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Posts tagged with: retirement planning

Retirement Planning

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Let’s be real, if it weren’t for the mandatory retirement required by my employer (we’re required to contribute 7%, which is matched dollar-for-dollar by my employer!), I’d probably be a ways off from any serious retirement discussion. I mean, we should all be doing it, but when you’re just trying to pay your monthly bills, you’re probably not super concerned about how you’ll be paying for your golden years.

But we should be! Especially with some hints of BIG changes on the horizon!

First, did you see the IRS’ announcement with 2018 pension plan and 401(k) contribution limits? If not, check it out here. For the time being, annual income limits are going UP for traditional IRAs, Roth IRAs, and Saver’s Credit! That’s good news to those in the stage of life to be maxing out retirement contributions!

The reason I use the verbiage here (“for the time being”) is that, right on the heels of the IRS’ announcement, talk from the Whitehouse is suggesting steep reductions in the annual limits allowed for tax-deferred retirement accounts. Check out this piece from the New York Times with more info. Some of these (rumored) reductions would be seriously dramatic.

Where are you in the retirement savings spectrum? Are you actively putting away money for retirement or still in full-on get-out-of-debt mode? I have mixed feelings about my work situation. I like that I’m being compelled to save 7% (+ the 7% employer match!), but I do wish I had the freedom to drop down my retirement contributions in an effort to get out of debt quicker!!!

I sure do hope that by the time I’m able to fully focus 100% on retirement that the investment vehicles to do so still exist! My Dad (before being diagnosed with FTD) was a financial advisor all his life. He has cautioned us for years that he felt Roth IRAs would eventually be taken away in their entirety (note – this is just his gut – no special “inside info” here). He’s urged us for years to get our financial houses in order and be in a position where we can max out our Roths since, in his view, they could end up disappearing soon!

 


Weekly Debt Update #23- Retirement Contributions Past, Present and Future

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Hey everyone! I hope you all are having a great start to your week.

After I posted last week of my after debt plans (here), there was some outcry, confusion and wonder over my retirement plan. Here’s the statement in it’s entirety:

“I’m going to decrease my 401K contribution to the minimum (4%) to get the company match. I’ll use a fairly good portion of my after tax income to fund an investment account for a, hopefully, early retirement. I’d like to do between $300-$400 a week. This is a big one, since I want to save up a pretty large nest egg, but there’s a ton I feel like I’m putting off (like home renovations) that I could do with an extra $400 a month.”

After reading your comments and looking back and this statement, I left a lot of my recent activity and thinking on the subject off the table. But before I go into depth on my present and future retirement plans, I want to give you a history of what I’ve I’ve done previously.

  • At the start of my career, in May of 2009 with the federal government (in the Dept of Veterans Affairs), I started out contributing 3% of my salary to the federal government’s form of the 401k- the Thrift Savings Plan, or TPS, for short. I knew up front that the government would match every percent to 5%, but I also felt I needed every penny to pay my rent, utilities, food and looming student loans. At least I knew enough to contribute SOMETHING. What I didn’t realize at the time (but learned sometime after) is that the government will provide 1% of your salary (w/no match) into a separate money market account as a FERS (federal employees retirement system) basic benefit.
  • After a year of service I not only got a substantial raise, but a fellow employee found out I wasn’t contributed enough to max out the government match. I got a good scolding (she was a motherly type) and increased my contributions to 5% for the remainder of my stay with the government.
  • At the point I left the government in January of 2013, I had somewhere in the neighborhood of $20,000 in the TPS account and $1,500 in the basic benefit account. When you leave the government, you can either elect to cash out the basic benefit (which was tax deferred) or leave it with the government if you plan on returning. I elected to take the money, which I used to pay down my student loans.
  • When I started with my new company, they have a policy that new employees need 6 months of service before you are eligible for their 401k program. I started at the end of January 2013, and with my six months plus some waiting time for the next enrollment period, I got into the 401k program in November of 2013. I immediately started contributing 4% to get the company match. The company match, however, is subject to vesting: you get 20% on your 2nd anniversary and an additional 20% for every year after until you are fully vested on your 6 year anniversary.
  • I was in the 401k program for 10 months when I met with a Dave Ramsey endorsed CPA in September of 2014. While I don’t agree with a lot of what he says, I do agree that he’s helped a lot of people get out of debt with his debt free program, so I used his service to find a local CPA (plus I didn’t know how else to look someone up). After giving the CPA my story and financial run down, he agreed that I should cash in my government TPS account and stop contributions to my current 401k. I immediately did both of these (well documented in my first few posts here).
  • After 7 months of not contributing anything, I elected to go back to 4% in May and having feeling this still wasn’t enough, I’m now at 10%. My current vested balance is $6,200.

So that’s my history on the subject. Recently (within the past month), I met with a retirement adviser that my company utilizes to oversee the 401k program. After telling him my history, my financial rundown and future plans (the early retirement/financial freedom) he gave me some advise to stop all but the 4% contributions and instead contribute into a non-retirement investment portfolio (one with minimal fees) once I’m debt free. His logic was that if I want to retire at or around 40 (the age I gave him when he asked) I would want to have immediate access to the money without having to worry about income taxes and penalties that are associated with 401k’s. He also suggested that I could split the investments into a Roth IRA and the investment portfolio. This would give me two pots of money, one for pre-55 and one post 55. So that pretty much sums up the rationale behind my previous post. As a few of you said, my thinking nd history on the subject appears scattered, but I would say it IS scattered. I got some amazing feedback on what to do on my last post (looking at you, Angie), but I would like more. Any help is appreciated- anecdotes, references, tips, anything on the subject would help give me some clarity.

As for my current debt balances, here you go:

Loan NameInterest RateOriginal Balance- May '09Current BalanceTotal Paid OffPaid Since Last Week
Sallie Mae 015.25$27,837.24$23,719.92$4,117.32$0.00
Sallie Mae 024.75$22,197.02$18,604.04$3,592.98$0.00
Sallie Mae 037.75$20,692.10$0.00
$20,692.10$0.00
Sallie Mae 045.75$10,350.18$4,045.23$6,304.95$410.45
Sallie Mae 055.25$6,096.03$0.00$6,096.03$0.00
Sallie Mae 06 and 074.75$6,415.09$0.00$6,415.09$0.00
Sallie Mae- DOE 015.25$5,000.00$0.00$5,000.00$0.00
Sallie Mae- DOE 025.25$3,000.00$0.00$3,000.00$0.00
AES6.8$9,000.00$0.00$9,000.00$0.00
TOTALS$110,587.66$46,369.19$64,218.47$410.45

I hope everyone has a great week!


Planned November Budget

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This was another “meh” month with our income. We live on last month’s income and last month we only made a combined total of $5805 (after taxes). I added an extra $50 to our income (with money leftover from October’s budget), which leaves us with a total income of $5855 to work with.

I have to admit, when I sat down to make the budget for this month I was a little bummed.

In my “prototype” budget I had my car debt payment set at $3,000. Ha! We didn’t even break the $6,000 mark for income, so paying $3,000 to a single bill is not happening. We just literally don’t have enough. Instead, I had to lower my payment to only a mere $745. That’s it. I played and played with the numbers, trying to get my debt payments higher but I think that in lean months such as these, the #1 MOST important goal is this: Don’t add new debt!!! So instead of having my budget set up with overages in various categories, I had to lower my debt payments so as to keep things at- or under-budget. I’m still making larger than minimum payments, so I’m making progress. It just feels a little “blah” to pay so little in terms of the “extra” toward debt. I just have to remind myself that every bit helps! Relentless forward progress!!! (<<<a favorite running saying that I think applies here, too)

Here’s our planned November budget:

Place Planned Budget
Rent 1055
Electricity 170
Water 60
Natural gas 20
Sprint (2 lines) 115
Cable/Internet 100
Car Insurance 56
Health Insurance 350
Trash 35
Debt 1498
Miscellaneous 300
Groceries 400
Baby Purchases 1100
Gasoline 100
Saving for Irregular Expenses 495
Total Budgeted 5854

 

I owe you all a full debt update (maybe next week? Those take me the longest to prepare), but here’s a little breakdown of what’s being paid toward each debt:

  • Medical Bill 1 = $25
  • Medical Bill 2 = $50
  • Medical Bill 3 = $75
  • License Fees = $250
  • Car Payment = $745
  • Student Loan 1 = $77
  • Student Loan 2 = $260
  • Student Loan 3 = $16

Total Debt Payment = $1498

 

Now I’ve got some questions for you all regarding my savings.

First, to give you some background, when I first started blogging here (back in March 2014), I had slashed my savings way down to $190/month. Then, slowly, across the course of the past 9 months my savings have crept back up. I realized my semi-annual savings were too low (I’d forgotten about some of my semi-annual payments, and I added a new one – our renter’s insurance); I also increased the amount saved toward several categories (car maintenance, dental/vision, vet care) in response to the fact that we have upcoming needs in these areas and I felt it would be prudent to plan for those in advance rather than being surprised by the big bills when they pop up.

So what started as only $190 in monthly savings has slowly crept up to $495 in monthly savings.

On the whole, I feel good about my savings categories. I feel like this is money we will certainly need for expenses in the future and instead of not having a plan for how to pay for them, we’ll have money already set aside.

That being said, this is a very lean month. December will probably be quite lean as well. Plus, I have some potentially large expenses coming up. I’ll need to have money set aside to buy a couple nice interview outfits and some travel expenses for the month of December.

With all of this being said, what do you all think about me setting aside my “savings” money for these other purposes? I could split it roughly in half, putting $250 toward planned December travel expenses (which should cover about half the total expenses – see here), and $245 toward funds to-be-used on a nice interview outfit or two (I have to admit I have NO IDEA how much I’ll need for my interview clothes).

For reference sake, here’s how I currently have my savings categorized:

  • Semi-Annual Bills = $100
  • Car Maintenance = $100
  • Dental/Vision/Health = $125
  • Travel/Christmas = $25
  • 3-6 Months Expenses = $25
  • Dog/Vet Care = $10
  • Girls’ Birthday Savings = $10
  • Roth IRA = $100

I know it’s a slippery slope to stop contributing to these savings permanently (i.e., I KNOW the semi-annual bills are going to happen, so it’s unwise not to prepare for them), but do you think it would be prudent to stop the contributions for a single month so I can use this money toward these other things (i.e., interview clothes and travel expenses)? If not, from where should I draw this money? Contribute less toward debt payments? Try to sell more things? Something else?

I appreciate any and all tips or suggestions. Thanks!