Retirement planning: A target fund for your 403(b)?
Retirement planning could benefit with a tax-deferred and Roth IRA invested in a target fund. Retirement planning question is No. 8 in the reader mailbag.
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Q6: Potential book selling scam
I need to buy some fairly expensive graduate school exam prep books online and the seller wants me to pay through PayPal. After we negotiated on the price a little bit, he asked if I could pay through personal check, money order or by direct deposit into his bank account to avoid the 3% PayPal fee. Is there a potential for scamming through giving an unknown seller a personal check/direct deposit/money order?
The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds – we just want simple ways to manage our finances and save a little money.
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Well, if you pay using that method, there’s no reason for him to send you the books if he’s going to scam you. Your only way to force him to send anything would be via small claims court.
I would never pay someone I didn’t know without using some kind of buyer protection.
Q7: Multilingual children
Do you think there is any benefit to raising your children in a multilingual household? My mother-in-law speaks Punjabi and insists that our children speak it as well. Will this really help our children in any tangible way?
There are some studies that indicate that there are advantages in overall communication skills for children who learn multiple languages during their first few years of life. Not only that, a truly bilingual person tends to have great potential in job markets. I would think that someone who can freely speak both Punjabi and English would have many job opportunities, particularly if packaged with other skills.
That being said, how exactly would you go about teaching your child both languages? Are both you and your spouse bilingual? Do you communicate at home in both languages? If you’re not doing this – or, even worse, if you can’t do this – teaching your child two languages is going to be an extra challenge.
I think if you have the ability to easily teach your child multiple languages during their formative years, by all means do it. However, if doing so is going to add significant stress to your home situation, I’m not sure the benefits overshadow that.
Q8: Roth and 403(b) balancing
I’m 40 years old and finally got around to thinking about retirement savings a few years ago. Better late than never. I have a 403(b) plan to which my employer contributes 5% of my 70K salary. The plan lets me contribute essentially as much of my pre-tax income as I want to–all the way up to 75%. I was contributing 15% for a while but recently dialed it back to 5% so I can more quickly put together the emergency savings fund I’ve decided to create.
My question is about adding a Roth IRA to the mix and how to invest those funds. I have the 403(b) invested in a moderate growth fund through Vanguard but am thinking of changing that to a target retirement date fund. Should I invest the Roth IRA the same way, or is there a reason to invest one instrument more conservatively than the other? I have to admit that I’m pretty skeptical about the stock market and fairly pessimistic about our economy, but I’m willing to tolerate some risk and hope for the best over the long term.
Also, would you suggest that I try to max out my annual IRA contribution if possible, or should I focus instead on the 403(b) and just contribute to the IRA as my cash flow allows? Or somewhere in between?
I think target retirement funds are a great way to plan for retirement. If you’re feeling more conservative, there’s no reason not to invest in a target retirement fund that targets a date earlier than your retirement date.
I see no reason why you couldn’t put both your IRA and your 403(b) into a target retirement fund. You could have one target an earlier date and another target a later date.
As for balancing the two, I would make sure I got every drop of matching money from my employer in that 403(b) before looking at a Roth. If you have all of the matching money already and are looking to save more, I’d put everything into a Roth until I maxed it out, and if I had still more, I’d go back to the 403(b).
Such deals can be found, but how much effort are you putting into deal seeking? Also, how many of those jars will actually be used before their expiration date?
My experience with such deal-hunting has been that there’s a lot of serendipity involved. If you spend a lot of time digging, sometimes you’ll find nothing at all. Other times, you’ll find a great deal like this salsa one.
For me, it’s not worth it to trawl coupon resources for an hour to save $5 on my grocery bill. I’ll do a quick pass to find coupons that match my grocery list, but finding great deals for the sake of finding great deals never pans out for me over the long haul.
My biggest two splurges are board/card games and books. Those are pretty much the only things I splurge on at this point. I guess I do splurge on very nice gifts for my wife and my parents at appropriate occasions. I used to splurge on video games, but I’ve only bought one game for myself this year, so I think that’s not really a splurge at this point.
Once a year, I go to a gaming convention with a few friends. I usually save up for this over a period of months. I consider that to be something of a splurge.
I really don’t do any impulse buys that I can think of, though. I’m the type of person who will sometimes put “breath freshening gum” on my grocery list, but without an item like that on the list, I won’t buy gum in the checkout aisle.
Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.
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