Freezing in NH

I like to have a larger, but not too large, goal in mind at any given moment.  It gives me some focus and a reason to do things like pass up a daily latte.  (I don’t drink coffee, but you get the point.)  For various reasons, at the moment I don’t have a good mid-term (3-6 year) goal.  I have some long term goals, e.g. retire at 50, but that’s relatively nebulous and subject to course corrections along the way.  I also have some short term goals, but since my debt except mortgage is paid off, most are very short.  E.g. a vacation at the end of the summer, a new vacuum cleaner, etc. 

I have an emergency fund set aside, and I could increase it but it covers 6 months and increasing it isn’t a priority.  I’m covering all my bills out of current income, including the outrageous heating bills (not on budget plan this year), so my frugality has seemed a little wan and lackluster.

There are some (personal) reasons that I don’t have a medium term goal.  There are some very good reasons for abandoning my previously set one, and I’ve accomplished the one before that, so I’m kinda adrift.  So I did some brainstorming.  Originally I was just going to pick one of the goals I brainstormed and go for it.  But it’s hard to go after a goal with gusto if you’re not committed.  Brainstorming is a fun procrastination technique, so I did it anyway.  Out of all those ideas there are a couple of winners, and a couple that are exciting to think about (e.g. I could buy a boat and sail around the world) but wouldn’t necessarily be that great to live (I get seasick).  I took all the ideas that were either rational or very exciting, and figured out what the next steps would be.  And in most of the cases they really are the same.  Save up some cash, get rid of clutter, get things in order, get a better job, finish up here. 

Having all the goals need the same steps seemed like a clear sign that those steps needed to be done no matter what.  In six months or so I’ll be in a better position to choose a medium term goal, and I’ll be part way there already.  Obviously the goal will dictate the amounts (e.g. amount of money, amount of clutter to get rid of), but I can still head in the right direction.  So I printed out a few things to remind me of all of the goals and stuck them up on a bulletin board.  I’m sure most of you out there use this technique, but I heartily recommend it.  So now there’s a picture of a lake house, an apartment building, a boat and a flat in Paris.  Instead of feeling adrift, goalless, and spending money frivolously I’m looking at the board excited with all the possibilities. 

An article on CNN today highlights their “life after work” special section.

“The baby boomers were the first generation to have a lot more career freedom, but it seems like [for] at least some of them, that ended up not being the case,” Randall Hansen, a career advice writer for the Web site Quintessential Careers, said.

“They fell into a job that they kind of hated or didn’t get as much satisfaction from but stayed in because of first mortgages, and then college tuitions, and now that their kids are out of college, now they finally feel like they have the freedom to change careers.”

For Bob Shipley, retiring was a step toward freedom. “I decided I didn’t want to do that anymore,” he said of his 30-year career as a general manager in the laundry business.

Marrying his business savvy to an interest in wine, he and business partner Craig Ciciarri established a New Jersey-based company that allows people to make their own customized wine, picking everything from the grapes to the bottle’s label.

I guess I feel similar…I want to retire, to leave the rat race, but I don’t think I want to sit around every day. There are several things I’d like to do that I feel I can’t afford to do full time now but would have time for after retirement.

The Simple Dollar answers the question Does Ultra-Frugality Mean That You Don’t Need A 401(k) Or A Roth IRA? for a couple that lives on half their income and saves the rest.

I think there are a couple of points to think about: 

Do you get a company match in the 401k:  if so, fund enough to get the match.
Retirement income level vs current income level: the 401k shelters income, but you pay taxes on it at the income rate, not the (cheaper) long term capital gains rate.  If your income in retirement is similar or higher than now, a Roth or other post-tax savings are better options.  If your retirement income is lower than now (and it probably will be if you’re managing to save half now) a 401k can shift those taxes to your lower-earning years.

The 401k can be a great savings idea for people who aren’t good at saving.  For your average person, the money coming out of their paycheck before they see it really can help them save.  For someone disciplined enough to save half their income, that’s not necessary.  It is not easy to get the money out of the 401k before 59.5 either, so retiring in your mid-forties requires some other sort of savings.  A Roth IRA allows you to take the contributions out tax-free at any time, so it would be a much better choice for someone retiring early.  Leave the growth money in until 59.5 and you’ve saved yourself a bunch of taxes vs saving the money outside a retirement account. 

I found an interesting idea on My Retirement Blog today…retirement insurance.  Pay a lump sum, get money monthly if you live past a certain age.  In a way this reminds me of disability insurance, pay now for a chance of needing the money later.  It could be very useful in retirement planning. 

Today Vanguard announced it will drop account fees under certain circumstances:

Beginning in June, Vanguard will implement a much simpler, single-fee approach under which a $20 yearly fee will be assessed on all fund accounts with a balance below $10,000.

Under the new approach, shareholders have three options to invest fee-free with Vanguard: 1) establishing account access on Vanguard.com and choosing electronic delivery of statements, reports, and prospectuses; 2) maintaining total Vanguard® fund assets of $100,000 or more; or 3) consolidating accounts or investing additional assets to bring all account balances to $10,000 or more. 

For small investors who don’t choose e-delivery, it may be a fee increase depending on where they’re invested.  But for those of us who have a balance that could be over 10k per fund but want to diversify, this is great news.  No more choosing between a fee and diversity!  (Of course you have to be comfortable getting things online, but given the sea of papers on my desk right now, I’d rather have things online where I can find them.)

An article in Money today: Have less than $25K in savings? Get in line

Nearly half of all workers saving for retirement have savings that fall short of the $25,000 mark, according to the 2007 Retirement Confidence Survey by the Employee Benefit Research Institute and Matthew Greenwald & Associates.

Predictably, the youngest workers (ages 25-34) dominate this group - 68 percent of them have less than $25,000 earmarked for their later years. But so do half of workers age 35 to 44 and a third of workers age 45 to 55 and over. 

[…]

While financial pressures can play a big role in how much one saves, so, too, may your expectations: 30 percent of workers said they thought they would need to have a nest egg worth less than five times their current income to live in retirement, while 27 percent thought they needed between five and 10 times their income in savings.

All but the lowest earning men should have 12 times their income just before retirement, estimates EBRI. That’s $900,000 for a man earning $75,000. A woman, because of higher life expectancies, should have 14 times.  

Wow, it makes my paltry retirement savings look good.  These are just rules of thumb, your needs/wants may differ.  If you’re currently saving 50% of your income, (and like living that way) you only need to replace 50% of your income with social security and retirement savings when you retire.  On the other hand, if you have big plans for travel after retirement, you might spend more than you currently do for the first few years.

A couple years ago due to some interesting circumstances, I had a very short window of time to take my money out of a 401(k) that was closing.  Because a lot of other things were also changing, I took the easy way out and signed the forms my 401(k) company sent which just moved the money into a rollover IRA with the same company.  Very easy, nothing needed to be notarized, etc, etc.  And it’s been chugging along getting a little bigger every year. 

But recently I’ve been re-evaluating all my finances (starting a blog was one of the things that came out of this) and I took a closer look at the IRA.   I have yet another 401(k) from a long time ago and I was contemplating rolling it into the IRA as well.  Then I looked at the management fees.  Wow!  No wonder it only got a little bigger every year. 

 After much looking around, I decided to go with Vanguard.  They have low fees and really that’s about all that matters to me.  I’m not going to be touching the IRA more than once a year (for rebalancing) so I don’t need a website with bells and whistles and I don’t want a live advisor because they might convince me to make changes I don’t need to make. 

The process was kind of a pain in the neck, but it’s not something I need to do every day.  First I had to fill out a bunch of forms online with Vanguard, then print them out and have some sort of banking guy put a magic stamp on them.  This required driving around town on two different days (I first tried to do it on a Saturday, and guys with the magic stamp don’t work on Saturdays) to different branches until I found the right guy.  [The stamp is a Signature Guarantee, definition here for the interested.]

Then it just took time.  Now the money is all at Vanguard and I just have to deal with the original company (apparently moving all your money out is not the same as closing the account, so I have a zero-value IRA with them that is still accruing fees).  Next step is to figure out the fees on the very old 401(k) and decide if I want to put that in with the rollover IRA as well.   I probably will, mostly because it will be easier to deal with one place rather than two, and I have enough trouble dealing with allocation and rebalancing as it is.

Last week I realized that my parents have no idea how much money I make.  I know I never told them, but still.  For several years I was working part time, and living with a deadbeat boyfriend.  So I did a lot of complaining about money, but managed to scrape by on what I made and the savings I had going into that relationship.  Eventually I wised up and am now single and working another 10 hours a week.   

So I was having lunch with my parents at Panera and my mother paid for my lunch as well.  This led into a discussion of a woman I’m friends with (who is my parents’ age) whom I have lunch with once a month.  Every time she insists that she’ll pay and I can pay “next time”.  I was saying to my parents that I feel bad about this since I’m pretty sure I make more than she does.  They responded by saying that she’d worked at her job for a while and was good at it, etc, etc.  I named a figure and said “do you think she makes x?  x + 5,000?” and they agreed it was probably in that range.  My response “so I definitely make more than she does”.  Parents: <open mouth stare>. 

Hello, I have a house, a job that’s in demand that I’ve been doing for a bunch of years, and an employer that’s over a barrel because they’ve driven away just about every other employee who knows about the things I do.  I know banks will extend a mortgage to people who cannot afford them, but I’m pretty conservative about financial things.  Yes, my house was a dump when I bought it, but that was on purpose so I could renovate it.  I paid that mortgage on time for several years while working only 20 hours a week and supporting a boyfriend who liked to go out to eat and who required a storage space among other monthly expenditures.  I guess they just never thought about it. 

I know I make more than my mom, but less than my dad did (job change Jan 1, so I don’t know now).  I know they have credit card debt and a mortgage, and plan to pay both off before retiring (5 years or so).  I don’t know how realistic their plans are.  They have some retirement money, again I don’t know how much.  Their first meeting with any sort of financial advisor was within the last few years.  I’m really hoping they’ve got it figured out, because I really don’t want them to call me in 15 years and tell me they’re out of money. 

As you can probably tell from the above, we don’t talk about money.  I mean we talk in a general way, about interest rates and such, but not in specifics.  I’m not sure they would tell me if I asked them to sit down and show me their retirement plans.