Category Archives: Retirement

2021 Net Worth Goals Update

A month ago I posted my 2021 net worth goals. Checking in to see how things are going…

  • Retirement: $614,629 ($521.5k then)
    • Current: $715k (cool, already beating my goal, guess I should raise it!)
  • Taxable Investment: $822.5k ($804.5k then)
    • Current: $856k (also hit goal already nice, need new goal)
  • Emergency Fund: $60k ($60k then)
    • $62k (still good)
  • IVF Fund: $65k ($65k then)
    • ok this is $0 because I didn’t want it sitting and I moved it to my investments. But I can sell some investments when/if we decide to do IVF.  Going to remove this goal.
  • 2 Yr old 529: $196k ($91.6k then)
    • $105k (need $91k more but might reduce this goal)
  • 0 Yr old 529: $151k ($41.3k then)
    • $73k (need $78k more but might reduce this goal)
  • -3 Yr old 529: $63.7k ($63.7k then)
    • $65k (good)

New 2021 Goals…

GOAL Apr May Jun Jul Aug Sep Oct Nov Dec REM
Retirement $800.0 $521.5 $715.0 $85.0
Taxable $900.0 $804.5 $856.0 $44.0
Cash $0.1 $0.1 $0.1 $0.0
529 A $150.0 $91.6 $105.0 $45.0
529 B $150.0 $41.3 $73.0 $77.0
529 C $65.0 $63.7 $65.0 $0.0
Home Equity $270.0 $250.0 $257.0 $13.0
savings needed:
$264.0

Will check in again each month to see how I’m progressing towards these new goals!

Some Real Numbers and Planning a Real Career Change

I slept last night so had some rather clarifying revelations  this morning:

  1. I need some actual financial targets that are meaningful. They may be scary, but at least then I can actually feel like I’m making progress towards a real objective and financial security vs an arbitrary number.
  2. I need a career change. I know what I want to do. I’ve wanted to change into this career since I was 22. It will require a much lower salary for a while and some additional education… a master’s degree would be helpful but it’s also possible to get a certificate and spend time teaching myself. It means I need to plan for this as well to figure out how / when I can afford that pay cut and not mess with my retirement goal.

To start, and to make the career change palatable, I need to figure out that retirement goal number.

  • Set a retirement goal: My (family) goal is to have 10k per month (inflation adjusted) in after-tax retirement income at age 65 (assuming my house is paid off or I use proceeds from my house to buy another lower-cost home in cash.)
  • Determine 4% rule amount: how much do I need for withdrawals of my accounts at age 65 through age 100? So I’ve read you need 2.5M today to afford 100k/yr expenses in retirement. With inflation of 3% for 35 years, that is a total of 7M needed to retire (when I’m 65.)
  • Calculate my current totals:
    • IRA Pre-Tax: 523.9 (366.7 post tax)
    • IRA Post-Tax: 96.9
    • Total 2020: 463.6
    • Total 2055 @ 5% Returns = 2.5M
    • GAP: 4.5M
    • (I need about 1.3M today w/ 35 years to grow 5% / yr to hit goal if I never touch it) or about 836k in additional savings today in my retirement accounts

Now, do we really need 10k a month of retirement spending (in today’s dollars?) I don’t know. Maybe we could live on less. Assuming we want to retire in a HCOL area and travel and pay for my kids to travel with us and pass on some inheritance, I’d like to at least aim for that. I have 35 years to make it happen. If I can make it happen WITH a career change, that’s even better. If the career change will get in the way of that 7M at age 65 goal, then I just want to understand what that means for expectations when I retire. (*Note I’m not including social security because who knows if it will exist in 35 years.)

Right now, we can save about 100k per year in retirement accounts. Some of this is actually going to be Roth, but for the sake of simplicity I am going to count this as all pre-tax (70% of value) to figure out what we will have in retirement when. Once I change jobs, or if my husband gets a FT job, we may have less opportunity to invest in retirement accounts. (*Note, at the moment I’m not including my taxable accounts in this calculation — only retirement accounts. The taxable accounts do change the picture substantially, but the moment I am not counting those as they are basically my house payment put into the markets vs into paying off house.)

  • Calculate my future totals (2022):
    • IRA Pre-Tax: 723.9 (506.73 post tax)
    • IRA Post-Tax: 96.9
    • Total 2022: 603.6
    • Total 2055 @ 5% Returns = 3M
    • GAP: 4M

I need to spend some more time with these numbers because right now, even with the ability to put 100k to retirement accounts for the next 2 years (which is also unlikely as I’m probably going to change jobs in early 2022 and/or go to school so will have a gap in savings) then I don’t see how we’re going to hit the 7M goal at 5% per year return.

The picture looks very different if we can secure 8% YoY return with dividends reinvested as well. With 603k invested at 8% YoY for 33 years (assuming after 2022 we don’t invest a dollar more in retirement) we would have 7.6M(!!!) when we retire (and it would be more because a chunk of that is pre-tax.)

This tells me that it’s very important to hit goal of having 603k in my total retirement accounts by 2022. It also tells me I need to then hire a good CFP/CPA to figure out a strategy for future investments and conversions–because too much of my retirement money is tied up in pre-tax. I want to work it out where if I go to get a master’s degree for 2 years I can do some conversions then (when we have very low income) so that at the end of the day we actually are cancelling out the loss of income through low-tax conversions.

That said, I do want a third kid, so chances are I will be working in my same career (although a different company) through the birth of my third child and at least the first year of their life. Then school? I don’t know. That’s going to be a while. But it also means the opportunity to continue to contribute to my retirement accounts. Phew, this is looking a bit better if 8% is realistic (is it?)

  • 2020/36: 436k
  • 2021/37: 506k (baby 2)
  • 2022/38: 603.5k
  • 2023/39: 633k (baby 3)
  • 2024/40: 660k

At 40 or before, I do a major career change and feel like I’m in a good place for retirement, right? Or not. 660k with 25 years left to retirement is just 4.5M in retirement. I guess that’s because I’m not including actual gains on the account over five years, only contributions. The initial 436k should gain 200k at 8k. Which would put me at 880k at age 40 (including total family contributions) which still only gets me to 6M at age 65. Ugh I wish I was better at math! Well, 6M at 65 sounds pretty good too, considering I’m not counting social security or any of my taxable savings, which should also be substantial at that point. I feel pretty ok with the plan above, assuming growth to 880k of these accounts (or something like that) by the time I turn 40.

Since I’m going that post tax, let’s say I need 1M in my retirement accounts before I feel like I’m “safe” for retirement (i.e. money I’m not going to touch until I’m 65) and then I’m in a really good place for a career change. Or I pull the plug earlier, but I do think getting through my third and last child while having good insurance and a stable career (if you can call my career stable lol) is a lot smarter than switching now. That doesn’t mean I have to wait until then to take a class or two or prep for my career change. It just means I have a real goal to save for retirement. Once I get to that safety net in my retirement accounts — aiming for 6M-7M when I’m 65 without adding another dollar to my retirement accounts — then I’ll feel a lot better. Then all I need to do is be able to afford my expenses between “now” and age 65. I can do that with my taxable investments/savings and income. My family’s lifestyle will be dependent on my ability to move up in my new field as well as gains on my taxable investments (which are 757k today and should be about 1M by the end of next year if I can hang on to this job for dear life and the stock market doesn’t crash. Knock on all the wood.)

Perhaps I should splurge and buy a new computer with a functional “4” key (yes this is why I am not using the dollar sign in any of my posts… I have “4” as my clipboard paste item but I can’t have that and the dollar sign. I should probably reprogram some key I don’t use to the the “4” — or I should buy a new computer? Hah.

Ok, this makes me feel a little better. I do want to figure out the “37-65” annual income vs living off savings and where I can dip into savings for a career change without having to take a major lifestyle cut. And I like to spend money, so I’d like to be able spend as well… especially on fixing up my house (a major addition, at some point, or moving to a nicer place in an area I want to live) and travel while paying for my sister to come with us. And helping my mom out when she runs out of money because she probably will.

In any case, once I have enough in “retirement” accounts I’m just going to feel a lot better. I have to catch up since I didn’t have access to a 401k in my 20s and my husband started his retirement contributions in his 30s as well.

Shorter term, since 2022 seems SO far away, here are some realistic goals for the end of next year:

Calculate my future totals (2021 End):

    • IRA Pre-Tax: 623.9 (436k post tax) + 5% = 654k
    • IRA Post-Tax: 96.9 = 101.7k
    • Total 2021 (Pre Tax): ~750k

Total End 2021 Goals:

    • Home Debt: -900k (300k equity + 1.2M loan)
    • Taxable Accounts: 1M
    • 529 Kid 1 = 75k
    • 529 Kid 2 = 75k
    • 529 future Kid 3 (my account) = 50k
    • Retirement (Mostly Pre Tax) = 750k

Actual Earnings 2021 Goals:

    • Income: 250,000
    • Vested Stock (Sold Pre Tax Value): 500k
    • Other Benefits: 30k (ESPP growth), 4k (401k match)
    • Total Income: 784k (very approx)

This would be an incredibly positive total income next year and end to 2021. That’s only 13 months away. It’s going to be a crazy 13 months with a lot in the air. If I can get the above set by end of 2021 (leading into getting pregnant with my third kid) I think I’ll be in good shape.

I need to do a better job of running these numbers. If I can hit the above goals, I’m going to hire a good CFP to help me figure out my strategy for the years ahead.

Life is Really So Short.

Most of us remember being kids and, while we might have been worried about death, our lives were so long ahead of us. What they don’t tell you back then is that your childhood is long and slow, and you end up getting so excited about turning 18 and 21… then you’re suddenly 30 and then 40 and then you’re 50 and however many years are left of your life, the best of your health is probably being you… Continue reading Life is Really So Short.

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 Annuities are FUCKED UP… aren’t they?

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 Congrats to 1500 Days to Freedom on Early Retirement…

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 Are 401k Accounts a Scam?

Joining J. Money’s Million Dollar Club

million-dollar-club-1

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.

 

 

 

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

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 A Brief History of Retirement and the Social Security Crisis

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.