Sigh . . . I never paid too much attention to the concept of building retirement income until about 9 years ago, when I took on a state position that paid a pension after 10 years of service. Then, with Covid, I was permanently laid off with only a year to go to earn my pension.
I have minimal debt, (auto loan almost paid off) about $400,000 in real estate equity and savings of about $12,000 that I am considering using to start a Roth IRA. I don’t have the stomach for playing the stock market. I have a 3 year contract in a very good position, and am also doing part-time work for another company that I plan to keep doing for another 8 years or so, so there will be some earned income coming in for a few years into the future. I love the work I do, so that’s not any kind of burden, and I can work from home.
I know the time frame is too short to expect sizable gains in an IRA. But it is too late to have some advantage from doing so? I believe the maximum contribution is $7,000 so that limits my potential savings over 8-10 years to a max of $70,000. What range of gains might I expect to make from, say, a Vanguard Roth IRA?
Or is there a better way to start socking away retirement funds at age 67?
It is never too late to start retirement savings !
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Jeremy has steps laid out on his home page
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He would suggest taking your 12k funds and take 1mo of your expenses set aside for emergency fund (car payment, mortgage, bills etc.)
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step 2: invest in 401k/403b up to company match ( if they offer it) it is a 100% return with the match (no brainer), if not move to step 3
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step 3: Pay off car loan with remaining amount, If you still owe, get aggressive and pay it off quickly.
You have a car note with interest, plus your car is depreciating in value, so its a loss/loss
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step 4: rebuild emergency fund. The amount will depend on job security, 3-6 mo. is average Since you have a contract with work, you can do 3 months, but I like to be safe and always have 6 mo of expenses since I have a little one and another one on the way!
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step 5: max our Roth IRA.
As far as funds, you can do a target date based on retirement age that will auto balance based on retirement age. The older you get, the more conservative it will be.
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VTTVX would be if you are considering retiring in the next 5 years
VTHRX would be " " " " " 10 years
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Im assuming VTTVX would be the one you would want.
Looking at the returns (avg 7.5-8.5% for these funds)
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So if you do 585/mo. (~7k / year), at the end of 10 years, you will contribute 70k and your growth will be 33k, so your total value will be just over 100k (the 30k being tax free)
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NOW FOR PENALTIES
I believe you need to have your Roth account for at least 5 years to avoid paying tax on earnings when you go to withdraw
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You can always pull out your principle (amount you put into the account tax free)
If you withdraw earnings before 5 years of opening the account, you pay ordinary income tax (on the earnings)
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If you withdraw after 5 years of opening account, then you won’t pay any taxes on earnings.
Hope this helps !
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Jeremy also has a new calculator on his page so you can play around with returns.
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He also has some posts about lump sum vs monthly. You generally make more money if you invest all 7k at beginning of each year vs spread out monthly over the year. His example is that someone investing 6k a year over 30 years, the person who does the max amount Jan 1st will have around 100k more then the person who does monthly, but both individuals will have over 3 million in retirement accounts. So in retrospect not a huge difference but something to think about.
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His main point is to invest early and often, spend less than you make and invest the difference!
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Hope this helps !!
