Temporary employees lack the savings resources available to permanent employees such as 401(k) programs and company sponsored medical plans. This year, I was fortunate enough to have worked enough for an employer to participate in its 401(k) plan [no matching contribution]. Within a few weeks, I had painlessly contributed $2,000 in pretax earnings to the plan before the project ended. Now I am back to square one in establishing enough working hours to become eligible for an agency's 401(k) plan.
Watching that little bit of money accumulate had encouraged me to start contributing to a plan of my own. Many advisors insist that all credit card debt needs to be paid off before saving for retirement. My stance is that it could take years to pay off debt, yet there are only a finite number of years that someone has to save for retirement and money needs time to grow.
I view my debt as a long term situation and the best way for me to deal with it and take control of it is to learn how to live with and manage it. I feel more in control when I acknowledge my debt and continue living my life.
I decided to open an account with an online brokerage (E-Trade) and made small weekly post tax contributions to it. Choosing between a Roth IRA and a regular IRA was difficult and I decided to go with the Roth IRA. At this point in time, I am eligible to contribute to a Roth. I am optimistic that one day I will make enough money that I will not be eligible to contribute to a Roth IRA, and I imagined my rich self would look at my poor self in consternation over the decision to forgo complete ownership of the proceeds of a Roth IRA for a tax deduction that would result in a $100-200 more return from the Federal government.
I chose an index fund that permitted an initial IRA investment of $250. This was a no load, no fee fund with a 0.19 expense ratio (SVSPX- SSGA S&P 500 Index). I felt that it would be better that I get my small contributions working for me as soon as possible. Most of the Vanguard and Fidelity funds require $3,000 initial investment or $1,500 initial IRA investment. Maybe some people here can advise whether it would have been better to wait longer to accumulate more money and invest in a Vanguard/Fidelity fund.
I still have credit card debt and student loans that I am very slowly chipping away at. Maybe I should have contributed to my credit cards/loans as opposed to retirement, however I feel a little more secure and happier when I look at my little account.It's a step towards a brighter future.
---Edited to add fund and online brokerage specifics--- Thanks Petunia
Retirement Choices
July 24th, 2013 at 10:28 pm
July 24th, 2013 at 10:48 pm 1374706097
Also, please mention where you were able to do this. Sometimes newbies ask where they can get started, so it would be good to know.
I think personal finance is personal. If it makes you feel better to have planted some retirement seeds, good for you. The important thing is to keep working towards your goals.
July 24th, 2013 at 10:54 pm 1374706489
From what I understand, there are a number of online brokerages that allow people to open accounts with nominal funds and they waive fees for IRAs. Ameritrade has a similar program to E Trade. I just picked them because Kiplinger's liked them.
July 25th, 2013 at 04:11 am 1374725504
July 25th, 2013 at 02:27 pm 1374762458
My take is that retirement plans and work health insurance are way over-rated. We don't have those benefits either and are doing just fine.
401k plans come with limitations and fees. Funding a ROTH is wise, and it sounds like you did good keeping expenses low. If you need to save more, just do it in a taxable account. Investments are taxed very favorable (kind of a "wealthy tax break."). We don't even pay taxes on our investments, because our income is low enough. You may be in that boat. (Which makes taxable investing preferable to a 401k. 401k have less choices and lots and lots of hidden fees). All of the above said, if you are ever very high income, and jobs are more plentiful, take the job with the 401k or the profit sharing (Retirement) plan. At a high income, the tax break for 401k contributions will become more valuable. It's still important that the plan is not dragged down by fees and lack of choices. (I had a very generous work retirement plan for a time, but it was heavy in fees and mostly invested in bonds. I am doing *so much better* without it - I am surprised how much, since it was a significant part of my compensation. But having 80%-ish in bonds wasn't doing much for me in my 20s).
Just another way to look at things.
July 25th, 2013 at 02:31 pm 1374762680
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