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atelierk
New Member
12 Posts |
 Posted - Oct 26 2009 : 5:12:05 PM
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Hi all,
I've been browsing and enjoying the forum for some time, and thought I'd see what advice you all can offer. Like a lot of people, I'm in a quandry because of the economy - I feel like I need to change tactics, but also that any changes would be too little too late.
I currently have $364K in a 403(b), started long before I discovered YMOYL. In March of 2008 I had around $375K, it then rose to around $398 in May or June, and then started dropping, especially after the market really tanked - hit a low of $328K or so. Of course, the market has slowly been rising in fits and spurts now, but despite my pouring money into this thing (and a hefty contribution from my employer as well) it's still $10K below what I had 19 mos. ago! Every March I meet with the investment rep (TIAA-CREF) and he tells me his formula, that I can't even think of retiring before 10 years, etc. Originally, he said I would need $40,000 a year, I told him I live on $32,000 now. (Which IMO is still too much for one person, I need to get really serious about The Questions, I think.) My fear, is that if I keep listening to him, my balance will never reach the level I will need - even if it's less than he says I need - yet I'm afraid that it's really too late to do anything differently (I'm 52). I really don't like what I do for a living, although the hours and pay are excellent - but I'd like to quit sooner, rather than later.
Right now I'm putting 15% of my gross into my 403(b) (ala Dave Ramsey) and my employer does the same (over $18K total). That's a lot of money, yet if I switched my portion to bonds (as Joe recommends), at a low 4.5% for a 30 year bond, I think it would take me two lifetimes to build an income that would be worth anything.
The money is stuck there - as far as I know, I can't get it out without substantial penalty, the earliest I can get the money is 55, but I would have to "separate from service" (quit my job). I don't want to do anything foolish, but I feel like any change is likely to be the wrong one. And of course, the counselor is telling me I need this diversified asset mix including stocks, to have a chance of retiring even at 62.
BTW, I have zero debt - paid off the CCs two years ago, and paid off the mortgage today! (Yay!)
Anyhoo, any thoughts or advice you have would be welcome. |
hgw |
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bigbear
Senior Member
933 Posts |
Posted - Oct 26 2009 : 5:21:56 PM
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Woo Hoo, debt free. That is WONDERFUL!
In my opinion, your life is more important than your money, so it's all about choices. If you list your budget here, we might be able to help you knock it down below $32,000. Will it be less now that the mortgage is gone?
You should think carefully about the next step but ultimately your happiness in life is more important than what a mutual fund salesman thinks. |
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Karen in Bisbee
Moderator
USA
6695 Posts |
Posted - Oct 26 2009 : 5:32:09 PM
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1. You're doing really well!!!! Having a paid-for home is huge! Congratulations and way to go.
2. I would say, especially since you're posting in YMOYL, that your first priority should be working through at least some of the program - figure out where your money's going, and figure out how to trim your expenses. If you are serious about "getting out", in retirement you can put some of your time and energy toward what you were spending money for.
3. Million dollars, $40,000, blah blah blah. You'd think every last human on the planet came out of the womb with a million dollar, $40K per year requirement stamped on our bottoms. There are several great retirement calculators out there that can help you get a realistic figure, and obviously if you can get your expenses down, you can also reduce your nest egg needs. ETA: the 'blah blah blah' was not directed at you - I get really tired of hearing that number used like a holy grail by financial advisors who don't know us from Adam. If you told one of these folks you lived in a cave and existed happily on $15,000 a year they'd still come back and tell you that $40,000 is a realistic, necessary goal. 
4. The big hurdle for all of us is healthcare. That is one arena where you will need to look realistically at your options, should you go private. How do you feel about a catastrophic policy only. Do you have a direct care facility available. How good is your health at the moment.
5. If you get out of your job and convert your 403(b) into a rollover IRA, you can take what's called "substantially equal periodic payments" from it. No penalty, although you will have to pay tax as you draw it out. there are a lot of strings attached re continuing to draw money out of the fund annually whether you want to or not, you'd need to speak with an accountant, but deferred funds can indeed be tapped.
6. There are alternatives between being completely unemployed and having a full time job. Many people on these boards have retired and then supplemented their income as interests or needs dictated.
7. Don't rush. You have a great situation wherein you're still drawing in money, funding all your accounts, and living within your means. Do the work of getting free one step at a time, and enjoy the process as well as the prospect.
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Our capacity to do less harm is limited, but our capacity to do good is not. |
Edited by - Karen in Bisbee on Oct 26 2009 7:01:33 PM |
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lhamo
Moderator
China
5172 Posts |
Posted - Oct 26 2009 : 7:49:21 PM
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I agree with Karen that you are in a great position, and that most mainstream financial advisors are not the right people to go to for advice about early retirement. If you haven't already, check out the forums here:
http://www.early-retirement.org/forums/index.php
Lots of really smart people on that board, who have great advice (most often based on direct experience) about how to plan for/reach early retirement. You will get much better, more concrete advice there than you will from any mainstream advisor. And it is free. There are also smart/helpful people on this board,too (many of us hang out in both places), but the people at the ER forums are more focused on the ER goal and can offer you more focused advice.
You say you are contributing 15% to your 403(b) -- is that the max? If you are over age 50, you can contribute up to 22k/year (16500 in regular contributions + 5500 in "catchup"). If you aren't using that money for other things, then investing in a well-diversified portfolio through your 403b is a great way to go. ANd you can still put 5000/year into a Roth IRA on top of that. My DH and I max our retirement contributions in this way (though we can't do the max to the Roths as most of our income is earned overseas). Our living expenses have gone up this year, but prior to this year we have sometimes saved more in our retirement accounts than we actually lived on. So it is like we are earning a full year of retirement by working hard and saving as much as we can. Yes, our account balances dipped during the recent downturn, but now they are back up again and we kept dollar cost averaging throughout so we got a lot of stuff "on sale". Threw a bunch at the kids college funds in October/November last year, too, and that has now got us a 17% annual return! I kind of hope the market will go down again so we can buy more on sale! It is a bummer to be getting so much less for our money these days. but net worth is way up, so I can't complain too much.
good luck and stick around -- we look forward to hearing how you think/work through these issues.
lhamo |
"What is required of us now is a new era of responsibility -- a recognition, on the part of every American, that we have duties to ourselves, our nation and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task. This is the price and the promise of citizenship." (Barack Obama, January 20, 2009) |
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bigbear
Senior Member
933 Posts |
Posted - Oct 26 2009 : 8:46:40 PM
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| In addition to Your Money or Your Life, you may also enjoy Getting a Life by Blix and Heitmiller. The authors, a married couple, describe in the book their own experience of following Your Money or Your Life and they also interviewed a lot of others who did the same thing. The book helped me a lot. Best wishes. |
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sewmaven
Advanced Member
USA
1089 Posts |
Posted - Oct 27 2009 : 04:50:08 AM
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| If you're in a 403b plan, you've got a job that has a pension, no? So the money in the 403b will be a supplement to the pension? Seems like you are doing very well. It's been mentioned on these boards before that if we listen to the financial talking heads and how much money they say we need to retire, we'd all be working until we drop. Only you know how you spend your money or not and it sounds like you've done a fabulous job so far so don't worry be happy! We've never been big spenders, but as DH and I get older (60 and 62), we find we're spending a lot less. |
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jrb3
Moderator
USA
2118 Posts |
Posted - Oct 27 2009 : 06:51:22 AM
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quote:
Originally posted by atelierk
BTW, I have zero debt - paid off the CCs two years ago, and paid off the mortgage today! (Yay!)
Congrats! Between this and $32K/year being "too much", you're setting up well. What had been going into mortgage can go straight into whatever investment you want.
What I've done in my planning, is to determine how much take-home (after-tax) money I need to keep the household afloat. From there, I can work backwards to how much I need to put into my chosen investments to retire early. Taking each step, one at a time, helped me make sure I could verify I'm making progress.
I'm in a position like yours; I'm letting my 401k and IRA money run as it stands, and investing new money only to bonds. When I've got enough in all accounts together, I'll start drawing from tax-deferred funds and put them into bonds. (I've chosen non-taxable munis, but US Treasuries would work for me too.)
Start with the Questions. Check with a local fee-only financial planner for a less biased expert opinion on planning. Put everything you save, and whatever is no longer going to the mortgage, into additional investment. Between the 403b, any pension, and your own investments, your capital will continue to grow. Ongoing frugality will lower your income needs, thus your capital needs, and make the cross-over available sooner. Keep an eye on the pot -- it will boil soon enough!
Joseph |
Joseph Beckenbach
From each *voluntarily* according to their ability, to each *unimposed-upon* according to their need.
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atelierk
New Member
12 Posts |
Posted - Oct 27 2009 : 09:33:39 AM
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Thanks to all for your input!
Ironically, I find that being out of debt is actually more complicated…when you have debt, your options are so limited that all you can do is keep paying. When you have no debt, you have lots more options but the money is still finite – so I feel like I have to proceed with extreme caution in order to make the best choices.
Sewmaven, I don’t have a pension…the 403(b) is it. I could have chosen the pension option when I went to work there 28 years ago, but I’d been advised that the 403(b) was a better choice. Now I’m not so sure…
Bigbear…I have Getting a Life. I loved the stories and they certainly are inspiring! As I recall, I got it used for less than $2 on Amazon – the shipping cost more than the book!
The mortgage payment had been $610 so that only frees up about $400 a month – and I still have to save about $200/mo for property taxes.
I have been tracking since I got out of debt 2 years ago. So I know exactly where my money’s going. The one part of the program that I didn’t do formally is the questions. I just sort of kept them in mind, but I’m thinking I might need to discipline myself to do them as suggested in the book to make further cuts. I can see areas that could be cut already and certainly, if I stopped working, a lot of commuting expenses would go down.
I live in a small house (about 850 SF), but it needs some work. I’ve kept up with the biggie stuff (roof, furnace, water treatment system, new drywell, some window replacement, etc.), but the house is about 60 years old, has a dated floor plan, and doesn’t function as well as it might. I’ve drawn plans for a small, simple, addition that, along with a couple of bumpouts and removing walls, would make a huge difference in the liveability (and market value) of the place. Even without the addition, the house needs upgraded insulation, 6 new windows, 2 new doors, some way of managing summer heat gain to cut cooling costs. I probably would have to take a loan to do some of it (depending on the extent of the project), but the changes would save money on heating and cooling forever plus there are some tax incentives to do this sort of thing right now. So “investing” in the house is another possible use for at least some of my money.
I guess what my dilemma comes down to is that I’ve totally lost faith in Wall Street, and I think it’s a shame that average working Joes are forced to risk their nest eggs in what amounts to a Vegas-style casino. There was a segment on NPR today, where the guest was saying that very thing: that there are very, very, powerful people on Wall Street who live in a world that’s completely apart from real life. All they do is buy, sell and make huge profits from their funny money investment scams, and it puts all of us – the entire economy – at risk, but the Obama administration seems reluctant to regulate these people in any meaningful way. The only reason the market is rising is because companies have cut jobs to the bone to maximize profits which looks good to Wall Street, but means that the economy as a whole is still as bad as it’s ever been since the 1930s. So my dilemma is whether I want to pour even more money into that 403(b) – putting all my eggs into that one – albeit diversified - basket. Or do I want to invest in bonds? Or do I want to just save and invest some in my house? Or something else?
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hgw |
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bigbear
Senior Member
933 Posts |
Posted - Oct 27 2009 : 11:25:40 AM
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Atelierk, I've been having some very similar thoughts about Wall Street lately as well. Here's what I've decided so far:
* There are things in life I can control and things in life I can't control. It makes sense to put my efforts into the ones that I can control.
* What do I control? To a significant degree, my spending decisions, my health, my skillset, how I spend my time. So, I choose to spend my time taking proactive care of my health (i.e. high quality organic, raw vegan diet, daily exercise, periodic check ups, positive attitude, time with friends and family and my development as a Christian), my spending (i.e. know that what makes me happy usually doesn't involve money, appreciate my 879 square foot condo with one bedroom and one bathroom in a beautiful building with a great location and that is very warm), my skillset (trying to do my best at work and learn as much as I can, pick up certifications that the company pays for, etc.) and using my free time doing things that are fun for me but generally not expensive (i.e. sleeping, time wtih family and friends, free events, exercise and enough spending to have it be a good value for me and to keep me from feeling deprived).
* What can I not control? The U.S. economy, the world economy, the local economy, war, decisions other people make, whether I'm laid off from my job or not. So, I just try to do the best I can do with my part and leave the rest to God. Things generally work out.
* I've decided to not put my future in the hands of Wall Street but I'm still struggling on the next best steps. My hope is to pay off my condo next year and build up some liquid savings. My budget is pretty well under control. I'd like to find a job with a pension if any still exist in the long range future. I still put money in mutual funds through a 401K and Roth IRA. So, I'm not sure how I'll proceed on that. But what I know for sure is that I'm going to try to get debt free with some liquid savings and perhaps even more importantly develop a wonderful, happy life that doesn't require huge amounts of cash to run. Less stress and happiness too has got to be better than more stuff with more stress.
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jrb3
Moderator
USA
2118 Posts |
Posted - Oct 28 2009 : 05:17:58 AM
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quote:
Originally posted by atelierk
So my dilemma is whether I want to pour even more money into that 403(b) – putting all my eggs into that one – albeit diversified - basket. Or do I want to invest in bonds? Or do I want to just save and invest some in my house? Or something else?
So step back at least one level: why are you investing? Answering the questions on a regular basis certainly helped clarify that for me. Once you clarify what is most fulfilling for you, what you want to manifest into this world, it's easier to make the choices.
For my household, what's most fulfilling are raising my daughters to happy productive adulthood, mixing volunteer and paid technical work for human rights non-profits, and preparing to volunteer full-time as soon as we can swing it. We need a mix of money growth now (for kids' education), frugality (to lower expenses and raise investable amounts), and passive income (for volunteering now and later). We created our own software consulting business to generate investable income. For passive income we chose bonds, since we don't want to deal with the variability of stocks, nor do we want to handle real estate beyond our own residence. The stock mutual funds in 401k and IRA can run unattended, with periodic checks for sanity and rebalancing, until it's time to start drawing from them.
Joseph |
Joseph Beckenbach
From each *voluntarily* according to their ability, to each *unimposed-upon* according to their need.
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atelierk
New Member
12 Posts |
Posted - Oct 28 2009 : 3:22:18 PM
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Since I don't want to act in haste, I'm simply going to park the freed up money in ING for now - I've adjusted my various transfers to reflect the lack of a mortgage payment and increased the amount going into 'Taxes' (now that I will have to pay my own property taxes). I'm only earning 1.3% but unlike my retirement fund (right now), I'll at least keep moving forward while I consider my options. Besides, I did dip into my emergency fund to pay off the mortgage, and while I have plenty left, I'd like to replace at least some of it.
Thanks to all, you've given me a lot to think about. |
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Fluffy
Advanced Member
1728 Posts |
Posted - Oct 31 2009 : 2:11:12 PM
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In addition to the book Getting a Life, there's a great book on retiring called Get A Life: You don't need a million to retire well by Ralph Warner, published by Nolo Press, and depending on where you live, you might want to look over some chapters of Extreme Simplicity: Homesteading in the City by Christopher and Dolores Nyerges. I mention the latter because this couple lives in Los Angeles on very little money and do not use air conditioning, thanks to intelligent landscaping plus coating the roof white.
The 403(b) rep is the last person on earth I'd trust with my retirement planning. Most financial planners who stand to gain from your investments recommend well above what a person really needs to retire just to keep you hooked and buying. I was shocked a few years ago to read that Charles Schwab was recommending that people should have, not 70-80% of their current income like many financial advisors, but three times it to retire in comfort. Nobody but the wealthiest one or two percent of the population could possibly manage that, and I consider it absurd.
Aside from being debt-free, owning your home, and having good health insurance, I'd also recommend developing self-sufficiency skills like home repair, cooking from scratch, gardening, et cetera. I no longer trust the stock market myself, but "investing" in my own skill development and creativity seems like a sure winner. |
Edited by - Fluffy on Oct 31 2009 2:12:14 PM |
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lhamo
Moderator
China
5172 Posts |
Posted - Oct 31 2009 : 4:25:30 PM
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quote:
Originally posted by Fluffy
I was shocked a few years ago to read that Charles Schwab was recommending that people should have, not 70-80% of their current income like many financial advisors, but three times it to retire in comfort. Nobody but the wealthiest one or two percent of the population could possibly manage that, and I consider it absurd.
It is absurd, as is the idea that you need 70-80% of your current INCOME to retire well. If you are accustomed to a LBYM lifestyle, and living on 30-50% of your income already, what kind of sense does that make? Well, if you have to pay for health insurance yourself maybe it does, but for most people living a responsible lifestyle, your expenses will go down in retirement, even if you account for a few more splurges.
lhamo |
"What is required of us now is a new era of responsibility -- a recognition, on the part of every American, that we have duties to ourselves, our nation and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task. This is the price and the promise of citizenship." (Barack Obama, January 20, 2009) |
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bae
Advanced Member
6618 Posts |
Posted - Oct 31 2009 : 4:37:10 PM
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quote:
Originally posted by lhamo
It is absurd, as is the idea that you need 70-80% of your current INCOME to retire well. If you are accustomed to a LBYM lifestyle, and living on 30-50% of your income already, what kind of sense does that make? Well, if you have to pay for health insurance yourself maybe it does, but for most people living a responsible lifestyle, your expenses will go down in retirement, even if you account for a few more splurges.
My wife and I retired in our mid-30s, ~10 years ago. We'd planned our cash flow according to the conventional wisdom of ~80% or so of our pre-retirement income.
After we got settled in, we don't spend anywhere near that, probably closer to the 30% level that Lhamo suggests. And we are not exactly frugal or scrimping, but now that we're not "working", there's really not all that much we need to spend money on.
Our top expenses are insurance (health and fire/homeowners) and property taxes, and those have been steadily creeping up. The health insurance took a big bump when we crossed the 45-year-old boundary. |
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Roger R
Senior Member
837 Posts |
Posted - Nov 01 2009 : 06:18:10 AM
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I retired at 55 and have been at it for two years now. Like some of the others mention, it is surprising how much less I've spent than I had anticipated. When I was doing my planning I did three budget scenarios, a peanut butter diet of bare bones spending, a comfortable living, and an oh my gosh, I didn't think it would ever cost this much. I've lived quite comfortably, done some travel, and enjoyed life at the lower end of things, and far less than the $40,000/yr. Pretty close to the peanut butter budget. It's amazing to me how many of my still working friends are worried about having enough income, but have never done a serious budget. Yet will spend hours planning a one week vacation. If you do a good comprehensive budget, all of the XX% of income or $40K/ yr have absolutely zero bearing on your future.
The stock market has been through two world wars, a nuclear missle crisis, a depression, a terroist attack, and countless recessions. Unless you were unlucky enough to have invested at just the wrong time and then sold at the wrong time, it's provided a positive long term return for most investors. IMHO it's always been a trip to Vegas controlled by big business. This really isn't anything new. As one of my college professors said, risk and return will always be intrinsically related.
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“There are only two tragedies in life: one is not getting what one wants, and the other is getting it.” Oscar Wilde |
Edited by - Roger R on Nov 01 2009 11:37:39 AM |
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atelierk
New Member
12 Posts |
Posted - Nov 02 2009 : 06:03:33 AM
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| Hey, I found both Get a Life and Extreme Simplicity used on Amazon. Get a Life was only 15 cents (former library book) plus $3.99 shipping. Thanks, Fluffy. As for urban (or in my case, suburban) homesteading, I'm already well into that - jumped back into gardening bigtime this year after many years of just growing a few tomatoes and cukes. And I just put the finishing touches on a 4 x 12' cold frame in which I'm growing cold-hardy greens for the winter. I got a bit of a late start on it, so for this year I'm considering it more of an experiment, but am already eating several salads a week out of it. (For those that are interested, I'm following the guidelines in Eliot Coleman's Four Season Harvest.) |
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Too late to change?
