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Long-Term Financial Goals

December 22nd, 2007 at 02:57 pm

Wow, thanks so much to everyone who posted on my first entry. It really means a lot to feel welcome right from the start.

I guess a good second entry might be to set some tentative financial goals. I'm open to any suggestions and feedback on these.

Goal #1: Have enough money in my 401k and Roth IRA to live on for the rest of my life when I retire.

Kentucky teachers draw a pension after they have taught for 27 years. The pension system is a pretty good deal; you draw 60% of your max salary for the rest of your life. If I stay in the classroom, I'll draw somewhere around $40,000 a year from my pension for the rest of my life. Now, that seems like a good deal, especially if you have a nice stash in your 401k and Roth IRA, but I know enough to know that I should NEVER bank on a pension system of other form of group benefits. Those things are at the mercy of politicians and other types who wield far more power than I do. I need to be prepared to financially stand on my own two feet when I need to retire.

Goal #2: Figure out how much money I will need in my 401k and Roth IRA to meet Goal #1.

Does anyone know how I can go about doing this?

Goal #3) Have absolutely no debt.

This is a really long-term financial goal for me because I have just started accumulating debt. I got through my undergrad without acquiring any debt, but I have had to start taking on some since I started my M.A. I am nursing a car that my parents gave me a long time ago, a 1997 Mercury Sable, so I'm going to need a new car within a year or two (I'm thinking of buying a certified, pre-owned Honda Civic). That will put me farther in debt. Then, I'd imagine that Q (let Q = my fiancee) and I will be looking for a house within five years or so. All of these things are not bad debt. Still, they are debt.

Many of you have much more experience with this stuff than I do; please let me know what you think. Offer suggestions because they are more than welcome.

5 Responses to “Long-Term Financial Goals”

  1. Ima saver Says:

    I started off saving a minimum of 10% of all I made for retirement savings. Then I set up savings for a down payment on a house and started a car fund.
    whenever I pay off my car, i continue making the payments back into my car fund, so I can have a good down payment on the next car! (Or pay cash)

  2. fern Says:

    Wow, i wish i was as focused on long-term financial planning as you are at your age!

    As for deciding how much you'll need saved for retirement, there are dozens of calculators out there. Yo could do a search for "retirement savings calculators" online or go to the website of your favorite mutual fund family, if you have one, like Fidelity or T. Rowe Price. Many of them, including these, have retirement calculators. I like the one at the CNN/Money website.

    The general rule of thumb is that you should count on needing 75 or 80% of your current living expenses in retirement, based on the fact that some expenses, like commuting, clothes if you have to dress up and your mortgage payments will probably disappear when you're retired. Some people debate that assumption becus it really depends on what kind of lifestyle you see yourself leading in retirement. If you think it might involve starting your own business or extensive travel,for instance, that could put that 75 to 80% of current living expenses assumption completely out of whack.

    It's really fantastic that you're thinking of this stuff now when you're so young. It means that if you CONSISTENTLY save for retirement starting NOW, it will be a lot less painful getting to the point you want to be. If you can afford to sock away 15% in your 403(b), by all means do so. There are just SO many variables that could take you by surprise, such as unexpected accident or illness that keeps you out of work for a while, job layoffs, changes in the stock market or inflation that none of us can predict, uncertainties about the whole health care system and Social Security, etc. And we're all living much longer. So basically i'm saying don't curtail your savings if you can afford to contribute the maximum to both 403(b)s and IRAs each year. If you plan to have a family, multiply all costs by X. You know what i mean.

    Using myself as an example, I've been working full-time for more than 25 years. During that time, i've been laid off due to office closings, office relocations or just downsizing a total of 4 times now. Depending on how the economy was doing when i was laid off, it took me as little as a month to find a new job or as long as a year. Remember that while you're laid off and looking for a new job, all retirement plan contributions come to a grinding halt, so that's lost savings. That's another reason to always contribute the maximum if you can. Consider it 'paying yourself first,' like they always say you should do.

    My personal retirement savings goal is $1,000,000. My current savings, excluding my home, are about $435,000. So I have a way to go. If i include the value of my home in my total net worth, I'm up to $800K+, but i don't think you're really supposed to do that. I plan to retire 'early', at age 60, but i also want to continue working part-time for 5 years, until i am age 65.

  3. fern Says:

    Just one more thought. I am debt-phobic like you, but ironically, you need to incur debt in order to qualify for lines of credit if you ever want to buy a home that needs to be financed, get a car loan etc.

    Your FICO credit score considers the ratio of your total outstanding debt compared to your total credit line. It also looks at your payment history. If you have no history, lenders will be afraid to loan you money cus you have no track record.

  4. boomeyers Says:

    Don't ever be afraid to talk to a financial planner. They can give you a good indication of what you need to do for the future savings. The hard part is finding a good one that does'nt just want to sell you something that will get him a bonus trip to somewhere. Talk to your parents and some of the older teachers at school and see who they use.
    Start a small savings account now for your car. You can put down a good down payment and even finance a part of it even if you have the money in savings, just to establish your credit like Fern said.
    You can start laying the groundwork for buying a home too! Figure out what area you would like to live in, the going rate for homes there and then you can start saving for a nice down payment for that too.
    Good luck!

  5. Broken Arrow Says:

    I think those are very admirable goals. I wish I was like you when I was only 22. I wonder what made you this way?

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