Meyers Wealth Management
After many years working at the institutional level with very large-scale portfolios of bonds and structured securities, David Meyers set up Meyers Wealth Management in order to work with individuals, families and small businesses.
He started at Salomon Brothers in New York in 1993 and spent several years modeling complex structured fixed-income products, particularly focusing on mortgage-backed securities and the prepayment models. Since then, he's had various roles at a hedge fund and two institutional money management firms modeling securities and portfolios and focusing especially on risk management and quantitative measurement of security and portfolio performance.
In 2008, he established Meyers Wealth Management as a state-level Registered Investment Advisory firm in Massachusetts and in 2009, moved to Palo Alto, California.
BS, Applied Physics, Emory University
MS, Applied Mathematics, Georgia Institute of Technology
RMDs generally need to take place sometime in the year in which they are due.
They are computed based on the previous year-end value and current year's age.
So, her 2018 RMD will be based on the 2017 year-end value, and the age she reaches in 2018 (71, actually).
In the very first year, and only that year, you may put off that year's RMD until 4/1 of the following year. But that would mean that in 2019, she'd have to take *two* RMDs - her 2018 RMD *and* her 2019 RMD. (That can be a useful strategy if 2018 is still a high-income year, but otherwise, there's usually little reason to do this).
Additionaly, you mention both IRAs and 401(k)s. The rules are a little different between the two.
RMDs are due from all traditional IRAs starting in the year you turn 70.5. They may be added up across all IRAs and taken out from any combination of them (i.e., if you have multiple accounts, you can add it all up and take the actual distribution from any one).
No RMDs are due on Roth IRAs.
401(k) *and* Roth 401(k)s both have RMDs computed the same way as traditional IRAs -- except (a) if you're still working for that employer and not a >5% owner -- you do not have to take RMDs; and (b) unlike traditional IRAs, there is no multi-account aggregation -- if you have multiple 401k plans from multiple former employers, you need to take individual RMDs from each one separately.
Moreover, if you are going to roll a 401k into your IRA and you're subject to RMDs -- you need to take the RMD *before* you can roll the remainder over.
Finally, the rules are quite different for *inherited* IRA and 401(k) accounts. Too much to get into here, but I strongly recommend reviewing your personal situation and details with a professional and checking in with the sponsors of the plans as well.
12 x $800 = $9600.
$9600/50,000 == < 20%
There's no reason something worth $50,000 couldn't pay out $9600 each year for 5 years. You could stick $50,000 in an FDIC insured bank savings account, earning less than 1% and pull out more than $10,000/yr.
In fact, if the numbers you've posted are correct, you're earning not only less than 4% interest (over those five years) but actually *losing* money over those 5 years.
If they're projecting the 4% growth between *now* and when you're 60 -- presumably a long way off -- that's not a terribly surprising figure. You can investment grade bonds which yield around that right now. Just for reference, a certain long-term corporate bond index fund -- with a duration of around 14 years and an average (current) bond maturity (within the diversified portfolio) of around 24 years -- is showing a current SEC yield of over 4%.
As you said, there are a lot more factors here - what are the terms of the contract, does it have other payout options, etc. etc. As well as issues about yourself -- how old are you now, how long a way off is 60, and how much are you putting in now (or are you putting in the money a bit at a time over many years), etc. etc.
So - no - with what little you've given - those numbers don't look terribly surprising at all. If you have any concerns, contact the annuity company and/or the person who sold it to you and ask for more clarity and illustrations of how they come up with the numbers.
Unfortunately, it sounds like your plan has very high expense funds. That's not terribly uncommon for plans run by smaller employers -- though it may be worth letting the employer know that even small employers can get excellent plans with lower expenses than that and it'd be to the benefit of everyone -- including management -- to do so.
That said, it's almost always a good idea to at least contribute enough to get the full match. It's hard to imagine a plan so bad that it's worth ignoring free money.
However, once you're contributing enough to get the maximum employer match, it may be worth investing /outside/ the plan if you still have available funds to do so. You can contribute to a traditional IRA (and may or may not be able to deduct those contributions) -- or, depending on your income, you may be able to contribute to a Roth IRA.
If you're already contributing enough to get the full match -- and you're maxing out an IRA or Roth IRA -- and /still/ have some funds available that you can put away towards retirement -- then you have a trickier question -- do you put that additional money into the unfortunate employer plan or do you just invest it in a plain old taxable account.
There's nothing wrong with investing directly in a plain old taxable account, but you do lose out on some advantages of retirement plans, particularly with respect to (a) rebalancing a taxable account has tax consequences; (b) taxable accounts may be more at risk to creditors (i.e., if you go bankrupt); and (c) if at some point you're applying for financial aid for college for yourself or your kids, retirement accounts are generally not counted but taxable accounts are considered to be availale and may reduce aid you get.
Even with all that -- it may still make sense to max out the employer plan -- because unless you stay with that employer forever, you'll get an opportunity to roll that money back out later on either to a future employer plan or to an IRA. So any year that goes by that you don't max out 401k plans is a lost opportunity. And, again, you may be able to help yourself and everyone else at your company by getting the employer to choose a better plan, too.
Note that I'm not addressing any specific investment choices here - growth fund vs target date fund, etc etc. There are way too many other factors to consider and nowhere near enough information about you and your situation to give specific investment advice like that.
[Usual disclaimer - this is not investment advice. Your situation is unique and I highly recommend consulting with a fee-only financial planner, if you can find one who works by the hour, that may be a great arrangement, to get advice specific to your situation. This is just general ideas and intended for educational purposes.]
Unfortunately, you've not provided much information or context here, so please bear in mind all I can do is offer some general ideas.
The sooner you start saving for retirement (and other things), the better. Time is your biggest ally. It's what makes compound growth really powerful , the longer the investments have to grow, the better.
If your employer doesn't provide a 401(k) (and sometimes even if they do!), you should consider saving for retirement on your own, outside of your employer and, again, depending on your income, your taxes, etc , a Roth IRA may be a terrific choice. Money you save in a Roth IRA is "after-tax" money. You don't get a tax break for putting the money in there, but you do get the benefit that the money in the Roth IRA, if invested well, will grow and eventually, when you take the money out to spend it, you generally won't owe any taxes on all the growth.
As to the issue of "does it grow," the thing is that an IRA, a Roth IRA, etc , is not an investment itself. It's a kind of *account*, and what you put *in* the account is what grows. Think of them as containers. So, if you open up a Roth IRA, you then have to decide what investment to put into that Roth. You deposit cash, and unless you do otherwise with that cash in the account, the cash likely won't grow much at all. But, depending on where you open that account, you'll have a wide array of investment options. You can open your Roth IRA account at a brokerage such as Schwab, Fidelity, E*Trade, Vanguard, TD Ameritrade, Scottrade, etc. You can also open it directly with a mutual fund company (again, Fidelity, Vanguard, etc). And where you choose to open it will likely be based on how you want to invest. A brokerage account probably gives you the most flexibility, typical accounts at those places allow you to buy any of thousands of mutual funds, any stock which trades on the stock exchanges, "exchange traded funds", closed-end funds, bonds, etc. How, or if, your portfolio in that account grows is going to depend on what you buy. But remember to think of the account as a container, and what you put in it is the actual investment.
Aside from the retirement savings, however, I want to mention a couple of other things. If this is your first job and you don't have any other savings yet, as you said "prepare for life," these may well be a higher priority than the Roth IRA:
(a) Cash- you need cash set aside for day-to-day expenses, plus an emergency fund of at least several months worth of total cost of living. If you lose your job, you've still got to pay the bills.
(b) Pay off high-interest debt, especially credit card debt if you have any.
(c) Risk management, i.e., some kinds of insurance may be pretty important, even if your employer provides health insurance, you may want to look into disability insurance (though, again, many employers provide that, too) in case you can't work. If you're supporting a family who rely on your income, life insurance is usually an important piece too.
Anyway, it sounds like you're off to a good start. The fact that you're even here, asking, is a great sign. Keep it up. Spend less than you earn, save early, plan for goals and contingencies.
There are a couple of issues here to consider.
First is whether you can make Roth IRA contributions -- or *deductible* traditional IRA contributions at all.
You don't indicate your income, but you should be aware that there are income limits which affect how much, if anything, you may contribute directly to a Roth IRA. Presumably, your incomes are below the threshold for that.
However, there's another income threshold which applies not to making direct contributions to the traditional IRA -- but whether those contributions will be tax-deductible or not. Since you are employed and your employer has a retirement plan (403(b)) -- if you make traditional IRA contributions, the ability to deduct them starts to phase out for singles at $61,000, for married folks as low as $98,000 (it's more complicated because it depends on whether one or both spouses are covered by plans at work).
That all said, remember a few more things:
(a) $1 in a Roth is worth more than $1 in a traditional -- because when the money comes out of the traditional, it'll be taxed. So maxing out a Roth is, effectively, putting more money away.
(b) If the tax rates are the same now and in retirement, and the money is invested the same way, then on the basis of the same *pre*tax amount, the end result between a Roth and a traditional is identical. (i.e., you earn $1,000. If your tax rate is 25%, you could put $750 in a Roth, or the full $1,000 into the traditional. Suppose it doubles over the years regardless of which account it's in. When you take it back out, assuming that same 25% rate, you end up with precisely the same $1,500 to spend.)
So -- tax rates -- now and in the future -- matter a lot. If you can, you want to plan on paying the taxes when you're in the lowest bracket you can -- if your tax rates are higher now than in the future, you're better off making pre-tax contributions now.
(c) There is value to having tax *diversification* -- meaning assets which are Roth, traditional, and ordinary taxable assets. By having all three, when the time comes for distributions, you can optimize between them.
Lastly, remember that traditional IRAs (and your 403(b)s) have *required minimum distributions* -- you *have* to start taking money out after you're 70 1/2 years old. Roth IRAs do not have RMDs, so if you think there's a chance you won't need to spend the money for a good long time, and you will be able to leave it alone to keep growing -- the Roth may have another advantage in this.
As for whether you itemize or take the standard deduction -- it doesn't affect whether you can deduct the IRA contributions or not. Those IRA deductions -- if you're allowed to take them (see above) -- take place "above the line" -- ie. on page 1 of your 1040, and you get the deduction for IRA contributions (if you're entitled to them) regardless of whether you itemize or take the standard deductions.