Rama

"If you think saving for retirement is hard, try retirement without savings."

OnCenterline

^^^^^This is the essence of what I was trying to say. So many people get within a few years of retirement only to realize how unprepared they are, because for decades it was "so far away."

And then it isn't...

Packrat

Fortunately, I maxed out my 401k contribution from the time I started and now have a healthy nest egg. The financial advisors I used are extremely airline program savvy at an outrageously low cost.

PM me for details.

deltajuliet

First, I just wanted to say there's some great information in this thread and thank everyone for their contribution. A lot of you guys have given me great information on a number of different forums here, and you're great for it.

So this is why people often spoke of "losing their retirement" following 9/11 and the 2008 recession? As I understand it, this money is protected even if your airline goes out of business, but a downturn in the economy will significantly lower its value. There's no option to treat it simply as a savings account with zero risk?

You're suggesting living off the interest? Are those dollar amounts or percentages viable to achieve? I always imagined it as saving, say, that $4,000,000, then dividing it by 30 to live off for the next 30 years.

John Carr

Sort of. Depends on the context and of which plan the person is/was talking about. Usually when someone says "I lost my retirement" it's usually in the context of the defined benefit (which was already grossly underfunded) being canned during the bankruptcies. So all that money that was "promised" to the pilot was simply a liability that was shed. With many carriers simply handing it over to the PBGC. Keep in mind, many of the define benefit plans were "promised" to be worth into 6 figures. So had some of these guys got their defined benefit plans, they'd be retiring at over 100k/yr, toss in social security and and military retiree and it wouldn't have been too shabby. At least, till all the ex-wives get it

It's "protected" in the sense that it was an ACTUAL contribution made by the employer and put into the plan, not just a promise. So basically, yes. After that it's subject to whatever investment elections might be available in the plan, market fluctuations, or taking a tax hit on a withdrawal, whatever.

Usually, the ONLY way it's not "protected" in the sense of being your money is if there was a vesting period on the company's contribution and the person quit/left the company.

In a previous life, I worked about 4 years and 10 months till being furloughed. The 100% vested point was 5 years. The company went out of business about 10 months after my furlough. My 401k sat there till the shutdown. In that case, I got 100% of the company's contribution, even though I didn't make the full 5 year vesting point. Had I pulled/rolled over when I was furloughed at just shy of 5 years, I wouldn't have.

Although living off JUST the interest in retirement would be ideal, most people it will be a combination of both. With principal amount slowly declining over ones retirement till passing. Especially with things like inflation and COL increases etc. Which always leads to a funny game with yourself of "how much will I REALLY need/how much is TRULY enough?", etc.

OnCenterline

When it comes to money, there is no such thing as "zero risk." Even if you do nothing, it will begin to lose value due to inflation or interest rates. The rates a bank pays you for interest will never match what the stock market can, and usually don't even match inflation. That's why you should spend the first 20-25 years of your career investing aggressively--and taking chances on losses--and then slowly decrease the ratio of stocks (riskier) to bonds (more conservative), so that when you retire you have the best possible chance of minimizing any losses.

As for living off the interest, yes, this should be your first choice and will always be your best plan. That way, you can continue to grow the principle, and you don't get into the "do I have enough?" scenarios mentioned earlier. But, you may have no choice but to live off the principle if you don't save enough.

Here's an example. I flew with a guy at a regional who was a year or so from retirement. He had $500,000 in his 401(k). If it earned 5%, he would have $25,000 in actual income each year, plus Social Security, which would give him an actual income of around $55,000 pre-tax, and didn't take into account any possible health expenses. Bare in mind that this guy was making $100,000 as a captain, so he would definitely be taking a pay hit. And what if his return on his 401(k) dropped to 3%? I couldn't convince him that he was as loaded as he thought he was.

If he starts digging into the principle, his retirement will be a bumpy road indeed.

Something that most don't think about is that you want to have your mortgage paid off well before retirement, along with cars, your kids college funds, other toys, etc. If you can pay your house off 10 years before your retirement (or more), then you can invest that money towards retirement.

It's good that you are asking this stuff now. Go buy a copy of "Personal Finance for Dummies." It's a great book for someone just starting out.

PotatoChip

Great advice from everyone and a worthwhile thread. If we can continue the good info, it should a "sticky" somewhere.

Save/invest when you can for sure. I'm low 30's and already on my fourth airline. I've seen good Paychecks, the $1,500/month kind, and the unemployment line and even with all that have about $100,000 invested.

I'd like to hear more about people's opinions on Roth IRAs. With current govt trends it seems like getting taxed now might be better than getting taxed later...

billythekid

I think we all agree we will get taxed more in the future, so the Roths by far the way to go.
Pay off debt, pay off your house, and save 25-30k in the 401ks, ira's, health savings accounts, and anything similar. By the time you are 40-45, you'll see that you're making 8% a year on and that the interest/dividends is compounding nicely (especially in a good market).
Read all the books on investing you can, or get professional help. Remember than all knowledge is cumulative. Lessons learned on your investing failures that lost you 20% of $5000 today may save you 20% of 500k in twenty years and 20% of 5,000,000 in fourty years.