4 ms·

> I have cash in the bank of more than a year's worth of my current salary BUT, zero saved for retirement Just out of curiosity, what's the difference between

> I have cash in the bank of more than a year's worth of my current salary BUT, zero saved for retirement Just out of curiosity, what's the difference between money in the bank and money for retirement? Should the retirement money go into a dedicated (investment? pension?) fund? Can't they be your savings that you manage by yourself? I'm asking since I was raised with a different background with pension in Europe being a very different concept from the US.

blang 8y ago
I imagine they mean not in a retirement account that has restrictions (penalties for drawing money out early) but also has tax benefits
- mjevans 8y ago
  Precisely that, as far as I am aware* (and I am not a financial adviser) the tax code in the US does not understand a mostly or easily liquid account that will only be touched for major life "investments" (such as a house) or during 'crisis' such as medical or employment hardships.
  - rryyan 8y ago
    IRAs do have exceptions to the early-withdrawal penalty for just the sort of reasons you note: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions https://www.irs.gov/retirement-plans/plan-participant-employ...
    - mjevans 8y ago
      With limitations on the contributions at once and also on the withdrawal (first time home buyers (semi-ok), 10K USD limit - you call that a down-payment?)... Yeah this is just some silliness and I don't understand why there are so many different types of vehicles. It seems like there should be a given list of things that are OK for any tax exempt or deferred use, and I don't see why artificially limiting the case of that use is a good thing for society. The exception should be based around one of two concepts. Either "investing" pre-tax, and being taxed when pulling from the pool, or post-tax and being allowed to spend for allowed uses without any tax. Any profits should be forced to go back in to the same type of pool. Given the fact that taxes are assessed at some point, transferring (at current taxes) from the not-yet-taxed pool type to the already-taxed type should be allowed.
bluGill 8y ago
Risk/rewards. Banks implies low risk investments that also have low reward. You need some of this as emergency backup - if a big bill comes in. (Big bill could be unexpected like a job loss where you have to buy food from savings, or could expected like where you are putting a little extra away for a vacation) Investment/retirement implies long time, you can afford to take a large risk because the reward is worth it long term. Stocks historically average 10% any 20 year time, but in that 20 years there are some years where they drop 20%. It works out in the long run, but you better not have near term savings in there because you can't know for sure that your money will be there.

blang 8y ago

I imagine they mean not in a retirement account that has restrictions (penalties for drawing money out early) but also has tax benefits

mjevans 8y ago
Precisely that, as far as I am aware* (and I am not a financial adviser) the tax code in the US does not understand a mostly or easily liquid account that will only be touched for major life "investments" (such as a house) or during 'crisis' such as medical or employment hardships.
- rryyan 8y ago
  IRAs do have exceptions to the early-withdrawal penalty for just the sort of reasons you note: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions https://www.irs.gov/retirement-plans/plan-participant-employ...
  - mjevans 8y ago
    With limitations on the contributions at once and also on the withdrawal (first time home buyers (semi-ok), 10K USD limit - you call that a down-payment?)... Yeah this is just some silliness and I don't understand why there are so many different types of vehicles. It seems like there should be a given list of things that are OK for any tax exempt or deferred use, and I don't see why artificially limiting the case of that use is a good thing for society. The exception should be based around one of two concepts. Either "investing" pre-tax, and being taxed when pulling from the pool, or post-tax and being allowed to spend for allowed uses without any tax. Any profits should be forced to go back in to the same type of pool. Given the fact that taxes are assessed at some point, transferring (at current taxes) from the not-yet-taxed pool type to the already-taxed type should be allowed.

bluGill 8y ago

Risk/rewards. Banks implies low risk investments that also have low reward. You need some of this as emergency backup - if a big bill comes in. (Big bill could be unexpected like a job loss where you have to buy food from savings, or could expected like where you are putting a little extra away for a vacation) Investment/retirement implies long time, you can afford to take a large risk because the reward is worth it long term. Stocks historically average 10% any 20 year time, but in that 20 years there are some years where they drop 20%. It works out in the long run, but you better not have near term savings in there because you can't know for sure that your money will be there.