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usagi_tetsu 12-05-2012 05:54 PM

retirement basics for Americans
As an NCO in the Army, I try to encourage my troops to plan for their futures, particularly their retirements. Social Security will probably still be around by the time most of us hit 65, in one form or another, but knowing how poorly politicians handle money, I for one am not counting on being able to live off of Social Security. If it can pay the monthly phone bill in 30 years, that'll probably be a win. Otherwise, if you want to pay all of your other bills and not depend on your kids to take care of you, it's probably a good idea to be an adult about it, and save up some of your money now to use later.

As I tell my troops, your best bets are investing in your company's retirement plan (Thrift Savings Plan for you poor "gummint" schlubs, like me; 401ks for the general population), investing regularly into a Roth IRA plan, and other long-term investments. The more money you sock away now, the more money you have to go on cruises and buy stupid cars and generally just pay the bills later in life. You can't buy happiness, but you can get yourself into a nicer retirement home, one that uses actual adult diapers instead of recycled flat-rate shipping boxes from the Post Office.

Why invest in 401k's? Don't they go up and down with the markets? Yes, 401k's and even the government's own TSP are not 100% guaranteed to make you money over the entirety of your employment. However, since you are buying shares of stocks with every dime you put into your funds, as long as you draw the money out on an upswing, you won't realize any actual losses. Plus, since most companies match your investment into their 401k, it's the easiest raise you'll ever get from any employer. Don't forget that the funds you put into retirement investments come out before taxes, you could actually end up paying less taxes and taking home more after-tax money. And 401ks and the TSP get beneficial tax rates if you draw them out after retirement (currently at the age of 59 and a half, but I expect that to go up in the next couple of decades), plus you can take loans out against your investments and all of the money, plus the interest, you pay on those loans go right back into your 401k/TSP fund.

Now, Roth IRAs - basically it's a container you put other investments into and the government only taxes you on the money you initially invest instead of on the money you draw out years later. This is good because the whole point of investing is to make that investment grow, so if you put in $5,000 today and it becomes $200,000 30 years later, it's so much nicer to owe the government taxes on the $5K and not the $200K. Currently, you can put in $5K a year, and starting in 2013, you can put in $5,500 annually. The other nice thing about Roth IRAs is that if you missed last year's investment and it's still before April 15th, you can make an investment that counts for last year's contribution, and then turn around and make this year's contribution right after.

As for what you should invest in, inside and outside of your Roth IRA, there's a lot of arguments out there of what's best. It's best to hire an investment broker (I use Edward Jones, as they are a national company, and have a decent history, but as the commercials always say, prior results are not a guarantee for future results) and let them help you decide, because generally the more money you make on your investments, the more money they make. A diversified account that has government bonds, money market funds, index funds, and individual stocks is about as middle of the road and safe as you can get. Why did I include individual stocks, possibly the riskiest form of investment possible, in amongst all of the safe ones? Life is a gamble, everyone has to have their go crazy money so they feel good about what they're doing and so will keep doing it. And even gambles pay off every once in a while (I made a $1,500 profit off of a $2K investment on Netflix stock a couple of years back... and my Olin - makers of Winchester ammo - stock has done exactly not a whole hell of a lot). Like I said, talk to a paid professional, I'm just an interested amateur, they can tell you more about each type of investment's ups and downs better than I can.

That's what I tell my troops. Feel like I'm an idiot or you have the better investment strategy, be my guest, flame away, but whatever else you do HAVE A PLAN FOR YOUR RETIREMENT. I've met too many people who have zero plans for their retirement, except to either die the day after their employers forcibly retire them or live off of their kids for the next 20 years. Play the lottery, invest in shiny buttons from Borneo, keep your childhood comics in Mint/Near Mint condition (bagged, boarded, and vaulted away from the sun), rob banks, SOMETHING. The earlier you start saving for the future, the longer you have to build up money, and the more enjoyment you are likely to get out of your "golden years".

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