What tax-related steps are you taking before the end of the year?  Is the drama over the Fiscal Cliff impacting your decisions?  Have you ever converted one retirement account type to another?  Do you agree with my decision to convert my IRA to go into my Roth IRA?

 

Would you pay for someone to manage your portfolio? November 24, 2011

Filed under: Personal Finance — Stephanie @ 11:00 pm
Tags: , , , , ,

The other day I got an envelope in the mail.  It was an offer (through my 401(k)) to sign up with a retirement advice company.  My employer signed up through them to offer a retirement portfolio management service.

My first response was:  No Way.  I’m not paying some people to do something I could do for free!

But then I read the paperwork they sent me.  Apparently I have two options available to me.  I can use their site for free to continue to manage my 401(k) on my own.  Or I can pay a fee to have them plan out, monitor, and rebalance my portfolio. Of course, the paperwork tries to point out how much better things would be if I did pay them for help.  They included stats/graphs showing that if you get their help, you’re likely to improve your return over the long run.

So, will I sign up?  Turns out they’re offering a few free months to hook you onto the “paid” plan.  The fees actually aren’t horrible, and it’ll be nice to actually talk to someone about my fund selection.  Plus, I can import my other retirement accounts (like my Roth IRA and rollover IRA).  I’ve tried out their free program, and it has some decent advice (like how to reallocate my funds to have a slightly more aggressive portfolio) and what other funds I could invest in within my IRAs.  It also told me to increase my contributions from 5% to 7%.  So, I actually already changed the contribution amount.  It was an easy change that made sense.

As for the fund recommendations, they aren’t quite right.  For example, one of the funds they suggested I invest my Roth IRA in has a $1million minimum investment.  Um, no.  But it’s putting me on the right track, I guess.  I could look for similar funds that don’t have outrageous minimums or high fees.

I think I’ll try out the paid program, get my portfolio in order, then switch to the free advice system.  It sounds like Krystal is also thinking about briefly trying a financial advisor, then continuing to manage her portfolio herself.

So, like Krystal asked, would you pay for someone to manage your portfolio?  Would you pay for just advice?  I’ll admit, while I think I’ve got personal finance stuff covered, I’m not very confident about my investing skills.  So, trying this out to start, but then trying to learn more along the way (and shifting back to the free plan after the trial period is over) is the best way for me to approach this.

 

Should everyone contribute to a Roth IRA? November 10, 2011

Filed under: Personal Finance — Stephanie @ 5:26 pm
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The short answer?  No.  It’s not perfect for everyone.  And actually, not everyone is eligible for it.

Roth IRAs are the Big Thing these days for younger people looking to save for retirement.   We’re all encouraged to open one, and contribute to it.  Seems like it doesn’t matter what fund you buy.  Your mission (from the personal finance gurus) is to put money in there.  Put all $5k in there if you can.  If you’re doing that and contributing to a 401(k) up to at least any employer match, you are on the right track (according to gurus, and to be honest, according to me, too!)

My younger sister is currently in grad school.  She sent me a message the other day, with the basic question:  Should I open a Roth IRA?  What are your thoughts on this?

My response?  A combination of advice and general information.  Read on:

They’re a good idea.  It’s good to start saving for your retirement now.  Plus with the stock market down, you buy funds “on sale” 😛

I maybe sound like a salesperson.  Ooops.

You can contribute up to $5000, or your income (what shows up on your W-2s), whichever is lower.  But I’m assuming your stipend is more than $5000!

Also, not sure what your stipend is, but if you make less than $27,750, you can get up to $1000 tax credit if you contribute to a retirement fund

The benefit of contributing to a Roth IRA right now is, of course, “The Power of Compounding”.  There’s a common example that if you contribute now and for only a few years, you’ll have more money than if you start later and contribute longer.  Magic.  Assuming the markets go up!

With a Roth IRA, you’re paying in money that was already taxed (through your employer), so when you contribute to your Roth, it can now grow tax-free (and be withdrawn tax-free when you retire).  And since your income level isn’t super high right now, your tax rate is relatively low.  Presumably, in the future, your tax rate will be higher, so if you had used a traditional IRA, while you don’t pay tax now (or you get a tax refund now, depending on how you do the IRA), you’d have to pay taxes on the money you take out of the account (when you retire).  So taxes might be higher then.  It’s a bit of a hedge, because it’s hard to know for certain what rates will be.

Lastly, if you’re mildly freaked out by the idea of putting a lot of money into an account, don’t worry.  Two parts make it less scary:  1.  You are able to withdraw your CONTRIBUTIONS at any time without penalty.  So, you can take out that money.  2.  You don’t have to put the whole $5000 (or however much you decide to contribute) all at once.  I contribute 1/12th of the total amount every month, and buy into a fund every month.  The idea of “dollar cost averaging” will work in your favor, here.  The basic idea is that you buy some of the fund every month, and you buy more when it’s “cheaper” (when the stock price is down), and less when it’s more expensive.  That way you don’t have to worry so much about putting all your eggs in one basket and trying to time the market perfectly.  Because that’s basically impossible.

As for what fund to invest in, most companies offer a fund geared at your particular retirement year.  So you can just contribute to the 2055 fund or something like that, and it’ll start out being more aggressive, then transition to being more conservative as you get older.  Another good option (often with much lower fees) is an index fund.  You’ll want to put your money in a fund with a low expense ratio (read:  cost) so that more of your investment goes to you and less to fees.  Usually it’s hard to buy certain other funds or individual stocks/bonds when you’re just starting out, because you need to have a pretty large minimum amount.  So you can build up your retirement fund until you have enough money to diversify, or you can just keep it in the lifecycle fund that fits your age or an index fund.

So.  If you want to start saving for your retirement (and you should!) I think Roth IRAs are a really good way to start, and it’s good to start now when you make less money (you can’t contribute if your AGI is over $107k…you know, SOMEDAY you might make that much!) and while you’re in a relatively low tax bracket.  It’s hard to know where the markets or tax rates will go, but I’ve found my Roth IRA to be a great balance to my employer’s 401k plan.

(Reminder, I’m not a financial advisor…I’m just a girl who likes talking about money!  But if you have any questions, I’ll answer them!)

Do you have a Roth IRA?  Traditional IRA?  Do you max out your contributions every year?

 

What a difference a year makes January 1, 2011

Filed under: Personal Finance — Stephanie @ 7:44 pm
Tags: , , , , ,

Happy New Year!  It’s hard to believe it’s 2011.  One of my resolutions is to get more involved in blogging:  blog more, get more involved in the personal finance blogging community, and maybe even transition to my own domain.  So I guess I should start this year on the right foot with a new post!
After reading this post at Paying Myself, I felt compelled to review my financial standing.  But, because I’m not completely anonymous (my “real life” friends read this blog), I decided to just post the change in each account, as opposed to what my actual assets and debts are.  I know that money is still an uncomfortable topic in social settings, so that’s my reasoning behind hiding some of the information.

So, let’s review:

Assets:

  • Liquid assets (checking and savings accounts):
    +$4319 (would have been higher but used a large amount…see Car Loan below)
  • Car (edmunds.com private sale value):
    -$1,090 (I know there’s a lot of debate over including cars in net worth calculations.  I initially included it to make myself feel better about my auto loan, to balance out the ugly dip in my net worth)

Debts:

  • Student Loans:
    Reduced  payoff balance by $7,127

Change in net worth since last year:  +$43,140

WOW.  I don’t think I ever stopped to realize how well things went this year.  Shoot.  I feel like I’m bragging now.

But looking at this, plus reviewing a lot of the comments on some of my older blog posts (like on I’m okay with being wrong sometimes, Personal Finance Stagnation, and Fighting Lifestyle Inflation), I realized I should be more aggressive with my student loan payoff.  Granted, the interest I’m paying on my student loans isn’t that much higher than the interest I’m earning off my savings accounts, but I think I have enough saved for emergencies, which is always goal 1 when you’re reviewing your finances.  My next main goal after paying off my debts is buying a house, so I do want to have money for a down payment.  But as Big City Beer Budget pointed out here, banks will be looking at your total financial picture when considering you for a mortgage, so the less debt I have, the better I’ll look, and the lower interest I might have to pay.

As you probably could tell from a lot of my posts, I’m always second-guessing myself when it comes to my personal finance priorities.  Reviewing my accounts, I also realized that while I save money at a consistent and steady pace (everything automated at reasonable amounts), I tend to pay debts in a more erratic rate.  With all of my student loans (and before, with my car loan), I paid the monthly bill, i.e. the minimum.  But every once in a while, I realize I should be paying off my loans faster, since paying only the minimum is never the path to getting out of debt.  So I pay a few thousand dollars towards my student loans (or in the case of my car loan, completely pay it off).  But then more months pass, and I’m back to just paying what the banks tell me to, since that’s the way the autopay is set up.

I have to make a plan to get rid of this debt.  I think maybe I should figure out if I can set up an extra or higher autopay for my student loans.  Plus I could also do another lump sum payment with that extra $4k that I built up in my cash accounts.  We’ll see.  I think I’ll try to keep my blog posts shorter in the future (another resolution?) but I tend to have so much to say once I start thinking about something!  Maybe I can start turning these into multiple posts 😛

Happy New Year!!