Category Archives: Retirement

Annuities are FUCKED UP… aren’t they?

As the resident personal financial advisor for my family (despite that I have no idea what I’m talking about half the time), I’ve jumped into understanding my parent’s financial situation (the good the bad and the ugly) as I will have to help my mother manage her finances for the rest of her her life once my father is gone. He may live longer than her but she is relatively healthy right now and he has terminal cancer, so it’s likely I will be the only person able to really help ensure her quality of life since she understands zilch about money.

My parents are doing ok financially – not great – not as good as they should be doing given how much my father earned throughout his life — but they overspent and now they’re left with about $300k in retirement funds and $400k in real estate, give or take a few hundred thousand since I can’t get a straight answer from my father (who unfortunately doesn’t like to talk about this stuff because his go-to answer about any important financial question longer than a few years out int he future is ‘i’ll be dead then’). Continue reading

Congrats to 1500 Days to Freedom on Early Retirement…

I’m kind of sort of part of the personal finance blog community. Kind of sort of as I write way more about my mental illness and its intersection with my finances than specific and actionable financial advice for others. When I started writing this blog in 2007, just a little under 10 years ago, there were a handful of personal finance blogger types who had a strong following, and a lot of folks who had a handful of readers and intended to stay that way. Today, it’s kind of crazy how the personal finance blogging community has picked up and become quite the business.

One segment of the community is the “early retirement” folks — the ones that blog about saving money and investing in order to retire, usually in their 30s or, more realistically, 40s, in order to live life on their terms. This week, blogger 1500 Days to Freedom left his FT job with $1.4M in networth. I guess between his family’s frugal living, gains on his portfolio and the lower cost of living in Colorado where he’s based, $1.4M will last him and his family a lifetime. it’s a significant accomplishment, especially at age 40. Strange as it is, I’m only 6.5 years away from 40, and it’s highly unlikely that I will have $1.4M, even collectively with my husband at the time… Continue reading

Are 401k Accounts a Scam?

I’m no financial expert, but I try to follow the basic principles of investing and retirement savings in order to hopefully not be dirt poor in old age. One of these principles has been to consistently max out my 401(k) each year, which I’ve done faithfully now for many years, ever since I finally had access to a retirement account at work. As soon as as started making too much money for a Roth IRA, I socked away $18k a year in my 401k… and now, between all my pre- and post-tax retirement accounts, I have about $235k locked away, compounding over time.

However, after reading more propaganda on 401k investing, I started to suspect something fishy is up. Most of the anti 401k content focuses on issues with high fees — which, indeed, are a big problem with 401ks. But, really, the most suspicious piece of messaging out there on the benefits of the 401k is that you don’t have to pay taxes now so you get the “benefit” of paying them later. Continue reading

Joining J. Money’s Million Dollar Club

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Today, I’m taking a pledge and – being one of the last to the party – to join J. Money’s Million Dollar Club. I’ve already unofficially been a member since I’m working towards $1M (well, $2M is my financial freedom money goal) but this makes it all more official. Plus, hopefully he’ll add me to his fancy list. I like lists.

I would like to become a millionaire by the time I’m 45 (or sooner) independent of any wealth my husband is accumulating. This puts me well on my way towards $2M+ in individual networth AND means that when my (hypothetical) children are in their pre-teen and teen years I can be more flexible with my career and actually see my kids before they’re out of the house, married off, and spending time with kids of their own (tear. boy do they grow up fast.)

In order for me, Her Every Cent Counts, to become a millionaire by 45, I pledge to do the following:

1. Invest an average of $5000 per month for the next 10 years (between taxable accounts and retirement accounts)

2. Max out my 401k each year for the next 10 years (or every year I have access to a retirement plan through work) even without match (because let’s face it I’ll never work for a company that offers a match.

3. Live in my 1 bedroom rented apartment with Mr. HECC for as long as possible (i.e. until our first child is two) even though I would much prefer to live in a 2-3 bedroom house. Only buy a house after I have $750k-$1M saved for retirement that I don’t need to touch, so it can grow to $2M by the time I retire.

4. Continue to drive my used 2011 car until it dies (but invest the appropriate amount into keeping it in good shape.) Never buy new cars.

5. When possible, increase my monthly savings beyond $5000 (for instance, I can save up to $7000 right now per month if I’m extremely frugal) but don’t let being “ahead” of my net worth goal at any moment in time change my savings rates.

6. Put aside any additional income (bonuses, tax refunds, extra income) into my investment accounts.

7. Find a career that enables me to consistently save $5000 per month for the next 10 years (which means that I can’t go back to grad school unfortunately so I likely have to stay in my current career and just learn to suck it up.)

8. Gain skills and keep up to date with latest skills to become highly valuable as a consultant in my industry so I can potentially earn more money working for myself and enjoy my life more.

9. If needed, move to an area of the country with a lower cost of living (but only if I can continue saving $5000 consistently per month for the next 10 years)

10. Invest in experiences only, especially travel before kids and family vacations after kids. Rotate cheap vacations (camping) with fancier ones (Hawaii). Any additional income (if income increases) should be split between savings, “life experience” fund and housing fund.

 

 

 

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Are State Sponsored Retirement Plans a Good Idea: California Secure Plan Bill Passes Assembly

Americans are not saving enough for retirement. In lieu of accepting that the standard fiscal state for the majority of retirees is poverty, some states are trying to help people get their financial acts in order. This week, California became the latest of those states (see what’s happening in your state here), with the “Secure Choice Retirement Savings Program” bill to create a state-run retirement plan for roughly seven million private workers passing the Assembly – one step closer to becoming reality. This would make California the eighth state to establish such a plan.

There are 55 million workers who don’t have a way to save for retirement at their workplace, and of those, only 5% take the steps to open an IRA, according to the AARP.

Continue reading

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A Brief History of Retirement and the Social Security Crisis

Ah… retirement. That time in life when you’ve worked hard for long enough to “deserve” time to sit back and relax – maybe play some golf, or take classes to reignite an old hobby, or travel the world. Today retirement is so engrained in our culture as a natural phase of life that it’s easy to forget that it is a very modern concept.

In 1881, Otto von Bismark, a conservative minister president of Prussia, came up with an idea to have older adults not have to work to the very last second of their lives. Eight years later the German government started to provide a retirement system for anyone over the age of 70. At the time, not many people made it that long.

Across the Atlantic in the US, retirement was a fledgling idea. Municipal employees started to receipt public pensions in the mid 1800s and in 1975 American Express started to offer private pensions. It wasn’t until 1935 when the Social Security act passed and the official retirement age in the US was 65. (Life expectancy for men was 58 at the time.) Continue reading

My Parents Are Actually Not That Great with Money

When I grew up I knew two things to be fact – my dad was talented at earning money and my mom was equally talented at spending it. My mother constantly complained about us not having a lot of nice things – and we indeed were upper middle class and not a millimeter over the upper class line – but we had it rather great. As my father worked a professional job requiring his math brain, the money kept rolling in. And my mom (and I) would keep spending it.

But despite the “every time we come back from the mall” fights on spending it never was  a “real” issue. We weren’t in danger of losing the house. My private college tuition was paid for outright. So was my sister’s private school for a learning disability and then college. Apparently at some point my father’s company was sold and he did fairly well for himself in his stock and income appreciation. My parents should be comfortably set for life and then some.

However my father (who was told he had two years to live about nine years ago, mind you) and my mother have spent and spent and spent post “earning” years and with the stock market underperforming all his estimates about his finances didn’t quite pan out. Shocking for a man who made a career out of calculating risk. Yet, here we are today, with my father looking at all the numbers involved in the family finances and he can’t make heads or tails of it. There’s a massive home equity loan out that has to be paid back fairly soon, and there’s little left on it to borrow at this point anyway. He wanted to spend a lot on my wedding but, now that I better understand their financial situation – I realize it was not a good idea. It’s not that they are broke – they have social security and pension money coming in… about $100k a year. But in order to afford not only my wedding but also a winter condo they bought in the southeast and renovations to that condo and fixing a bunch of things breaking around their main house there is the reality that my dad had to pull out a bunch of money from the IRA bumping him up into a higher tax bracket so most of the income they’re making goes to taxes.

So they have to in the next few years pay back about $200k in home equity. How? The idea seems to be either from a reverse mortgage (which as I learn more about I really don’t like) or taking more money out of the IRA and paying a lot of taxes on it or, well, there aren’t many other options. The money is there, but it isn’t. They’re so much more fortunate than most people their age (due to smart saving at least and the possibility of a one-working-parent household being able to afford a nice life and a decent retirement) but their spending is just out of control. It’s not just my wedding – which theoretically my father had budgeted “forever” for – it’s the lack of acceptance of 1 – what life really costs and 2 – what their life really costs.

My father keeps talking about how they’re going to have to “get frugal” and I can’t help but laugh. They aren’t exactly going on luxury vacations but my parents do spend. My mother has no concept of money and I worry she’s going to eventually spend every last cent of her retirement money leaving her with “just” the monthly income – which at some point may not be enough to pay for her care. I’ll help, of course, as much as I can – but I’m stuck in the reality of my world which = I cannot ever afford a house, I cannot figure out how to save enough for my own/my family’s retirement, even on my current substantial income (which will not last because I’m about to completely crack in my current career and my next step is something less profitable but more personally fulfilling, I hope) – in any case, I’ll need to help out of guilt knowing how much my own life has cost them, but it’s still frustrating that this didn’t have to happen… they were doing so well and then they had to put an addition on the house and had to buy too-nice further for the vacation property and had to get a new dress for every wedding-related event coming up (I’m glad I talked my mother out of purchasing a $2000 dress for my wedding when the $300 dress she got looked WAY better than the one the fancy store was trying to sell her.)

I just worry too because I know that in so many years my father’s cancer will eventually end his life (I hope this is a long time out but who knows) and my mother will – god willing – life a very long time. But as bad with money and gullible as she is she’s suceptable to all sorts of scams and con arts and just about any potential way for her money to disappear. My dad likes to talk to me (so awkwardly) about how he wants my sister and I to get an inheritance – and I can’t comment on that because on and hand I think inheritances are just plain awful and unfair and should not be allowed and on the other hand the world we live in is one where people can or can not afford to, say, buy a house or send their kids to college due to such mini dynasties. It’s not a topic I’m comfortable talking about and I certainly don’t want to be the person held responsible for convincing my mom not to, you know, spend that money that one day would possibly end up trickling down to me and my sister – even though I honestly don’t want it if she needs to spend it, I just don’t want to see her getting conned. I worry I’ll have to be the responsible one because my sister knows nothing about money and clearly I’m the best educated on the topic (I don’t know how that happened but anyway, it happened.)

My father was even asking my advice on how to repay the home equity. I have no idea. $200 is a lot of money. It took me a very long time to save $200. Now I have almost double that. But it’s all locked up in retirement funds and such. It’s about half of the cost of their actual house. I don’t understand home ownership and the whole taking loans out against your property. It seems like he has a really great rate (2 percent?) so maybe that’s a smart/good thing. But it’s only smart insofar as the needed to spend the money. It’s my wedding but it’s more than that for sure. It’s just this nature of spending and spending and spending and being delusional slash not wanting to deal with the time to come when they really do need to be “frugal” in their own middle class sort of way… not something my mother has known how to do for years. I worry they’ll lose their home – though my father said that will never happen – but I’m starting to doubt his ability to predict these things. He seems rather surprised about how much taxes he owes in general and how things add up and money keeps disappearing. He seems perplexed that the stock market didn’t perform strongly so his networth shrunk more than expected and he didn’t have a backup plan to deal with this. And this all has led me to the conclusion that my father – the math guy – the financial industry risk expert – is actually really bad with personal finances. I worry for them, and I also hope somehow I can do better with my own family and wealth. I’m beginning to think that all starts with NOT owning property – EVER. Rent is expensive but at least it’s not handcuffs.

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Current Investment Portfolio ($323k)

Some of you have emailed asking, so here is an overview of my current portfolio:

STOCKS – now @ $144,385 (2016 goal = $200k … which may be a stretch!)

  • $18402 – AAPL
  • $8665 – AMZN
  • $1891 – DIS
  • $1130 – FTR
  • $2783 – GE
  • $649 – GOOG
  • $20408 – IHI
  • $7315 – JNJ
  • $7862 – MCD
  • $6951 – SBUX
  • $2935 – VOO
  • $8178 – VZ
  • $33392 – VGHCX
  • $13690 – VMGMX
  • $5634 – Loyal3 Account (multi-stock)
  • $4500 – Robinhood Account (multi-stock)

RETIREMENT (mostly pre-tax) – now @ ~ $154,824 (2016 goal = $190k)

  • $9172 – DVY
  • $1487 – GLD
  • $2898 – XRT
  • $3088 – AMZN
  • $2199 – GOOGL
  • $2299 – NFLX
  • $347 – TEL
  • $2106 – VTI
  • $4658 – VFWIX
  • $12867 – VEMAX
  • $21943 – VIGAX
  • $16169 – VTIAX
  • $31170 – VTSAX
  • $12612 – VDADX
  • $5078 – VDIGX
  • $10928 – VSGAX
  • $15803 – 401k to rollover

OTHER ($24,164)

  • $6464 – 529 plan
  • $873 – Prosper
  • $427 – Lending Club
  • $16.4k – stock options that will likely be worth $0 in 2016

How I Increased My Networth 13% in 2015

Last year I increased by net worth from $309,894 in January of 2015 to $352,066 in January of 2016 (increase of $42,112 or 13% YoY increase.) This is not accounting for the last week of declines, which may or may not hinder 2016 growth. With a total net worth of $352k to start this year, I’m focused on my goal of hitting $400k by the end of 2016. Although this isn’t my original goal of $500k by the end of 2016, I think $400k is still a very aggressive and challenging goal for this year.

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In 2015, my stock portfolio increased from $144k to $171k. My retirement portfolio increased from $152k to $171k. Thus, the year concluded with approximately $342k in active investments (mostly stocks.) This is why when the market dips my portfolio significantly decreases. Since I have a substantial amount of funds in the stock market I tend to wait now a bit before putting large sums into play beyond what is already invested.

Goals for 2016:

Stocks: $200k, including $15k additional in Vanguard admiral healthcare fund, which has a $50k minimum. This would = $29k in net new investment, or ~$2.5k per month. If the market drops lower than monthly investments will have to increase to make up the difference.

  • $1250 / month — Vanguard Healthcare Fund (to get to $50k admiral minimum)
  • $400 / month — loyal3 fee-free partial stock investing
  • $850 / month — Vanguard fund TBD to get to $10k admiral (might reinvest in the dividend growth fund I sold for losses after a month or so. We’ll see.)

Retirement: $190k (max out 401k and IRA for 2016 — $23.5k additional investment, or $2k per month)

  • $18k = 401k max
  • $5.5k = vanguard IRA (post tax)

Cash: $10k – I’d like to close out the year with a $10k emergency fund.

This = a total monthly investment of approximately $4.5k per month, up to $6.5k if the market drops further. $6.5k is fairly impossible w/ my general monthly expenses plus the wedding, so I think the $4.5k goal (esp with some of it in pre-tax dollars) is a reasonable objective. If the market sucks this year then I probably won’t get to $400k, but I’ll still be buying discount stocks which will hopefully go up at some point in the next 10 years to make up for any losses.

If I can do this then and maintain my job I should be able to close the year out with $400k net worth. This would be a very exciting achievement for this year, as I’d still be on target to hit $500k prior to 35 (2018.)

One month left to recharacterize your IRA from Roth to Traditional or Vice Versa

On my to-do list for this month: recharacterize my IRA from a Roth to traditional IRA. Why? Roth IRAs have maximum income levels where you’re eligible for this type of investment – and it’s fairly impossible to know if you’ll hit these levels earlier in the year when you’re investing. Luckily, the government realizes you might not be trying to sneak your way into a Roth for the year, and gives you to Oct 15 to fix your classifications.

Fixing the classification isn’t as easy as filling out your simple taxes on TurboTax. It gets a bit complicated. This is why I’ve been putting it off… until now.

Not only do you have to follow the rules of the firm where you invested your money in the Roth IRA to recharacterize it, you also have to refile your tax return if you already submitted it earlier in the year (see IRA website).

If you have already filed your return, you can file an amended return and subtract the amount recharacterized from the taxable amount of the rollover or conversion reported on your original return. Form 1040XAmended U.S. Individual Income Tax Return (instructions), can be used to amend your return. Generally, for a credit or refund, you must file Form 1040X by the later of:

  • three years (including extensions) after the date you filed your original return, or
  • within two years after the date you paid the tax.

My Roth IRA is at Vanguard, so I will need to first go through their recharacterization process which I haven’t figured out yet. I am probably going to end up calling them to figure this out.

Have you recharacterized a Roth IRA before to a traditional IRA? Are there any gotchca’s I should be aware of?