Starting off the New Year

To kick off the New Year, I met with my Learnvest financial planner. I really like her and value her advice. This year I'm tackling the same problem as last year which is getting my cash surplus invested. It sounds ridiculous, but I haven't even gotten last year's increase invested and now I have a big chunk to invest again this year. I can't keep up. I get so nervous about dumping a lot into the market. But once I set up auto investment, I can truly set it and forget it. It's just that to get the cash invested in a timely manner I would have to be making large buys each month. Right now I'm only going in about 10K at a time, which is not doing much to make a dent in my stash.

I have also convinced my planner that I don't need to replace my full income in retirement or even 85% of it. I know the exact number that I spend each year, and what part of that is for housing (almost 40%!), so in today's dollars I need about 60K a year with a mortgage and 36K a year without one. Of course that # doesn't include inflation.  If I used the Mr. Money Mustache formula I would need to save 25x the amount I need each year, so either  $1.5 million or $900K.  I think to be safe I would only be comfortable with the higher #. The planner's target number is going to be more like $2 million, but that's better than the like $4 million she is currently targeting which is most likely never going to happen.

Happy saving!

When does getting a check for $4K in the mail suck?

When you get it because your 401K plan has failed the IRS' non-discrimination test and the amount is being refunded from your 401K contribution for 2012 and will increase your taxable income in 2013!!! Boo. Sooooooooooooooooo annoying.

I do everything right to save for retirement and the government penalizes me at every turn -- my IRA contribution (which I max out every year) is not deductible. Now my only tax advantaged account which I am legally allowed to contribute $17,500 to (or whatever the # is) is reduced by several thousand dollars -- more than 20% of my contribution returned!!! I think the government should encourage everyone to save, and if "high income" savers save more they shouldn't be penalized. In reality, the government probably does not do this because they care about encouraging lower income savers, but because they want to get their hands on as much income as possible from high-income earners so they can tax it.  Ugh. Well, I'm just going to have to save more in my taxable account and spend less to make up for the government's constant blocking of my attempts to save in tax-advantaged accounts.

Market Recovery

So this week was really helpful in regaining some of the paper losses I've suffered in my taxable and retirement accounts over the last few months. My taxable account is only a few thousand short of the highest balance I've ever had. Woo -- hoo!

O-M-G

Everything was moving along nicely. My balances kept increasing. My savings were paying off. We all know what happened to that story this week. Ugh. I've lost on paper about 20K. Which is better than the start of the week when it was more like 30K. Of course, I'll just be patient and wait it out and hope that my balances reach what they were in July again at some point. I'm just getting tired of waiting. My taxable account is filled with index funds that I bought in 2003. I'm starting to doubt the buy and hold strategy. It's been 8 years, and I don't feel like there's any consistent growth. There are some points when the market is high, but I don't have a lot of confidence that this money will consistently keep growing. I'm tiring of hearing the financial advisers dole out advice to buy and hold. I am a disciplined, patient investor. I would never sell when low. But I'm starting to think of putting parameters in place. Stop losses and gains. So that my shares automatically sell when they've risen a certain amount. 10%? 15% Of course that incurs transaction fees and then there is the challenge of trying to find places to put the money once I sell. We'll see.

I had such confidence that I would finish the year (pre-bonus) with a net worth of 400K. I got complacent, forgetting the market can nose dive at any minute and wipe out months if not longer of growth.

Savings Strategy

Now that I received my bonus (a little more than last year which is great), I have to figure out what to do with my savings. I also realized that my online savings account rate where a lot of my cash is has fallen to 1.1%! Ouch. It's tough times for savers. So, this is my strategy:

-- $10,000 contribution to non-deductible IRA (5K in 2010 and 5K in 2009). This way even if I want to buy an apartment at some point, I can use this money towards that). It also lets me do something with this money i.e. invest it. And, it gives me the option to convert it to a Roth IRA, without having to pay any taxes since its a new account. Seems like a solid strategy.

-- $50,000 1 year CD. My credit union has a good rate for a 1-year CD -- 2.5%. I'm a little nervous about locking the $ up for a year, but I can always pull it and pay the penalty if I need to.

The rest of my cash will stay in my high yield checking account which still has an interest rate of 3.25% or something in the 3s anyway.

Sound like a good plan? I like it because it boosts my retirement savings, which I'm very behind in according to my Puddin Score. And it lets me invest that money, tax free. While I still have a strong cash cushion.

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.

Seriously?

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.

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.