Saturday, October 24, 2009

House hunting

Today I'm off to look at a new condo in my neighborhood. The asking price is $569,000. Ouch. That got me thinking about how to gauge whether or not I can afford an apartment. I'd love to be conservative and spend 2x my annual income. I remember reading that that's a trait that rich people have in common. At 569, this place would be a little more than 3.5x annual income (not including bonus). However, I will most likely have to put 20% down, so the monthly payments seem doable. I calculated that if I pay an extra $10,000 a year on the mortgage I could pay it down in 17 years. That would be awesome. Of course paying $329,000 for a 2 bedroom apartment in a less desirable neighborhood that's farther away would allow me to pay down the apartment really fast. However that place is a Co-op and there are definite disadvantages to living in a coop versus a condo.

I loved this post about the Paradox of Choice on Get Rich Slowly this week. It's exactly how I feel about real estate -- paralyzed by too many choices.

Saturday, October 17, 2009

School's Out!

I'm so psyched. This month I paid off my last student debt. This was a credit card debt of about $11,000 that my mom had been carrying for me interest free for I can't even remember how long -- probably 2 years.

So, this year I've paid off about $31,000 in student debt. That's great, especially since I paid very little interest on those loans (the one actual loan was $20K at 6.8% but I only accrued interest on it for about 8 months). What is depressing is realizing that my entire last year's bonus, plus a good chunk of my monthly savings this year went to pay off that debt.

Needless to say, I'm looking forward to starting next year being able to keep every penny that I save! If I don't end up purchasing a house, I'd like to save $2,000 a month post-tax, in addition to maxing out my 401K with pre-tax contributions. That puts me at a savings rate of about 30%. Woo-hoo!

I've got a pyramid going with 1/3 spent post-tax, 1/3 spent on taxes and 1/3 saved. Of course I'm always looking for ways to lower the 2/3 that I don't get to keep and increase the 1/3.

NYC: highest tax burden in US?

Being a resident of a NYC borough, I pay not only state tax which is relatively high in NY, but I have the privilege of paying a city tax as well. I estimate city tax alone will be about $5,000 off my base salary this year alone. That's great, right?! Okay, there are some benefits of living in what has to be the most heavily taxed area of the country. Namely, the public transportation. I don't have to own a car, pay car insurance or pay for gas because we actually have public transport, unlike other places in America. However, last weekend I started thinking for the first time about how simply moving across the river to NJ would save me $5,000 instantaneously. Not to mention moving to CT where there's no city tax and the state income tax is in the 5%s instead of the 6%s like NJ and NY.

In reality, I wouldn't get $5,000 for moving, because that money right now is deducted from my federal taxes, lowering my overall taxable income. Also, $5,000 pre-tax is a lot less post-tax (I'm in the 28% tax bracket). Plus, I'd have to pay a smidge more to take the bus or the PATH train in addition to the subway.

In the end, I'm guessing I'd only end up saving $3,300 or so. Not that that's anything to sneeze at, but in the end I don't know if its worth the quality of life sacrifice. However, if I could find a nice apartment at $1500 a month I'd save $1,800 annually so with the tax reduction I could save close to $5,000. An extra $416 a month is nothing to sneeze at.

Monday, October 5, 2009


Okay, the more I research retirement savings the more ridiculous it gets. My favorite is this article on Motley Fool. Check out this handy chart the author has prepared to tell us how much we're supposed to be saving:

our Age Percentage of Income to Save
20s 10%-15%
30s 15%-20%
40s 20%-30%
50s 30%-40%
60s 40%-50%
70s 50%-60%
80s Lotto!?

Okay, 10-15% I can see. What 40 year old can save 20-30% of their salary? The author doesn't say, but I assume she means gross salary. Still, most people at that age are raising a family. Their expenses are at their peak. If they started early, they have children in college. This chart is a joke.

There's another article from AP today about how those close to retirement are so off track due to the market crash. This one has yet another metric for retirement savings:

The bottom line is that men will need to have 4 to 6.8 times their annual salary in the bank, separate from Social Security. Women should aim to have 4.5 to 7.5 because they tend to live longer, according to the study.

Overall, I fear these articles just serve to discourage most Americans who have very little in savings without giving any realistic advice about how to save for what we all know will most likely be the biggest expense any of us have.

Saturday, October 3, 2009

Retirement Savings: u r doin it rong

I started doing some research this week on retirement savings. I've been saving at least 6% of my gross salary since I started working about 12 years ago (minus one year in grad school). So I assumed I'd be fine.

What should I be saving?
When I started playing around with the calculators, it seems I am underfunded by about half. My Pudding Score is 52. The more I researched the more I came to believe, however, that there is no real way to tell how much one needs to save to retire. All of the calculators make you make rediculous guesses about expected investment returns and other factors that if you knew you'd be a millionaire from being able to read the future.

I did find a few more simple, logical guidelines. Dave Ramsey says save 15% for retirement. Apparently T.Rowe price says the same thing.

I feel kind of cheated to be learning this now. I had always heard that I should be contributing 6% of my salary to retirement. I think I would have contributed more if I'd had known I'd be "behind" at this point.

Non-Deductible IRA?
I had been planning to max out my 401K contribution this year which takes me to a little more than 10% of my gross saved. There's not really any other tax-advantaged way for me to save, as I don't qualify for a Roth IRA and if I were to contribute to an IRA, it is not tax-deductible. It seemed at first this was still a good deal, but I like how this CNN article describes the advantage. Basically it will only help me if I convert it next year to a Roth IRA. I think I will end up doing that. So even though my stragtegy was to have as much cash as possible for an apartment down payment, I think I'm going to throw an extra $5K into my IRA to take me to both the contribution limit and 15% of my salary saved. Even one of my fave bloggers thinks 15% is high, but since I am apparently sooo behind in my savings, I think I'll do it this year. I've hit my social security taxable income limit, so I should get about an extra $2K to contribute from that.