48 years old, currently have no investments. My net worth is my car and the clothes on my back, and I don’t ever want to be in this situation again.
(Edit: I don’t need to buy a house or anything whatsoever related to a house, so please don’t mention the “h” word in your response, it’s triggering me for tangential reasons. Let me be clear, I will NEVER care about real estate whatsoever, mmmkay? Just trust me when I say I have a roof over my head and it’s completely paid off, no property taxes, and No, I will never sell it, so the whole h-word" aspect of life is not a concern for me, k?)
Just looking for guidance where to invest this relatively small amount of money every month so in a few years when I’m older & frailer I’ll have enough for retirement. I don’t want it to just sit in my bank account, I want it to grow.
For reference, I’ve been living on approx $1500 per month for as long as I’ve noticed, so I don’t need much per month, and the sooner I die, the less retirement fund I’ll need, but we can never predict when anyone’s death will happen, so let’s assume I’ll live to 100 because I’m ridiculously healthy & an exceptionally good driver, never been in an accident, one speeding ticket in my entire life, no social life so I never get into risky situations, so let’s just plan for the possibility I’m going to live another 50 years.
TL;DR: index funds and tax-protected accounts.
Index funds because none of us (including the professionals who study them all day long) know enough about individual companies and the future of the economy to pick winners consistently. Investing in “everything” averages out the winners and losers and gives you the natural growth of human activity.
Tax protected accounts because you’ll make withdrawals at a time when your income is (presumably) lower, and deferring income to that time means deferring taxes to the lower tax bracket. In the US, tax protected accounts have special purposes: education, healthcare, retirement.
At 48, education is probably only relevant if you want to pay for kids’ college, and that’s what [https://www.irs.gov/taxtopics/tc313](529 plans) are for.
You are definitely coming to the point in life where, regardless of your general health, you will begin to incur healthcare costs. In the US, that’s an incredibly complex topic, but one aspect to be aware is [https://www.healthcare.gov/glossary/health-savings-account-hsa/](Health Savings Account). You have to be on ‘high deductible’ insurance to qualify for these, so probably not empoyer-sponsored insurance, but if you’re self-insuring through the marketplace, many of the lowest-premium plans qualify. HSA will let you save around $4000/year tax-deductible and tax-free, with the restriction that it can only be used for healthcare costs (not insurance premiums) until age 65, at which point the money becomes available for any purpose, still tax-free.
Retirement is probably you main long-term concern. If your employer offers a 401(k), you can put up to $22k in that every year. If your income is $42k, you pay $3200 in OASDI and around $1500 in Federal income tax. Putting $20k in a 401(k) will reduce your declarable income to $22k, your OASDI tax to $1700 and Federal tax to $0, effectively giving you an extra $3000/year to spend/save. 401(k) money is fully taxable when withdrawn, but if you have to withdraw $18k/year (1500/month) after retirement, that is still below the Federal tax threshold (depending on your social security benefits).
For sure, if your employer offers any kind of match to your 401(k) contributions, contribute at least enough to get all of that match. It’s literally free money.
Non-employer retirement accounts are IRAs, either Traditional (tax deductible contributions, tax deferred withdrawals) or Roth (taxable contributions, tax free withdrawals), with $6500/year contribution limits. Roth makes retirement planning very easy, because however much you have saved is what you can spend, but they also mean paying taxes on that money today. In your case, at a marginal tax rate of (7.65+12) = 19.65%, that means $1280/year, where, as with the 401(k), it looks like your after-retirement tax rate will be around 0%, anyway. For most people who qualify, traditional IRA is the lower cost solution, even though it increases the after-retirement tax cost.
Finally, I’m not a pro, this is all just information I’ve picked up. If you’re really unsure, it might be worth your peace of mind to find a fee-only financial advisor and pay them a few hundred dollars for a consultation. Think of it like therapy for your financial mental health. They’ll give you completely boiler-plate advice, but they know all this stuff inside and out, and should be able to set you on a good path in just one meeting. Don’t sign up for an annual contract.
I have heard you should make sure your financial advisor is a fiduciary. My understanding is they are legally required to advise you on things that are in your best interests.
Definitely true, although I think this is more of a concern when you hire one on an ongoing basis to manage your accounts. That management leads to conflict of interest between commissions the advisor might earn on particular investments and maximizing return for the client. Fee-only (is supposed to) mean the advisor doesn’t accept commissions, and should minimize the conflict of interest practically, rather than legally.
I think this is actually not true at the moment since the Trump administration removed that rule (?). It seems the Biden administration has a plan to put the rule back as of a week or so ago though. If someone knows for sure I’d love clarification.
Either way I wouldn’t bother with a fiduciary at the moment unless you have a very complicated retirement setup. Retirement planning is something you can easily learn by yourself by following standard “Boglehead” principles (the strategies everyone in this thread are suggesting). If you get very close to pulling the trigger and are uncomfortable you could check with one just to make sure everything is in order, but you don’t need their advice on “picking stocks” or where to put money etc.
I have no idea myself, was just throwing out what I’ve heard. But thanks for the extra detail!
Thank you. I am implementing everything you said, I will just weed out a couple things that are irrelevant to me,
first of all my healthcare is completely covered as a military veteran,
second I will never hire another financial advisor after my experience with Edward Jones a few years ago who cared nothing about my “financial mental health,” (which I urgently needed help with at the time), they only cared about how my money was helping them.
I trust people like you on Lemmy more than I will ever trust a paid financial advisor. You guys are honest and you always give the same logical advice over and over again, I just need to absorb it, remember it, and do it.
I would add, invest in your health. As a retiree, I can tell you that all the money in the world won’t mean much if you’re too ill or feeble to do the things you enjoy.
Where can you go to find one of these, and make sure they have the proper credentials?
Google is probably your best bet, honestly, but it’s not as easy as I implied. https://www.napfa.org/ is a good place to start. I tried to find one willing to do a one-off consult when I retired. Figured “fee only” would have a business model like lawyers, but most of them seem to be built around annual contracts with fees based on assets (1+%), which generally means that their target market is people with at least seven figures liquid wealth. At least in my MCOL urban market. There may some good options, or courses, for normal humans associated with a local university or community college.
Astonishingly, to me, a lot of the financial planners I contacted were fully subscribed and not accepting new clients. There are a lot of people out there ready to spend $10,000+/year for the reassurance of a quarterly meeting with a CFP who’s almost certainly not getting them $10k/year in tax savings or investment return. Definitely not improving tax savings by that much in the second year over the first year.
I mean, I’m a numbers guy, so I’m totally comfortable with exponential growth, uncertain returns, and tax models, even if I don’t know all the legal loopholes. To me, the CFP is most useful for knowing those loopholes. I know enough people who are intimidated by calculating the tip at a restaurant to understand the value a financial planner subscription brings, but the fees for apparent effort absolutely blow my mind. Even famously low-fee Vanguard offers a personal advisor service, for 0.3% of assets, which is basically a human to plug your numbers into their robo-advisor.
The most interesting part for me would be how much those subscription advisors may be held liable if (when?) they screw up and make you a huge loss in addition to already big total you’ve spent on them over the years of advising.