Retiring Early

Thursday, November 30, 2006

Using a 529 for non-educational retirement savings??

No schoolI came across a very interesting post that alludes to a loophole in the 529 educational savings plan. Miller over at My Pocket Change writes:
"There might be games you can play using a 529 account. I briefly looked into this at some point in the past. Basically, your money grows tax-free in a 529 account, but if you spend any gains on non-educational expenses, you pay a penalty. There is a breaking point (in time) in which even with this penalty, you’d be better off using a 529 account (given, against its intended use)."
Now, given that I don't have kids and don't intend to, I would have to do some reading to understand whether or not there is something here or not. Anyone have anything to add here? Is this something that can be exploited?

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Wednesday, November 29, 2006

Carnivals this week...

Just a quick note that a few of my posts are included in the following blog carnivals -- go check them and all of the other great posts out:
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Sunday, November 26, 2006

On the Cheap? What to do about retirement planning?

There is an interesting article on Smart Money about a couple of relatively new services provided by Vanguard and T. Rowe Price that should help those on a serious budget, do some proper investment planning for retirement. There is one from Fidelity mentioned as well, but it is backed up by an automated tool versus a warm-blooded human. While I'm always cautious about taking retirement planning from a big house like this, you should be able to get some good info out of them without necessarily committing your money to their funds --that's the goal at least.

The services supposedly provide personal consultations and annual check-ups with a dedicated personal advisor. Vanguard advisors charge a one-time $1000 and are CFPs and T. Rowe Prices advisors only charge a one-time $250 and only work under the supervision of a CFP. Despite the higher price, I'd go with Vanguard if you can afford it. Here is more about how they work from the article:
"How the services work: Investors provide detailed information on their financial situation online or by mail. A financial advisor at the fund company reviews it and puts together a retirement plan. Once the investor receives the plan, he or she gets a call from the advisor to talk about it and make changes, if necessary."
Once you have the plan, you are golden. Again, the key is not to have the advisor execute the plan by buying their own funds. If you're comfortable investing, take the plan and find equivalent investments in the same asset classes, or if you trust the recommended funds, go ahead and let them buy into some of them according to their plan. Depending on what they come up with, it would be interesting to compare their recommendations versus their "Target Retirement" mutual funds.

The article does call out a few drawbacks to the services as well:

"Another potential drawback: These services leave it up to the investor to put in their current financial information and make important predictions like their expected retirement spending, says Christopher Van Slyke, a fee-only CFP in La Jolla, Calif. There's a chance they may misunderstand the questions or give the wrong information, he says. "Without experience, it's likely they'll make mistakes."

An individual investor may easily underestimate his or her retirement income needs, for example, by not factoring in things like medical expenses. (If you don't make your own retirement income suggestion, Fidelity's tool will calculate one as 85% of your current income, adjusting for future inflation. T. Rowe Price advisors will suggest 50% of your current income.)"

I suspect most people that read my blog are not the target for these kinds of services, but perhaps they are good for an aging parent or a brother who may not have the biggest interest in investing for retirement. These are the people most likely to benefit from these kinds of services. If anyone has used these services, I'd love to hear about it. Lets us know.

(Photo courtesy of: Jan Tik)
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Saturday, November 25, 2006

Early retirees: Focus on taxable or tax-deferred?

capital gainsOk, so here's the dilemma of the day I'm looking for feedback on: for people like myself who intend on retiring around age 40, and will need to fund a lot of years before they can withdraw money from 401k/IRA/SS, etc., how much of your portfolio should you concentrate into taxable accounts to ensure you have enough money to "cross the gap" from age 40 to age 59 1/2? (Also, I'm not a big fan of the "72(t) exception", except in extreme circumstances.)

When I first started engineering my early retirement, I thought a rough 1/3 tax-deferred allocation and a 2/3 taxable brokerage account allocation was a good rough target. At the time, my thinking was: since my ability to fund 401k and IRA accounts was throttled each year according to the government limits, I should fund those and stuff everything else I could afford into my taxable accounts. If anyone has used a different strategy, I'd be interested in hearing more about it.

There is one wrinkle however: since my joint income is too large to deduct my IRA contributions, I haven't been making post-tax IRA contributions. Since those IRA contributions will yield tax-free withdrawals later on, it may make sense to fund an IRA with $4000/yr post-tax. What do people think about this? Again, the trade off is: less money to "cross the gap", but more tax-free money after age 59 1/2. As Ben Stein put it: Retirees have little money early on when they need it, but lots of money later on [due to returns and compounding] when they start slowing down and don't really need it -- the Retiree Paradox, as he calls it.

I have a strong leaning to keep funding the taxable brokerage account and leave the $4000 post-tax IRA contribution out of the picture, given the good insight our old friend Ben.
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Thursday, November 23, 2006

Great quote, had to share...

I'm sure this has been uttered over and over again, but it's the first time I've heard it and it couldn't be more true than right now:

"When the stock market is having an argument with the bond market about the future, the bond market almost always wins."

Found at: http://usmarket.seekingalpha.com/article/20702

Happy Thanksgiving everyone!
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Monday, November 20, 2006

Early Retirement Forum gone mobile!

Quick one here: I used to read the Early Retirement Forum on my smartphone during my long commute, and it used to render ok, but not great. Today is the first time I've looked at the forums on my phone in a few months and I noticed that they're now optimized it for the small form factor of a smartphone! Bonus!

Just navigate to the normal page on your mobile device and enjoy the read...
http://early-retirement.org/forums/
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Saturday, November 18, 2006

More on Moonlighting

One thing I've noticed as I was looking around for other opportunities for my career, in talking with friends and co-workers, I found that a lot of people have side "efforts" that they are devoting time to. People I know are creating new businesses or providing their services after hours and on weekends -- all in addition to their day jobs. In short, they're moonlighting. I'm not sure if this is a byproduct of us being in a new internet boom or due to the recent surge in entrepreneurship or what, but when I say a lot of people, I mean a LOT of people have stuff going on on the side. So much so that it was a little bit shocking to me. Does anyone else out there have coworkers, friends, family have stuff going on on the side trying to generate more cash in addition to their normal day job?
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Thursday, November 16, 2006

Blogging while driving

Driving while talking on a cell phoneAre you one of those people that has a hard time finding time to write down all of your great thoughts into one or more blog posts, edit them and get them all posted? I am definitely one of those people.

Inspiration for blog posts seem to come at the most inconvenient times -- often, it's the shower or while driving in the car when I don't have the means to capture the ideas. Recently, I've been spending more and more of my idle time in the car thinking about blog post ideas. Now, the idea is not to write down or type up these thoughts while driving, but the idea is to somehow capture your idle thoughts about blogging or other interesting things so you can fully process and post them later on. What I've started doing is leaving myself voice mails from my cell phone containing the contents of the intended posts. Then, when I get into the office, I can transcribe these thoughts and ideas into a proper blog posts, clean them up and quickly post them. This process helps me in a number of ways. Number one, I don't lose those important, often fleeting thoughts that I think will be good blog posts, and I'm also more productive while driving because I'm not doing much else while sitting in traffic.

This idea of transcribing verbal messages is easy if you're like me and your voice mails are sent to your inbox through unified messaging software. In this case, listening to it on your computer and transcribing it is very easy. If you don't have this capability, there may be a few other steps you need to go through, but it can still make you more productive overall. One other option is to use recorded voice notes on your cell phone and then transcribe those. Either way, transcribing blog posts that you create while you are driving can be really helpful in creating more posts in a more regular way. Of course, it goes without saying that if podcasts are your thing, this method works just as well -- you just need to make sure that you have a good cell signal and can do the cast in single take or with minimal editing.

(...and yes, this post was created by transcribing a voice mail conveniently waiting for me in my inbox when I arrived at the office.)
(Photo courtesy of dakinewavamon)
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Should I use Blinksale, Freshbooks, or something else?

QuestionMarkOk, question time. Working on the new business, one of the first things we are trying to nail down is the software that we will use to manage the business. Has anyone out there used either Blinksale or Freshbooks to manage some or all of their business? We are looking to manage our customers and invoices with one of these services. We're using basic online banking for paying the bills, so that side is covered. I'm just wondering if anyone has any experience using these tools -- they both seem like they have a lot of online awareness.

Two other tools that I also found that may have worked for us are: SideJobTrack (which is free) and SimplyBill. Although SideJobTrack is free, it looks like it has been abandoned by it's creator. The last blog post on their blog was in June and it looks like the creator of the site has moved on to other things.

My initial impression of SimplyBill was ok, but after digging into it a bit more, the service is very rough around the edges and looks like the team that put it up there hasn't done much to it since it launched. As with SideJobTrack, they also look like they have moved on to other efforts. There is nothing worse than using software that is no longer a focus of the creator.

Anyway, any opinions on any of these tools would be much appreciated. If there are no opinions, I may have to do an in-depth analysis myself...

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Monday, November 13, 2006

Moonlighting?

MoonWell, I promised an update on my career issues from a month or two back, so here it is. I have done a considerable amount of work looking at a number of different options, and as the post title suggests, I settled on something that may be gaining momentum in the workplace: Moonlighting.

I've interviewed both within my existing company and outside the company, and have also evaluated a number of new ventures that are just starting up. What I found was that I was most energized by the idea of joining a brand new venture. I wasn't, however, willing to take the risk of leaving my day job in case the new venture didn't work out. Enter moonlighting.

As much as I want to spill the beans on the new venture, unfortunately I cannot say much, other than the fact that I'm really excited about it. It is in a field that I am uniquely positioned to contribute, so assuming we execute flawlessly, we should be in a good position to succeed.

As the new venture gets off the ground, I am sure I'll have questions and will be posting them here in hopes of learning from others' experiences. Sorry for the vague update, but I'm sure you understand.

Anyone else out there doing any moonlighting?
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Tuesday, November 07, 2006

Special Election Day Rant

yelling babyYou normally won't find me posting rants, but today I feel compelled. This one is about local politics, but I'm sure it applies to many other cities around the country. It's no surprise that I live in Washington state, so expect a healthy amount of the rant to be focused at the City of Seattle. I vote absentee every year because I'm not sure I'll be in town on the day itself, so I actually voted yesterday. That said, I have a few choice questions about the ballot and it's contents. They're mostly rhetorical -at the top of my lungs- questions that don't require any response whatsoever.
Ok, here we go:
  1. The ballot this year is apparently larger than last year, requiring more postage. Ok, an extra 39 cents -- fine. This point, however is just a setup for what follows :)
  2. 15, count them: FIFTEEN of the candidates on the ballot -- and 25% - 30% of the entire ballot was uncontested. Sure, I could use that handy "write-in" line to nominate Mickey or Donald Duck, but honestly, tell me when the last time a write-in candidate actually won an election. Seriously. Around the Civil War, was it? (I'm aware that this write-in mechanism is a vehicle for making sure everyone has the opportunity -- whether or not they got on the ballot or not. I just happen to think the concept is and always will be, just a dated concept.)
  3. Next up: Silly city council resolutions that they can't possibly need my help in approving. On these, I seriously feel like a micro-manager who's had too much coffee. If I recall correctly, there were 3 to 4 items that we voted on that removed language from the city code because the referenced xyz no longer existed. If the code doesn't make sense because you eliminated a job, update the freaking thing yourselves and stop wasting my time! I don't need to vote on this stuff!! I know, I know... "citizens need transparency." If it's transparency you want, send me a "notice of change" like my cell phone does when it changes my policy. If you're a citizen and feel compelled to vote on this stuff, you need more to do in life.
  4. Next: the transportation item: you remember it: this is the one where they promised to replace bridges, maintain roads, build tunnels, improve transit, coddle to bike riders, improve transit facilities, plant trees at park and rides, and do just about anything else that comes to mind. I don't want to vote on this crap. (told you this was a rant!!)... I want new bridges and I want to know what they are going to cost. What I don't want are inflated taxes being levied to handle everything under the sun, including adding a bathroom at a park and ride! I want this stuff broken down into consumable, specific chunks with real costs, and then I want them to appear on the ballot INDIVIDUALLY so we can vote on them. In their current form, I have no idea what I'm approving, and the taxes aren't cheap.
  5. Finally, and this is for the working man out there: Write the entries on the ballot in plain, straightforward English. Some of these were written with triple negatives and then asking a positive with a yes, no answer. Some of the items read like SAT puzzles! Now, I have a university degree from a very respected university, and I had to read some of these questions several times! If I had to read them a few times, imagine voters with lower comprehension skills than mine. (not bragging here, just acknowledging that voters run the gamut of educational levels and comprehension skills). Anyway, my favorite example is the first item on the ballot. I wish I still had the exact text, but after reading it I thought to myself, why didn't they just say "Do you want to remove the current state estate tax? Yes / No".
I'm sure there were a few more things that annoyed me about voting this year, but these are the ones on the top of my mind. My time is very valuable, so when 30% of the ballot is uncontested and I need to fill in little circles like a scan-tron exam, and then I have to pay extra to send in the ballot due to it's increased size... man, something had to be said. Rant off / end of rant. Thanks for listening, no replies required.
(photo courtesy of hannahs_mum)
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Monday, November 06, 2006

The Carnival of Investing is up!

My post on the Downside of Dollar Cost Averaging was included in the Carnival of Investing this week. Check out the rest of the great posts at AllFinancialMatters.
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Saturday, November 04, 2006

How Do You Stack Up Against Your Neighbor When It Comes to Retirement Planning?

The Zen Personal Finance blog has a post about a new retirement tool from Nationwide called RetirAbility. It's a flash-based tool with some cool, personalized video to help you through. It's probably more suited to people newer to retirement planning, but it's entertaining nonetheless.

At the end, they give you an "R-score" that rates your planning to date as a way of estimating how likely you will be able to keep your current standard of living in retirement. My beef with the tool? They assume you'll retire around age 65. Hey, what about us early retirement folks??

Read more
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Thursday, November 02, 2006

The downside of dollar cost averaging...

I wandered into a Barnes and Noble bookstore this weekend to pass the time while I was waiting for my wife. Of course, I gravitated to the investment / personal finance/ retirement section and started to browse. I came across a book by Ben Stein and became intrigued by a little section in the back called "25 Big Truths of Retirement Planning" Naturally, I started measuring my retirement efforts against the sacred list of 25. While I had most of the items covered, two of the items were interesting and warrant some discussion. The first I'll talk about here and the second I'll reserved for another post entirely.

Ok, so you probably guessed that he said something about dollar cost averaging, right? So what did old Ben say about DCAing? Well, since about 99% of us who employ some form of DCAing are basically trying to ease into a position and effectively trying to time the market to get the position at the best price. What most of us forget is that at some point -- even if we're long term investors -- that we'll eventually be selling some or all of the position.

So our friend Ben called to light the fact that in retirement, the benefits of dollar cost averaging are effectively neutralized because you need to sell your positions at specific times for living expenses. He doesn't go on to give perscriptive guidance, but he made the point and I think it's certainly valid to consider. This isn't to say that you shouldn't employ DCAing, but you will need to be smart about how and when you withdraw in retirement.
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Wednesday, November 01, 2006

October Net Worth Update (up 3.29% to $884,564)

growth chart
As many of you probably had, I had a great October! I've updated my NetworthIQ profile with the numbers, but here is the detailed breakdown:

On the stock front, my portfolio generated $15,853 in market returns (a 5.16%!!). I have been saying that these are not normal one-month gains, but I'm starting to wonder... obviously, market conditions were incredible in October. Also, to be fair, however, a few throusand of this gain were due to additional savings.

On the retirement front, the gain was due to 401(k) contributions as well as pure market returns. The gain was a stellar 4.73% return...

I added my Prosper.com funds in the Assets->Other category, so you will be able to see how I do on those over time. I currently have 5 funded loans at an average interest rate of 13%. These are all very conservative loans and I expect to dabble down stream to add more risk and return. This is going to be interesting.

The net effect on the mortgage balance was almost 2% this month. As I mentioned, I made a $4500 payment this month to pay down the principle. I hope to continue paying it down aggressively until the end of the year.

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