Tag: retirement
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From the MoneyMix Blog Archives - Borrowing
Posted on February 06, 2009 by Him
Credit Card Annual Fees Yes, we use credit cards. Yes, one of them even has an annual fee. Here's how we decided that the reward was worth the fee.
The Good and Bad About 401(k) Loans It's no secret that we have home buying on our minds. We looked at the feasibility of borrowing from Her's 401(k), and here's what we found. In short: no way.
Financial Goals for 2009
Posted on January 19, 2009 by Him
While we are already pretty well into 2009, it isn't too late for us to officially declare our 2009 financial goals. We're now married, so our financial priorities have changed accordingly...and they happen to be house and baby, not necessarily in that order and probably not for at least a year from now. That said, 2009 is going to be a year of heavy financial preparation. Here's what we're setting out to accomplish:
Pay off student loans that have been transferred to 0% balance transfer (BT) cards
In late 2008 both Her and I opened 0% BT credit cards for the purpose of paying off the remainder of the private student loans. The total amount was a little over $13,000, and we started making payments in December 2008. The cards' BT rate expiration dates are this year in September and December. Therefore, we're going to pay off the cards in order of BT rate expiration. We're allocating $1,000 per month towards paying off those cards. That way, we should be making our last payment in December 2009.
While we're paying these off we're paying the minimums, about $400 total, towards the other student loans that aren't at 0%.
That brings us to a total of ~$1,400 per month for student loan payments. Ouch.
Stretch goal: pay off half of the student loan on the 1.9% BT, about $4,000
Save $15,000 for a down payment for a house
We've written a lot of posts on our ideas on housing. Summary: we want to buy, but haven't had any money so we've rented and get a great deal, now we're saving, but have no idea where or when we're buying, but no suburbs, please.
Of the above summary, the most tangible thing we can do to move forward with our housing decision is to save, save, and save. We're socking away $300 per paycheck into savings with automatic deposits.
Stretch goal: Save $20,000. This is entirely possible, but with the way the economy is going we're not going to get our hopes up.
Contribute the maximum to our Roth IRAs, $10,000 total
...this of course assumes that we will be able to contribute to Roth IRAs. We're actually going to start this in April when our taxes have been all sorted out, and contribute until April of 2010. Our monthly contributions to our Roth IRAs will amount to $833.33.
Stretch goal: Be comfortable with our cash flow so that we can increase our 401(k)/SIMPLE IRA contributions at work by at least 1%. Alternatively, we can also put money into a Self-Employed 401(k), starting out with 5% of our business income.
--
I'll check in with these goals every quarter to see how we're doing. How are your goals shaping up for this year?
Taxes: I Just Can't Get Them Right!
Posted on November 06, 2008 by Him
Earlier this year I posted about our tax situation from 2007, and what we would be looking forward to in 2008. Since Her and I just got married, we needed to do the usual adjustments for our lives, including the exciting tax situation! Here's what's been going on.
I grossly UNDERESTIMATED how much money Her and I would bring in from all income sources: Her's job, my job, and blog income. When I ran the numbers last February I must have been under the influence of something really good because I was really optimistic about a refund. Plugging the numbers again reveals that we're going to OWE ~$4,500!!!1!1!1!!
After finding out how much we are going to owe, I went into super action mode to see what we could do to reduce our tax burden. They are as follows:
- IRA - We're at the point in our lives where we're making too much money to take the deduction for contributing to a Traditional IRA. No luck there.
- Adjust withholding - To cover our tax burden, we would have to increase our withholding by $450 per pay period. Since it is close to the holidays and we've already made travel plans, this doesn't seem too feasible. Plus, what about the presents?!?
- Spend money - A large part of our tax burden is due to the increase of blog income this year. We haven't put too much money back into the business, but we could easily change that....
- Increase 401(k)/SIMPLE IRA contribution - yeah we could do this as well, but we'd have to contribute $18,000 to erase the tax burden. Again, the travel, the presents, the humanity!
- Open a SEP IRA and contribute to it - Again, we would have to contribute a LOT of money to substantially reduce our tax burden. The maximum amount that we're allowed by law to contribute is not nearly what we'd need to offset our taxes.
- Open a Solo 401(k) and contribute to it - Once again, we're going to have to contribute MUCHO DINERO to lower our owed tax. The solo 401(k) has a substantially higher contribution limit which would allow us to put in what we would need to make a dent in the tax burden.
- Gift tax - we're going to see a tax guy to confirm whatever plan we have, and to PUT THIS TOPIC TO REST.
So what action are we going to take? We're going try and reduce our taxable business income. We're going to open a solo 401(k) with Fidelity and will contribute a good amount of business cash there. We are also going to put some money into our business and expanding. The expenses incurred with that will further reduce our taxable business profit. After all this is said and done, we will owe ~$500.
Looking ahead to 2009, we're going to once again try and not owe or have a refund. We're going to change our withholding to cover our expected 2009 salaries. For this, we're going to assume that we have no other income. The taxes on our business income will be paid from those funds quarterly. We'll contribute a small amount into the solo 401(k) to reduce our taxable income to be eligible to contribute to Roth IRAs, which we will max out.
To make sure that our 2008 and 2009 plans were indeed feasible, we decided to see a tax guy. First things first: WE WILL NOT OWE ANYTHING FOR THE GENEROUS GIFT GIVEN TO US. Second, we had a good chat with our tax guy and he did confirm that our plan was sound and that we were taking advantage of all of the tax benefits available to us.
Since we've returned from our honeymoon, I've spent many hours looking up tax topics and figuring everything out. I hope that the knowledge I gained will help us to make better tax decisions in the future.
How I Got Comfortable Sharing Money With My Husband
Posted on September 19, 2008 by Him
Hannah blogs about money and marriage at Monogamoney.com. Topics include saving, budgeting, investing, travel, and The Dark Knight.
In honor of the nuptials of Him & Her, I thought I would harken back to, lo, those many months ago (October, 2007) when Jon and I tied the knot.
After our wedding and honeymoon, we immediately hunkered down and cut back on spending, so we could pay off our credit card bill. And we started discussing how we would max out our Individual Retirement Accounts for 2007, and contribute the full $4,000 each. That's when Jon said, "If, at the end of the year, I still need an extra $2,000, you can give it to me." Wait a minute, I thought. You want me to GIVE you $2,000? Just GIVE it to you? And you won't even pay me back?
You see, Jon's parents have always completely shared their finances. My parents, by contrast, don't even have a joint checking account. That's partly because Jon's father was always the primary breadwinner, so a joint account was necessary. My parents, by contrast, have always made roughly the same amount of money, so there was no need to combine everything into one account. But the funny thing is, I grew up on a commune. You'd think I'd be the one advocating that we share money.
Of course, I knew I should give him the $2,000. I had made more progress putting money into my own IRA, thanks in part to a generous gift from my grandmother. And in the long run, it's obviously better for me if we've saved as much as possible in BOTH of our retirement accounts. I just had a little trouble, the first month or so after the wedding, adjusting to this new mindset, in which "we" replaced "me" when it came to financial decisions. Unlike Him & Her, who have clearly been a financial team for a while, Jon and I didn't start thinking about these issues until after our wedding. (That's when I started our blog, Monogamoney.)
A few weeks after our initial discussion about the IRAs, the thought finally occurred to me: "You're either in it for the long term, or you're not. And if you're in it for the long term, give him the money." And since I'm in it for the long term, I gave him the money. We use our joint account to pay rent, but everything else is paid for out of our individual accounts. And we no longer keep track of every dollar we spend.
Do you share and your partner share all your finances? Why or why not?
Credit Cards In The Cold, Weekly Roundup
Posted on January 10, 2008 by Him
The weather in Chicago has been pretty crazy. Last week, we went from temperatures in the single digits (with biting wind chills) to 60F+ days. Of course, I chose one of the super cold ass days to leave my credit card at a bar, necessitating a frosty trip back to get it.
Here's what I've found to interesting reads this week...
Jonathan at My Money Blog revamping his asset allocation. See how he's allocating his funds according to which account. His style of asset allocation and number of accounts closely resembles ours.
Clever Dude reveals how he monetizes his site. As you can tell we're not exactly ad-free either. We should put up a post detailing our strategies as well.
Million Dollar Journey is considering building a home gym. We have well-used memberships to the health club.
Making money as a blogger? You may want to check out these 46 tax deductions that bloggers often overlook. (via BeanCounter)
It's Your Money tells what he did with his website income in the year of 2007. His isn't quite the enviable position to be in, is it?
Are SMART goals really smart? Millionaire Nuemes loudly opposes the prevailing trend towards SMART based goal setting, and challenges you to make and accomplish some Real Goals.
The Honest Dollar writes a post in defense of personal finance bloggers who write mostly about retirement. Yes, the PFblogosphere is inundated with posts about retirement, frugality, and saving. Here's a little secret: we try and write about the fun stuff about finances. Read the archives if you don't believe us!
Our 2007 Goals Status, Part 4: Develop The Joint Retirement Portfolio
Posted on December 26, 2007 by Him
This is part 4 of our retrospective look at our 2007 goals. Here's part 1 (Roth IRAs), part 2 (Student Loans), and part 3 (credit cards).
This year we sought out to develop the foundation for our joint retirement portfolio. This was quite a daunting task, and we had to break it up into a few pieces to make it manageable. Even though it has been over a year since the first time we've first decided to tackle this task, we feel that there is much to learn and do.
Here's a recap of what we've done this year to get closer to develop our joint retirement portfolio:
1. We determined how much money we'll need to save up for in order to retire.
2. We laid out what our portfolio looked like back in January 2007 and reviewed what was wrong with it.
5. Finally, we looked to see our progress and assessed what steps to take next.
Now, the plan is to learn more about investing in order to fine tune the numbers. We're going to reassess our allocation semi-annually and readjust the allocations if necessary.
Status: Mostly completed; needs tweaking.
Planning the Joint Retirement Portfolio: December 2007 Update
Posted on December 21, 2007 by Him
This is part 5 of our Planning the Joint Retirement Portfolio series. See what we went out to do here, how we got our magic number (part 1), assessed our portfolio back then (part 2), the big picture of our portfolio (part 3), and then a detailed plan allocation (part 4).
It has been almost a year since we've started the joint retirement portfolio series, and almost 6 months since we've last looked at our joint retirement portfolio. Since then, we've done many changes to get it to our model portfolio. We've sold some, bought some, and cleaned things up a little. Our current asset allocation is depicted in the pie chart below.
Compared to our model portfolio, we're still not quite there yet.
When we first started this exercise, we showed you what was in our portfolio. Here are the detailed holdings in our portfolio as of today.
| Fund | Ticker | % of Portfolio |
|---|---|---|
| TOTAL | 99.9% | |
| Roth IRA (Vanguard) | ||
| Ameren | AEE | 0.9% |
| Boeing | BA | 0.5% |
| General Motors | GM | 0.6% |
| Northern Trust | NTRS | 1.3% |
| Prologis | PLD | 1.0% |
| Vanguard Total Bond Market Index | VBMFX | 13.7% |
| TOTAL PERCENTAGE OF PORTFOLIO ASSETS | 18% | |
| Roth IRA (Fidelity) | ||
| Fidelity Real Estate Investment | FRESX | 7.7% |
| Fidelity Small Cap Value | FCPVX | 8.5% |
| TOTAL PERCENTAGE OF PORTFOLIO ASSETS | 16.2% | |
| 401(k) | ||
| AllianceBernstein International Value Fund (A) | ABIAX | 11.7% |
| Dreyfus Premier S&P STARS Opportunity Fund (R) | DSORX | 7.1% |
| Fidelity Advisor Small Cap Fund (T) | FSCTX | 6.9% |
| Neuberger Berman Socially Responsive Fund (Investor) | NBSRX | 2.7% |
| STI Classic Small Cap Value Equity I | SCETX | 11.2% |
| TOTAL PERCENTAGE OF PORTFOLIO ASSETS | 39.6% | |
| SIMPLE IRA (Vanguard) | ||
| Vanguard Target Retirement 2045 | VTIVX | 26.1% |
| TOTAL PERCENTAGE OF PORTFOLIO ASSETS | 26.1% | |
The remaining 0.1% is cash that is floating around in some of the accounts.
We made most of the changes to our portfolio last summer. We now plan on reassessing our target allocations every six months or so, and then adjusting if necessary. Much of the difficulty of getting a cohesive portfolio is balancing the available account in each of our brokerage accounts, namely Her's 401(k). Another obstacle is the minimums required to invest in many mutual funds at Fidelity or Vanguard. In order to get around that, we're currently looking at ETFs; that is not looking like an attractive option due to the high trading fees relative to our balances at Fidelity and Vanguard.
We welcome your comments and suggestions on our current portfolio.
Our 2007 Goals Status, Part 1: Contribute 50% to Roth IRAs
Posted on December 05, 2007 by Him
About a year ago we made some financial goals for ourselves. Since 2007 is coming to a rapid close, I thought we'd look at those goals and see how we did, and how we made it happen. I'm going to tackle them out of order just because that's how I feel like writing about them.
The first goal I'm going to examine is contributing 50% of the maximum allowed amount to our Roth IRAs. As the 2007 Roth IRA maximum contribution amount is $4,000, that amount is also equal to 50% of total contributions for both of our accounts. When we first came up with this goal, Her's Roth IRA had a paltry $1,695.85 in it, so we decided to allocate all of our contributions to her Roth IRA account to bring it up to about where mine is.
Last year, Her moved her Roth IRA holdings from Merrill Lynch to Vanguard. At the beginning of the year, she requested automatic deductions twice a month to total $4,000. Since I am paid twice a month, we had it coincide with my paydays, so it was like an automatic payroll deduction in that we never even saw that money. Easy as pie. (Except that I've never baked one [but Her has]).
Status: Will be completed this month.
Bad Time to Rebalance Our Retirement Portfolio?
Posted on August 16, 2007 by Him
One of our goals this year was to "come up with a retirement action plan that includes correct asset allocation, periodic re-balancing, and a re-assessing how much we're socking away." We've gotten pretty far with that, as we've written a few articles that detail our progress. We're pretty happy with the plan we drew up, but we haven't done much (read: we've done nothing) to get our current asset allocation to what our target is.
Since the social and work commitments are slowing down at the end of this month, we thought we'd finally sit down and coordinate our retirement accounts to get our target asset allocation. But with the stock market doing some kooky things as of late, we're not so sure that's a good idea.
Should we rebalance our portfolio now, or should we wait out the current market volatility? If we wait it out, isn't that a form of timing the market? When do you think it would be a good time to rebalance? Does this even matter considering we're going to let these investments sit for 20+ years?
Planning the Joint Retirement Portfolio: Slicing Up The Allocation Pie
Posted on June 01, 2007 by Him
This is part 4 of our planning the joint portfolio series. To see how we got here, read this intro post, then read part 1: The Magic Number, part 2: Currently, It's A Mess, and finally part 3: Large Scale Allocation.
In the past four months since the last post in the series, we were mostly waiting for my SIMPLE IRA transfer from my old brokerage to Vanguard. Since that transaction is now complete, we have had some time to talk about the finer points of our retirement investment portfolio.
In that timeframe we also read a few good investing books. Her read A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
In order to come up with a diversified retirement portfolio, we had to know ourselves a little bit. We know that we don't plan on retiring for another 30+ years, we are buyers and holders, and we can tolerate a lot of risk right now. If it were a perfect world and Her and I had one brokerage company that handled our accounts, the breakdown of our asset allocation would be as follows:
We're going to have a heavy investment in small-caps, leaning towards value stocks. I know, I know, past performance isn't necessarily an indicator or future performance, but 50+ years of data is pretty compelling. The large- and mid-cap stocks will probably be covered by investing in total stock market index funds. In fact, we're going to try and get most of our portfolio in low-expense index funds. Yes, REITS are still there, mostly because the companies in many REIT index funds manage commercial properties and not residential housing. And of course good ol' bonds, just in case the market goes splat.
There you have it. Now all we have to do is implement it. Your comments are welcome.
SIMPLE IRA, Meet Vanguard
Posted on May 22, 2007 by Him
I've written in the past about my dissatisfaction with my SIMPLE IRA plan administrator. In the past few months I decided to move my hard earned dollars elsewhere. And by elsewhere I mean Vanguard.
As I stated before, our plan administrator is also the guy who manages all of the money for the higher ups in our company...the same higher ups that I had to get sign the paperwork so that I can transfer my funds. Tricky.
I've decided that I would approach this in the most professional way that I can think of: just be straightforward with everyone. Here's how it all went down.
1. Research new home for SIMPLE IRA. I would have loved to have moved to Fidelity since I already have a Roth IRA with them, but they don't take "orphaned" accounts; I'd have to get everyone in my company to go along with. The other choices were T. Rowe Price, Schwab, and Vanguard. I ultimately chose Vanguard because I like the idea behind low cost index funds.
2. Call broker. Notify him that I'll be changing brokerages and to expect an asset transfer form. Ask him to close the account as soon as the asset transfer is completed. Of course he didn't sound pleased when I told him. He asked why I was moving my funds, to which I replied, "I just like doing this stuff myself." And by that I mean I don't like getting whacked by your fees. Nothing personal, dude.
3. Approached higher up who needs to sign paperwork. Explained that I'm moving SIMPLE IRA. Handed over paperwork. Smooth transaction.
4. Wait.
5. Account opened!
6. Mail in asset transfer form. Wait.
7. Assets are transfered! Woo!
A few months ago I listed the contents of both of our investment portfolios. We've made some changes, but the biggest one is the liquidation of JCLGX and the acquisition of Vanguard Target Retirement 2045 Fund (VTIVX). I did have to take a 1% hit on the assets I had in JCLGX for less than a year; I minimized this by asking my old broker to stop putting money into that fund way back in February. Thus, about $4,000 was subject to that fee - I can live with a $40 hit now to save in fees and expenses down the line.
The only thing that I don't like about having my SIMPLE IRA with Vanguard is their $25 fee for each mutual fund you have. This fee can NOT be waived by signing up for the e-service package, but can be waived once I have more than $100,000 total in all Vanguard accounts. Fortunately, the minimum balance fees are waived for funds in a SIMPLE IRA.
Now that this has all been completed, I'll revisit our "Planning the Joint Retirement Portfolio" (Part 1 Part 2 Part 3) series. It's only been on hold for the past 3.5 months.
Should We Diversify Brokerages?
Posted on March 26, 2007 by Him
Our retirement holdings will soon be with three different brokerage companies. Her's 401(k) is stuck with who manages it for her company, but the Roth IRAs can all be moved from one brokerage to another. The question is, why would we want to?
I bring up this question because I'm in the process of moving my SIMPLE IRA (here's why I'm doing this) to Vanguard. Her's Roth IRA is at Vanguard, mine is at Fidelity. I originally wanted to move my SIMPLE IRA to Fidelity to have all of my accounts in once place, but they don't allow "orphan" (just me, not my whole company) SIMPLE IRA accounts. After a little research, I found out that Vanguard, T. Rowe Price, and Schwab all allow orphaned accounts. Since Her's Roth IRA is already with Vanguard, I decided to keep everything streamlined and go with them. I never even considered other places to move my SIMPLE IRA such as a discount broker.
The main reasons I decided to move money over to Vanguard is that I wanted to take advantage of their low-cost index funds and simplify our financial lives. I can't help but wonder, is the grass greener on the other side? Am I missing out on anything by keeping our retirement funds in only a few places? What reasons would I want to have multiple brokerages?
Help A Reader Out - 60 Years Old, No Retirement Funds
Posted on March 06, 2007 by Him
Reader Danny left this comment and emailed us (3 times, no less) with this question (edited for clarity):
I wonder if any news magazines or newspapers have reported on another trend: older people who have no retirement funds, no big income coming in after they retire, because they worked all their lives at odd jobs and occasional jobs, and lived okay, but now at age 60 or so, like me, they have no retirement fund, no pension, no company benefits, nothing, nada. I am debt free, never been in debt, but I am basically in big doodoo for the future. If I live that long, from 60 to 80, I will have no income to speak of. What to do? Are others in this situation in the USA? Email me (ed: or leave a comment) and tell me what to do. I led a charmed life by the way, no regrets.
Anyone have any suggestions?
Planning the Joint Retirement Portfolio: Large Scale Allocation
Posted on February 09, 2007 by Him
This is part 3 of our planning the joint portfolio series. To see how we got here, read this intro post, then read part 1: The Magic Number and part 2: Currently, It's A Mess.
Lately we've both been pretty busy with our work and social lives, leaving little time to discuss the finer points of our joint retirement portfolio. What has been quite a boon to us are automatic deductions from our paychecks that continue to plow money into our retirement accounts.
When we do have the time to talk about asset allocation, the conversation usually goes like this:
Him: Hey, our investment portfolio is a little off our target allocation.
Her: So what is our target allocation?
Him: I dunno, 80% stocks, 20% bonds?
Her: 20% bonds? What are you, 60-years-old and neutered? 100% socks!
Him: Your face is a bond.
...and we end up not doing anything.
This really boils down to how much risk we're willing to take. Here are the factors that we're taking into consideration when determining our risk: we're fairly young (mid 20's), have 30+ years until we retire, we're buyers and holders, and while not pleasant, we have weathered out the bad times that our (limited) portfolios have been through.
Without further ado, here's our large scale allocation at least for the next few years:
Yes, 90% stocks and 10% bonds. In the next post of this series, we'll slice up the pie into more specific asset classes.
Our Peers Aren't Doing So Bad
Posted on February 01, 2007 by Him
I have a ton of websites that are currently in my feedreader, but only a few that I visit daily. Of them, the Chicago-based Gaper's Block (origin of the name) is surely one of my favorites. The site is well-designed, contains articles about lesser known Chicago happenings around town, and even has a calendar of (often free) events that we usually end up going to.
One of the sections on the site is called "Fuel," a feature that asks a question and asks the general community to share their answer. The questions range from where to eat breakfast to whether or not you believe in UFOs to what your favorite zoo animal is. Of particular interest to those in the personal finance blog community were two questions that were asked recently: How much do you earn annually? and especially Are you saving for the future? How?
After reading all of the responses, I was quite surprised - the audience that Gaper's Block attracts is usually anti-corporate, anti-mainstream, art-loving hipsters and hipster wannabes. Despite that generality, many of them were well aware that they need to be saving for the future. Many had accounts with ING Direct and contributed to their retirement plan at work. Sure, their answers weren't highly polished replies that meandered over the benefits of asset allocation. That's okay though, as for them, money is just a means to an end.
Much of the has been said in the pfblogosphere about how much we think our peers aren't saving. It is nice to see, that at least for this particular instance, my original assumptions were very wrong.
SIMPLE IRA - Should I Stay Or Should I Go?
Posted on January 24, 2007 by Him
There have been numerous times on this blog that I have expressed dissatisfaction towards the investment options that are currently offered for my SIMPLE IRA plan. A few weeks ago I incorrectly stated that I could only invest in loaded fund of funds; on further review of all of the products, there was a mix of loaded mutual funds with pretty good expense ratios and loaded fund of funds with high expense ratios. Personally, I don't like paying loads or excessive funds.
SIMPLE IRA plans are different than 401(k) plans in that an employer can either require its employees to deposit their contributions at an employee selected financial institution (using Form 5305-SIMPLE [PDF]), or have its employees select to designate their own financial institutions for receiving contributions (using form Form 5304-SIMPLE [PDF]). My employer has chosen the latter, with us being able to choose our own financial institution for our contribution.
Not everyone at my company understands this portability of our funds, with due reason. Our company brings in a guy from a brokerage firm to educate (sell?) new employees about the SIMPLE IRA. He's brought in for one reason: he manages the money of our higher ups. Admittedly, when I started participating in the plan, I thought that this guy and his brokerage firm was the only way to go. I did notice that we were given the form to choose our own financial institution, but no one else in the office was able to help, so I signed up with the guy and his brokerage company (a downfall of working at a small company as we have no HR person).
In the year and a half since I have had my SIMPLE IRA, I've learned that there are a few options with my plan:
1. Pick up and move. There is no penalty for transferring SIMPLE IRA assets from one financial institution to another. So far I've looked at moving my SIMPLE IRA to either Vanguard, T. Rowe Price, or Schwab, on the basis of their reputations and investments. The problem? The 1% deferred sales charge on all contributions less than a year old, which would really only be a measly $60 or so. Also, I don't want to burn any bridges with the high-ups by snubbing their guy of my business.
2. After two years in the plan, transfer assets to a Traditional IRA. On a yearly basis, accumulate money in my SIMPLE IRA, then transfer funds (see how this works at Barry's blog) The problem? The financial guy recommends class C shares with a deferred sales charge after that is waived after one year, of up to 1%. I don't want to lose out on 1% of my assets every year. Alternatively, I could just let my contributions sit in a money market account and let it earn interest.
3. Stay where I am. The problem? I don't like paying for loaded funds. Also, it was never disclosed how much we're paying this guy to "manage" our money. Fortunately, after looking over my statements it seems that it is a reasonable $35 a year.
I am leaning towards option #1. I'd like to hear your thoughts.
Planning the Joint Retirement Portfolio: Currently, It's A Mess
Posted on January 16, 2007 by Him
For those of you keeping track (and who isn't?), this is the second step of our Planning the Joint Portfolio series. Here's step 1 if you missed it.
A few weekends ago we went through the process of writing down all of our retirement investments down in one place. As our net worth statement says, we currently have our retirement funds spread across four accounts: my SIMPLE IRA, my Roth IRA, Her 401(k), and Her Roth IRA. The investment holdings in all of our accounts are as follows:
| Fund | Ticker | % of Portfolio |
|---|---|---|
| TOTAL | 100% | |
| Roth IRA (Vanguard) | ||
| Ameren | AEE | 1.42% |
| Boeing | BA | 0.76% |
| General Motors | GM | 1.06% |
| Northern Trust | NTRS | 1.56% |
| Prologis | PLD | 1.57% |
| Vanguard Prime Money Market Fund (Cash) | VMMXX | 1.05% |
| TOTAL PERCENTAGE OF PORTFOLIO ASSETS | 7.42% | |
| Roth IRA (Fidelity) | ||
| Advanced Micro Devices | AMD | 2.59% |
| CVS Corporation | CVS | 3.94% |
| General Electric | GE | 7.11% |
| Northern Trust | NTRS | 2.59% |
| Pfizer | PFE | 2.20% |
| Aston/TAMRO Small Cap N | ATASX | 7.52% |
| Fidelity Cash Reserves (Cash) | FDRXX | 1.54% |
| TOTAL PERCENTAGE OF PORTFOLIO ASSETS | 27.49% | |
| 401(k) | ||
| AllianceBernstein International Value Fund (A) | ABIAX | 16.74% |
| Dreyfus Premier S&P STARS Opportunity Fund (R) | DSORX | 9.84% |
| Fidelity Advisor Small Cap Fund (T) | FSCTX | 9.31% |
| Neuberger Berman Socially Responsive Fund (Investor) | NBSRX | 4.15% |
| TOTAL PERCENTAGE OF PORTFOLIO ASSETS | 40.04% | |
| SIMPLE IRA | ||
| John Handcock Lifestyle Growth Fund (C) | JCLGX | 21.19% |
| Cash Reserves (Cash) | - | 3.85% |
| TOTAL PERCENTAGE OF PORTFOLIO ASSETS | 25.05% | |
Running our total retirement investments into the Morningstar X-Ray tool yields this additional information about our overall portfolio:
You can see here that as for our total investment we are pretty much all in stocks, with the only exposure to bonds being primarily in JCLGX. In our stock holdings, we are weighted very heavily in large cap stocks. A lot of that is due to our individual stock exposure. All of those stocks were bought when we were in college and didn't know much about investing. While we knew little about Roth IRAs at the time, we did know that it was a relatively safe place to try and learn about investing.
After looking at the damage we realize that we have much to work on. The next post in this series will tackle how much risk we want to take on to get where we want to go.
Fund of Funds - Your Thoughts?
Posted on January 03, 2007 by Him
Ah, the fund of funds. I was introduced to this gem of an investment when I was eligible for my SIMPLE IRA at my job.
What is it? It is exactly what it says it is, a mutual fund that invests in...funds. (How about a Wikipedia definition? Or an Investopieda one?) Many funds that we already know and love are funds of funds. They include:
Hedge Funds - Those get-rich-quick funds that don't have to disclose a damn thing about what they're invested in and only allow people with mondo cash invest in them.
Target Funds - Those fancy investments that reallocate your holdings from more risky to less risky over time to your target retirement date.
Lifestyle Funds - Attempt to achieve a specific asset allocation within the fund usually determined by whatever adjective describes the fund, and rebalances to remain at that allocation. Example: "Aggressive Growth" may invest in 100% stock funds, while "Balanced" may invest in a 50/50 stock/bond fund mix. Let me wax poetic about my experience with these kinds of funds.
Currently, I am only invested in a "Growth" lifestyle fund in my SIMPLE IRA (one of the reasons why we're tinkering with our retirement portfolio), which is invested in 80% equities and 20% fixed income. Over the past year, it has a total return of 12.57%. Not bad.
When it comes to figuring out how this investment fits in with the rest of our retirement portfolio, I had to dig a little deeper. According to the prospectus, the fund can be invested in any number of funds that are listed in over 8 pages. How many are in my fund of funds? At the time of this writing, my glorious fund of funds is currently invested in 43 different mutual funds. They range from all asset classes, making it difficult to see what else in our portfolio may be lacking.
Wait, 43 different funds? You know what that means?
Oh yeah, I'm paying 43 different funds worth of expenses. Well, not really, but it is to the tune of 2.25%. Someone has to pay for all of those fund managers' kids' college tuitions. Not only that, but this fund is loaded! Class C shares baby, with a 1% deferred sales load if I sell before I've had them a year. Apparently, these funds of funds didn't have to fully disclose all of their fees, but that should be changing. Not all funds of funds have expense ratios this high - target funds are usually on the low side.
I know what you're saying. "So, Him, if these loaded fund of funds suck so badly, why are you invested in it?"
Because my SIMPLE IRA plan administrator only offers loaded funds of funds, that's why. I'm currently plotting on how I can best change where I have my SIMPLE IRA. We'll see how that goes.
Planning the Joint Retirement Portfolio: The Magic Number
Posted on December 28, 2006 by Him
Earlier this month, I had posted about moving forward with a plan to have one retirement portfolio to rule them all. We're slowly going through all of the steps, and learning a ton along the way. Since Her just had a series, I thought I'd do my own, but not in a day-after-day format.
The first step of that plan was to see how much we would actually need in retirement to sustain our lifestyle. I really hope that when I'm 80+ years old, I'm able enough to go to some awesome summer rock festivals...
So we ran our numbers though Fidelity's retirement plan calculator for their customers (not the myPlan one, which give weird numbers when you recalculate). Here are the results:
With our current income, and adjusting for inflation and pay increases, we are estimated to need a nest egg of $5,803,405 by the time we retire.
Whoa.
With our current situation, we are on track to amass $1,740,399-$3,580,737.
Damn, we're short. Duh.
The planner runs some market simulations, and comes up with some figures for how much income we'll have in retirement, what our assets may be, and when we'll actually experience our shortfall in retirement.
Here's our projected income at retirement.
Here's our projected assets at retirement.
And here's the assets over time.
We're well aware that we're short on retirement planning. We're also aware that this calculator isn't the be all end all of what our retirement planning future will bring. It is a good start though, and gives us a tangible goal to shoot for. Next step: laying out all of our retirement investments to see where we're at.
Planning the Joint Retirement Portfolio
Posted on December 08, 2006 by Him
A few months ago, Her posted about the idea we had of investing into our retirement accounts as if it were one retirement portfolio. Great idea, right? Let's pool our retirement money and fix our allocation and goals as one. Super-duper. Yeah.
Well, since then, we've done nothing to go forward with that plan. We have been investing into our own retirement accounts not taking into account the larger picture. But looking at our monthly net worth statements, we haven't been doing too badly. That doesn't mean that we couldn't be doing better, or that our current allocation may set us up to do much worse.
Over the next month or so, we're going to be doing some research and taking action on a step-by-step basis on this whole retirement thing. I'm thinking it may look a little like this:
(edit: I've linked to the corresponding posts where we dealt with these issues)
1) Set up retirement goals, a la the magic retirement number.
3) Figure out the large scale allocation, i.e. how much to put into stocks and bonds. I guess this could also fall into the category of finding out our risk tolerance.
5) Educate ourselves about different investment vehicles. Sure we know the basics of mutual funds, index funds, and the like, but I personally don't know much about bonds, or about the inner workings of funds, or why I'd want to pick an indexing ETF vs. an index fund. I have no idea what I just wrote.
6) Select investments or rebalance holdings that we currently have.
7) Sit back and let the market do its thing, and reassess every quarter or semi-annually.
Steps 1-3 are pretty straightforward. Step 5 is the daunting one, but it will be good for us as it will allow us to expand our knowledge of investments so that future decisions will be much easier.
Hopefully, by the end of the year we'll have a rockin' portfolio.
Leave Money Behind or Die Broke?
Posted on December 06, 2006 by Him
Her and I have a year end goal to reassess our retirement portfolios, including making goals, determining asset allocation, and rebalancing. In order to get a head start at this process, I've been tinkering with some online calculators that try and assess how much money I'm going to need when I retire. The answers didn't surprise me too much, as the values ranged from a few million to...a few more million. And that's predicting that I'm going to live to see my 85th birthday.
And then I thought: how convenient would it be to spend my last dollar on an ice cream cone, eat it, then have a heart attack. I would have spent every last dime that was in my name. No waste.
Conversely, I also thought how much it would suck to get hit by a bus the day after I retire, leaving millions behind to enjoy what I worked hard for. Or just ramping up my retirement savings so much that I leave behind a very large gift to my family (who would then be dysfunctional enough to fight over it and ruin it for everyone).
I suspect that something in-between those scenarios will happen. But that brings up a question: do you want to die broke, or do you want to leave money behind for your family? Does your retirement planning try to take either of your predetermined scenarios into consideration?
Money is Key to Long Life
Posted on December 04, 2006 by Her
Can cash add years to your life? Insurance companies think so. I recently had a casual conversation with a life insurance "insider" - an insurance businessman who has been at his company for about 30 years. He told me that private insurance company studies have determined that
after illness and accidents, the biggest cause of death in the elderly is running out of money.
The second and third largest causes are running out of friends, and running out of fun.
While "running out of money" doesn't initially sound deadly, the consequences can be. Without money, the elderly may not have access to nourishing food, a safe residence, and health care. The stress over finances may exacerbate health issues. They may feel that they are a burden to loved ones. Without money, the elderly may not be able to participate in fun activities with friends - two other important factors in longevity.
Perhaps one of the keys to longevity is to prepare a good financial plan and ensure you won't run out of money.
Battlestar Galactica > Retirement Plans
Posted on October 26, 2006 by Him
A few weeks ago I was out having a few drinks with few coworkers during happy hour. One of my coworkers (CW1) noted that in a few weeks he will have been at the company for six months. Another coworker (CW2) remaked that he was then eligible to participate in the company retirement plan. Both of these coworkers are my age, maybe a little younger. The conversation went a little like this...
CW1: Hey, I'll be at the company for six months in a few weeks!
CW2: Yeah dude, you'll be eligible for our 401k. (but we have a SIMPLE IRA...or am I just being nitpicky?)
CW1: Yeah that's cool.
Him: Yeah, I was thinking of rolling over my SIMPLE IRA to a Traditional IRA because I don't like our investment options. I won't be eligible to do that until May, though.
(blank stares)
CW2: Yeah, my boyfriend works at Morningstar, so he handles all of that stuff for me.
CW1: I don't have a clue when it comes to that stuff.
CW2: Yeah. You guys watch Battlestar Galactica?
Sigh.
Should We Even Have Our Retirement Accounts?
Posted on October 09, 2006 by Him
If you've looked at any of our net worth statements, you've seen that we have four retirement accounts between the two of us. Only two of these accounts, the employee sponsored ones, are actively being funded right now. If you don't want to read my long-winded analysis of our accounts, scroll to the bottom to see where this is all going. Here's a breakdown and a little history of our accounts.
His Roth IRA
My mother caught wind of the Suze Orman show sometime when I was in college. She dug up some resources and really didn't understand them, but the seed was planted. The notion was too good to be true - that putting $2,000 (the contribution limit at the time) into a Roth IRA for a few years, then letting it grow so that by the time I retired I'd have a million bucks. My parents opened up a Roth IRA account for me with Fidelity and fully funded it for my 19th birthday. For my 20th and 21st birthdays, they also funded it. It was my job to figure out how to invest so that I would retire comfortably. I've had some good luck with my investments so far, but I'll be looking to change my investment strategy soon (more on that in a later post). Since the initial contributions by my parents, no other contributions have been made.
His SIMPLE IRA
A SIMPLE IRA (Savings Incentive Match Plan for Employees of Small Employers) is a retirement plan for small employees where pre-tax dollars are put into a retirement account. These work pretty much just like 401(k)'s, (of which there is a SIMPLE 401(k) variant - here's a comparison between the two) except for a few differences. Unlike traditional 401(k)'s there is no vesting schedule that can be applied; employers have to match employee contributions up to 3%, but no more, unlike the 401(k) maximum of 25%; and you cannot "loan" yourself money to be paid back from a SIMPLE IRA. Because of our current financial situation, I only contribute 3% - enough to get the maximum employee match, for a total of the equivalent of 6% of my salary.
His HSA
I don't really consider this a retirement account. Here was my overview of this account a few months ago.
Her Roth IRA
When my mother was telling me about Roth IRA's, I also put the bug in Her ear that she had to open one as well. And that she did - with student loan money. She's had some success with her investments as well, but trouble with the company that she held it with. Like me, she opened this account before either of us knew what the hell we were doing. Since the account was initially funded, no more money has been actively contributed to the account.
Her 401(k)
Read all about 401(k) plans here. I won't bore you with my amateurish description of one. Her contributes 6% of her salary, of which her employer matches 40%, for a total equivalent to 8.4% of her salary.
So why have I spent the time to explain all of this? Well, Nancy had a great question:
"Why are you putting money into our retirement accounts while you have...debt?"
That's a great question that I answered to in the post: Free money.
That got me thinking though - is this the most prudent financial decision? I've already reduced my retirement contributions to free up some cash for debt repayment.
Should people with as much debt as us contribute anything to their retirement accounts?
Are You Saving 18%?
Posted on May 26, 2006 by Her
According to economist Jack VanDerhei, the typical "best scenario" American family is saving around 9% of their salary in their 401(k). But by his estimation, the average American family needs to be saving up to 18% of their salary consistently for thirty years in their 401(k) to be able to maintain their pre-retirement standard of living. The 18% includes both employee contributions and the employer's matching contributions.
I save 6% of my salary and my employer adds a 40% match, so my total savings rate is 8.4% of my salary. Him saves 3% of his salary and his employer adds a 100% match up to 3% of his salary, for a total of 6%. We're a long way away from the 18% we need to be saving. Fortunately, we're starting young. Our first priority is to eliminate our debt. After that we can ratchet up the savings.
If you will rely solely on your 401(k), are you saving 18%?
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