Expert: Paul Henneman - 5/3/2007

Question
QUESTION: I contribute 3% and my work contributes 9% of my gross pay into a 401K type retirement.  Is this considered a fair retirement comparable to most companies?  

Also, at the age of 25 if I put $4000 into a Roth IRA annually until the age of 60 years old along with my 401K listed above would this enable me to live a comfortable retirement?     

ANSWER: Mark,
   Thank you for your question!
   Yes, if your work is contributing 9% of your pay to your retirement account, this is truly excellent. You are in a much better situation than most.
   If this is enough to live a comfortable retirement is almost a certain yes, but it does depend upon what you consider 'comfortable' and also on how much return your funds in the retirement get.  I strongly recommedn that you visit this link:

http://www.ici.org/cgi-bin/calcs/SAV14.cgi/investment_company_institute

This is a basic calculator where you can enter in how much you have in your retirement account now, how much you are adding each month, how many years you have until you plan to retire, and the expected return of your investments. It will then show you how much you will have at retirement. You will probably be shocked to see how much the amount will be, most  people do not realize how large investments can grow given enough time.
At 25 years old you have a huge advantage. The longer your investments work for you the better off you will be, and you have 35 years until you reach 60. That is excellent.

Regarding what figure to enter into the expected return each year: Market averages are about 10% so that is a good number to start with. If you pay attention to your investments, research, and actively manage your account you may do a bit better than that. Next try 15% and see what the effect is. A third number to enter is a very conservative number, if you do not want to take any risk, try 8% for this number.

If you add to your 401k an additional $4,000 into a Roth IRA, you are going to find retirement will not only be comfortable for you, it will be a luxury.

I hope that this helps. I congratulate you on your early thinking on your retirment, as you will see you have a huge advantage for doing so.  You have also apparently resisted the temptation by many young people to spend every dollar they make. Keeping a realistic budget and life style to allow for this level of investment now will pay off BIG in years to come.

I hope this helps! Please do not hesitate to follow up with me if I can be of any additional service.

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com

---------- FOLLOW-UP ----------

QUESTION: Which Roth IRA company would you suggests for the best all around target mutual retirement fund?

Answer
Thank you for the follow up question!
A Roth IRA is not really a company, it is a type of account. This means that you could set up your Roth IRA account with just about any trading or financial advisory service. The online trading services certainly have the lowest fees. The ones that I am most familiar with and could recommend are www.FOLIOfn.com, www.Scottrade.com, and www.Etrade.com

It is fairly simple to set up a trading account for each of the above, but be sure to set it up as a Roth IRA acocunt. This should be a simple option during the set up process.  All of the above also have good customer support, should you need to call in for any questions while setting up the account. After the account is set up, you will need to fund it by sending in a check or performing a wire transfer to get funds into the account. The maximum contribution for a Roth IRA is I believe $4,000 per year currently, so do not send in more than that. Then next year you would send in another $4,000. You do not have to send it all in at once, you could start with whatever you have available and send in additional funds up to the $4,000 maximum each year.

The final step, once you have your account funded, is to buy some investments. For example a mutual fund, or some stocks, or Certificate of Deposits depending upon how much risk you are willing to take and what type of returns you are after.

I hope this helps! Please do not hesitate to follow up with me if I can be of any additional assistance,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com