Adulting (seeking advice about retirement accounts)

I'm researching the process of opening a retirement account for myself and holy shit there is so much to learn! For background, I am a 22 year old grad student so I don't get the option of having an employee sponsored retirement account. That being said, considering that I am so young, I am going to be opening a roth IRA since I am lucky enough to have some cash lying around. The question for my bald movers is: which brokerage firm would you suggest? I hear a lot of ads for Betterment on podcasts and have been looking into that one lately, but would love to know what experiences other people have had! 

A few more pieces of info:
1. I have enough funds to hit the minimum balance for many accounts (a few thousand dollars)
2. I'm leaning heavily towards a "robot" managed account where things are automatically adjusted. I don't want to pay the fees associated with heavily managed accounts and I also don't believe that the average broker is going to get me returns that are significant for what I'm paying them. I also don't want to choose the individual assests myself.
3. I am a moderate risk person
Travis
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Comments

  • JaimieTJaimieT Atlanta, GA
    edited August 2018
    I'm researching the process of opening a retirement account for myself and holy shit there is so much to learn! For background, I am a 22 year old grad student so I don't get the option of having an employee sponsored retirement account. That being said, considering that I am so young, I am going to be opening a roth IRA since I am lucky enough to have some cash lying around. The question for my bald movers is: which brokerage firm would you suggest? I hear a lot of ads for Betterment on podcasts and have been looking into that one lately, but would love to know what experiences other people have had! 

    A few more pieces of info:
    1. I have enough funds to hit the minimum balance for many accounts (a few thousand dollars)
    2. I'm leaning heavily towards a "robot" managed account where things are automatically adjusted. I don't want to pay the fees associated with heavily managed accounts and I also don't believe that the average broker is going to get me returns that are significant for what I'm paying them. I also don't want to choose the individual assests myself.
    3. I am a moderate risk person

    I believe Vanguard either has no fees or low fees, and that's who I use. Also a Roth IRA. I do a targetted retirement fund, 2050 or 2055. Good for you, getting this going!
    Travis
  • MrXMrX CO
    edited August 2018
    Good on you for starting a Roth at your age - I wish I had back then!

    I'm a fan of Vanguard, was able to get my company to switch our 401(k) to them, and also rolled over an IRA from an old job to a personal IRA account. If you want a "set it and forget it" type of account they have target-date funds that automatically adjusts your allocation as the years go on, and the fees are pretty low.

    Even lower are the fees on their index funds - google "vanguard 3 fund portfolio" for some advice on rolling your own - it's really not that hard and will save you on fees vs. one of the target date funds or something like Betterment
    Travis
  • MattyWeavesMattyWeaves Mid-State New York
    I know nothing other than a guy I used to work with, who retired early and traveled around the world, always said go with a Roth IRA.

    So +1 with Jaimie.
    Travis
  • LordByLordBy Utah
    edited August 2018
    Agree go Roth for as much as and as long as you can. If you don’t want to pick your own stocks then low cost index funds, of which Vanguard is a good example, are the most efficient way to go. If you don’t want to pick the indexes either, then the target date funds are fine though you do pay some extra for that in the expenses.

    Also I’d put $$ in monthly instead of all in one chunk to smooth out the market risk.
    Travis
  • I do what @LordBy suggested - monthly IRA deposits and I buy Vanguard's total stock market index fund (VTI, though VTSAX would be ideal).  Really, truly, very hard to beat index funds from a performance perspective and they require almost no management.
    FreibergTravisFreddy
  • Great advice from everyone. I use vanguard too, hard to beat them on their fees. I'll add you should set up a regular automatic contribution. The more frequent the better.

    Even if it's not much money start doing it now, and continue increasing it over time as your income increases. Start with 20 dollars a week or whatever amount you feel comfortable with. It's really about creating a habit (it's all also nice for dollar cost averaging). As your income increases continue to increase the amount you sock away. Your older self will thank you.
    Travis
  • AjasAjas Seattle, WA
    edited August 2018
    My best piece of advice to tack on-- if you have an HSA (Health Savings Account) medical plan available, just throw the max into there.  It has many many advantages, especially if you live long enough to become old. 

    Essentially-- you have an account of pre-tax dollars you can spend on any medical expense with a debit card that draws straight from this account, with money that is never taxed and rolls forward forever.  As you grow a family or near retirement, you'll have a shit-load of copays, prescriptions, and/or medical bills for spouse/kids that you can spend this account on.

    It's pretty rare to have an account where both contributing and spending privileges are tax-free, and the balance rolls forever (unlike an FSA-- flexible spending accont-- where the balance maxes out)

    Additionally, your employer might also possibly contribute.  It is only a small maximum per year you can contribute (like $3500 for a single person), but after your account gets above around $2k, you can compound the extras in non-cash investments, like index/mutual funds, if you want to.

    These are only available with higher-deductible medical plans-- so once again, the HSA is America's way of putting its thumb on the scale toward the upper 10%... "Life is pretty affordable, for those who can afford it."
    JimTravis
  • From what I understand, HSA is really good advice too.  One thing though - If you want to do that and you're shopping around for insurance, make sure you read the fine print because your plan might not qualify you for an HSA account even if the deductible is higher than the HSA qualification minimums.
    Travis
  • MichelleMichelle California
    I'm researching the process of opening a retirement account for myself and holy shit there is so much to learn! For background, I am a 22 year old grad student so I don't get the option of having an employee sponsored retirement account. That being said, considering that I am so young, I am going to be opening a roth IRA since I am lucky enough to have some cash lying around. The question for my bald movers is: which brokerage firm would you suggest? I hear a lot of ads for Betterment on podcasts and have been looking into that one lately, but would love to know what experiences other people have had! 

    A few more pieces of info:
    1. I have enough funds to hit the minimum balance for many accounts (a few thousand dollars)
    2. I'm leaning heavily towards a "robot" managed account where things are automatically adjusted. I don't want to pay the fees associated with heavily managed accounts and I also don't believe that the average broker is going to get me returns that are significant for what I'm paying them. I also don't want to choose the individual assests myself.
    3. I am a moderate risk person
    I'm glad you brought up this topic, because it's something I've been thinking about as well.  I'm also glad to have read the replies since they're very informative.  My employer doesn't offer any sort of retirement benefits, so unless I start investing, I'm going to be poor and broke and destitute when I retire (unless I marry a rich man, which, in my area, there are none).  So, I've been thinking of opening up a retirement account but, despite working in the Accounting field, I have little knowledge when it comes to this sort of thing.  Investments, mutual funds, retirement accounts, etc. are all so confusing to me.

    What advice would you all give to someone like me who needs it pretty much explained in layman's terms?
    Thanks in advance. :)
    Travis
  • TravisTravis CA
    edited August 2018
    I don't necessarily have a ton to offer beyond what has already been said. I will say that our firm uses Schwab to facilitate our investment accounts for our clients, but we've had kind of up and down experiences, and if they're kind of prone to dicey periods of service with us and our needs (through our clients we have a whole lot of money tied up with them) I can't imagine that there aren't better choices.

    If you have any window into being able to utilize DFA Funds, I would go with them. The fund company is really selective on who they allow to offer them as investments and you would probably have to go through a fund management firm (which is probably not advisable because of the fees involved), but as much as I don't manage money (I work in the taxes wing of our office, not the investment side) I see the performance reports for my clients money that we manage and DFA always seems to kick everyone else's ass. Something in their methodology just works better than everyone else seemingly. 

    That said, when I was managing my own retirement plan on thing I would do was go to Morningstar.com and find out who was performing well over the long haul. In my case, I wanted to dig a little deeper so I also would look at stocks that I believed in and see what funds were holding them (which you can also find out on that site, or at least could as of a couple of years ago). You may not even want to involve yourself even to that level, but if you choose to that is a simple way to get the ball rolling if you want to pick for yourself, or even if you go through someone like Vanguard but need to pick from some of their selections. I did really appreciate Morningstar as an information resource though. A lot of good data over there.
  • Michelle said:
    I'm researching the process of opening a retirement account for myself and holy shit there is so much to learn! For background, I am a 22 year old grad student so I don't get the option of having an employee sponsored retirement account. That being said, considering that I am so young, I am going to be opening a roth IRA since I am lucky enough to have some cash lying around. The question for my bald movers is: which brokerage firm would you suggest? I hear a lot of ads for Betterment on podcasts and have been looking into that one lately, but would love to know what experiences other people have had! 

    A few more pieces of info:
    1. I have enough funds to hit the minimum balance for many accounts (a few thousand dollars)
    2. I'm leaning heavily towards a "robot" managed account where things are automatically adjusted. I don't want to pay the fees associated with heavily managed accounts and I also don't believe that the average broker is going to get me returns that are significant for what I'm paying them. I also don't want to choose the individual assests myself.
    3. I am a moderate risk person
    I'm glad you brought up this topic, because it's something I've been thinking about as well.  I'm also glad to have read the replies since they're very informative.  My employer doesn't offer any sort of retirement benefits, so unless I start investing, I'm going to be poor and broke and destitute when I retire (unless I marry a rich man, which, in my area, there are none).  So, I've been thinking of opening up a retirement account but, despite working in the Accounting field, I have little knowledge when it comes to this sort of thing.  Investments, mutual funds, retirement accounts, etc. are all so confusing to me.

    What advice would you all give to someone like me who needs it pretty much explained in layman's terms?
    Thanks in advance. :)
    Don’t let all of the choices or perceived complexity delay getting started. IRA’s and Roth IRA’s are just types of accounts you can open with just about any financial institution including your local bank or credit union. They generally will help to guide you through the process and make it as easy as possible: it’s what they get paid for.

    Vanguard has been mentioned here as a good vendor of low cost mutual funds and you could call them (or Fidelity, Franklin Funds, American Funds, T.Rowe Price, etc.) and get going on a monthly savings plan quickly and painlessly. You’ll get different opinions on what vehicles to save in and with whom, but the first step is to get started as doing something will always be better then not doing something and the earlier you start the more time your money has to work for you.
    Jim
  • Doctor_NickDoctor_Nick Terminus
    edited August 2018
    Also, unless you anticipate needing the money in a near time frame, you are currently at your maximum risk tolerance (youth). I too use Vanguard, but I recommend parking the money in their higher return and higher variance funds (like Extended Market or Small Cap instead of all S&P 500) and I’m not sure you really need any bonds at all at this point. 

    Also  if you enjoy keeping large amounts of cash in your bank account as an emergency fund, you can park at least part of it in a money market fund so it earns something. There are some state optimized money market funds at say, Vanguard, that are tax free for residents of that state (primarily because they’re investing in municipal bonds). Vanguard is very unlikely to fail, but money markets are not savings accounts, though they are almost as safe. 
    Travisdaniellemathieson
  • For cash outside of retirement accounts there are online savings accounts that credit high interest rates and are FDIC insured. I always felt weird about them and so I just used my credit union savings account, but someone finally talked me into trying the Goldman Sachs one and now I feel like an idiot for not doing it sooner.

    The process is easy, and the savings account currently pays 1.85% vs my credit union, which I otherwise love, who pays 0.10% on savings. I make more on my savings in a month now than I used to in an entire year.

    Goldman markets theirs under the “Marcus” brand. American Express and Barclays have similar accounts also.

    Minimum Balance? $1
  • JaimieTJaimieT Atlanta, GA
    Re: emergency funds, as @Doctor_Nick mentions, I've seen in several places that you can withdraw whatever you've put into your Roth IRA penalty free. I haven't done that (yet?) so YMMV and double check.
  • Thanks for all the information everyone! Based on what everyone is saying Vanguard seems the way to go and I'm definitely going to do more research with them. I'm sort of lucky in that I do have a large (ish) lump sum to invest right away for the next three years, but I imagine that after I do some budgeting, I will do monthly contributions as well.
  • JaimieT said:
    Re: emergency funds, as @Doctor_Nick mentions, I've seen in several places that you can withdraw whatever you've put into your Roth IRA penalty free. I haven't done that (yet?) so YMMV and double check.
    This is definitely different that what I have heard. From my understanding, the only way to pull out money from a roth without paying a 10% tax is if its for purchasing your first home, paying medical expenses, or for tuition costs. 
  • MrXMrX CO
    edited August 2018
    JaimieT said:
    Re: emergency funds, as @Doctor_Nick mentions, I've seen in several places that you can withdraw whatever you've put into your Roth IRA penalty free. I haven't done that (yet?) so YMMV and double check.
    This is definitely different that what I have heard. From my understanding, the only way to pull out money from a roth without paying a 10% tax is if its for purchasing your first home, paying medical expenses, or for tuition costs. 

    I believe that's only on the earnings - you can withdraw your contributions penalty free, since they are post-tax $$.
  • FreddyFreddy Denton, Texas
    edited August 2018
    Save up just enough to start a criminal empire, and then go out in style whenever you've had enough of the day to day grind. Worst case scenario you end up living longer than expected, and write a book about it.
    "From Schlubbery to Skullduggery: How One Poor Sad Sack of Shit Insurance Salesman Decided to Retire in Style"
    Jim
  • JaimieTJaimieT Atlanta, GA
    Yes, from what I've read it's only Traditional IRAs that penalize everything (as IRAs go). Unfortunately there's not TOO much online that discusses it.
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  • MrX said:
    JaimieT said:
    Re: emergency funds, as @Doctor_Nick mentions, I've seen in several places that you can withdraw whatever you've put into your Roth IRA penalty free. I haven't done that (yet?) so YMMV and double check.
    This is definitely different that what I have heard. From my understanding, the only way to pull out money from a roth without paying a 10% tax is if its for purchasing your first home, paying medical expenses, or for tuition costs. 

    I believe that's only on the earnings - you can withdraw your contributions penalty free, since they are post-tax $$.
    You can withdraw your principal (total contributions) from a Roth IRA penalty free only after the account has existed for 5 years. This is not true for Roth 401k’s (that gets complicated)
    JaimieTdaniellemathieson
  • AjasAjas Seattle, WA
    edited August 2018
    The entire idea behind retirement investing is dodging taxes, any other investing strategy is a crapshoot.

    Roth IRA has the advantage that you pay up front with post-tax dollars, and you dodge capital gains taxes on the profit

    Traditional IRA dodges taxes on the inital contribution but you pay it in capital gains.

    HSA dodges all of the taxes, but you have to use all of it before you die (else your beneficiary gets taxed from the leftover).

    Beyond that-- the question "What do I invest my money in?" has the answer-- "Nobody knows.  Possibly nothing.  But never spend post-tax dollars on income-taxed profits"
  • Fine point: IRA withdrawals are taxable after age 59-and-a-half as income, not at the lower capital gains tax rates.

    Traditional IRA’s don’t dodge taxes, they defer them. If you’re in a lower tax bracket when you make withdrawals then you did dodge the spread between those brackets. Roth’s provide a full tax dodge on all gains so I’m a bigger fan of them (that and I don’t happen to think that taxes will be lower in 20 years, but that’s just my opinion looking at our deficits).
  • If you have the capability, it is definitely preferable to continue investing with post-tax dollars outside retirement accounts, likely in the same, or cheaper fees, index funds like the ones  you have in your retirement accounts.   

    Ajas said:

    Beyond that-- the question "What do I invest my money in?" has the answer-- "Nobody knows.  Possibly nothing.  But never spend post-tax dollars on income-taxed profits"

  • If you have the capability, it is definitely preferable to continue investing with post-tax dollars outside retirement accounts, likely in the same, or cheaper fees, index funds like the ones  you have in your retirement accounts.   

    Ajas said:

    Beyond that-- the question "What do I invest my money in?" has the answer-- "Nobody knows.  Possibly nothing.  But never spend post-tax dollars on income-taxed profits"


    Definitely! Long term capital gains tax is only 15% as long as you’re below the 39.6% tax bracket and even then they only go up to 20% (it is 0% in the 10-15% brackets).

    So if you’re in the 28-33% bracket you get a “discount” on gains of 13-18% which is similar to potential tax avoidance in Traditional IRA’s when you’re assuming a lower bracket for when you take out money. There are techinques like “tax harvesting” that can reduce or eliminate that tax also, and you have flexibility to change what you’re doing or take your money out in case of a tax law change which is much more-limited in retirement accounts.

    Interest-payments to you are taxed as income, not capital gains, so this doesn’t apply to that kind of gains.

    My rule of thumb for savings (not counting a fund for emergencies, though I’d still argue you do #1 even while you work to establish that)
    1. 401k: if you have one and they match any contributions you need to contribute the amount that is matched, otherwise you’re just leaving free money on the table
    2. Roth IRA: to the extent you can subject to the limits and income phase-puts
    3. Roth 401k: if you are lucky enough to have access to one. Contribution limits are higher than Roth IRA and no income phase-out
    4. Personal investment account
  • HatorianHatorian Dagobah
    edited August 2018
    It’s been a Long time for me to comment on how the US handles it’s retirement program. But I can say that the last 2 countries I’ve lived in have created mandatory government retirement programs that seem to work extremely well. I’ve lived in Singapore for 6 years and their mandatory retirement program called CPF has more or less forced me to save $100k in 6 years towards my retirement with a mandatory matching program where every dollar I’m forced to commit to my retirement savings is matched by my employer.

    Maybe its not not the best in the world but doing the calculations when I hit retirement I’ll have over a million dollars in tax free retirement fund. Yea it sucks having a part of your paycheck basically confiscated for this program but there’s no denying I’ll have a pretty decent nest egg regardless of what else I save or invest outside of my own investments. 
  • I’ve also put $200 a month into a $2mil term life insurance policy should I die or suffer a critical illness where I can’t work. Something I feel critical when I have 2 kids and a Wife completely dependent on my income. 
    Freddy
  • Life insurance is essential if you have dependents. I can’t stress that enough.
    Freddy
  • MichelleMichelle California
    Thank you everyone!  I appreciate all of the insight and advice!
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