October 29, 2018
Last November, I hopped into Fidelity’s retirement planning module (access restricted to account holders) and noodled around with some basic retirement assumptions (FIRE in 9 years, for example), and they didn’t have good news for us.
We assumed: PiC would retire in 8 years and I would in 10, that he would last to age 95 and I til age 98 (hah), that we would continue with our current level of household income during that time.
We scored a paltry 31. At that point in time, they estimated we might:
Have $3,242/mo
Need $10,308/mo
Leaving a Potential Gap of $7,066 /mo
(This is based on a hypothetically “Significantly Below Average Market” which is just how I want these estimates to be – very pessimistic.) Not good!
Their recommendations: Consider increasing your retirement savings. If you have a workplace plan, at the very least try to contribute enough so you will receive your employer’s full match.
I would LOVE to. But I don’t have a workplace plan and it stinks that the only way to put away money for retirement is through taxable accounts if your employer is a dud in the benefits department.
That is why I’ve been focused on both dividend investing and index investing.
Reduce spending: I sure hope we’re not spending $10,000 a month in retirement! I need to have paid off our mortgage and be done with childcare to ensure that.
More than half that cost right now is daycare and housing (mortgage, property tax, insurance) so at least 20% of it will be less in a few years.
Looks like your current asset mix appears to be closely aligned with your Target Asset Mix.
We based this on the percentage of stocks in your assigned accounts. You should review this at least once a year, or when markets move significantly.
Woot! I picked our index funds all by myself. Mostly. I had a bit of analysis help from fellow money bloggers.
Almost a full year later, having made some big changes to our investing and cash holdings and adjusting assumptions, our score has improved to 60. A good increase but it still qualifies as “Needs Attention”. Without taking any possible Social Security into consideration, the current projection is that we’ll have $6,022/mo income.
New assumptions: moved PiC’s retirement age up by two years and mine down by 2 years, set both of our life expectancies to 98 years. The excessively high life expectancy isn’t because I assume we’ll really live that long but rather that we’ll need to spend a fair amount on healthcare in our later years and this is my way of adjusting our needed income expectations. If there’s a better way to do that, I’d love to hear it!
This doesn’t spell the end of our early retirement hopes like I felt it did last year when I first poked around. It gives us some decent goals to aim for in a largely uncertain plan based on a lot of assumptions.
If we did manage to close that gap significantly or even entirely, there’s still the potential college costs to think of. Certainly some of it will be covered by the early start on our 529 but at this point, I’m more comfortable planning for a combination of using savings, cash flowing some portion of it and having JB commit to some of the costs zirself.
:: How do you fiddle with your retirement expectations? How much might your future costs change?
October 22, 2018
One of my favorite things about having my office space settled is that even though it’s only October, almost all the Christmas gifts for the family niblings are ready to be wrapped. I might even tackle that wrapping this month to settle my stomach over the upcoming holidays. That’s because I have THE GIFT BOX.
It’s a really simple process. I keep a spreadsheet of the niblings’ ages, sizes, and favorite colors. When I spot a great sale on kids’ clothing or books, and I have a gift card, I pick out as many things as I can for up to $100 total, and voila! Their gifts are done. I can usually get a good armload of clothing so that’s always fun.
I’ll grant you that it’s not that exciting – they don’t get toys just clothing or books, but I’m all about practicality and frankly, all of the niblings have toys coming out of their ears. The clothes will get passed down through all the cousins and the books, well, you know how I feel about books. The more the better!
I also add more random gifts for JB’s friends, and the children of our friends, throughout the year during similar sales but those lucky kids get books, clothes, puzzles AND art supplies. We ran into the Aaron Brothers closing sale and picked up a stack of cool painting projects, all between $4 to $10 each, so that when ze gets invitations to an unexpected birthday party, we’re already stocked up and ready.
We aim not to go to more than 5 parties a year so that keeps us from overspending on random kids.
I’m sure this all sounds a bit cheap, so much cost control!, but it’s just not a priority to spend real money on STUFF at this age. I’d rather spend discretionary money on our library, the homeless shelter, the humane society, and educational museums.
On the environmental front, this year, once I practice enough hand sewing drawstring bags for our own use, I’d like to find cheap happy looking fabric to make up fabric gift bags for at least Christmas presents to reduce the waste of paper gift wrap. If I work up a batch for other gifts too, all the better! But this is likely to be a year round project.
October 15, 2018
Folks shared their plans for saving for their children’s educations over at Stacking Pennies’s post on saving for baby.
I’ve always felt uncomfortable with stocking up the 529 aggressively, or more aggressively than we have been doing. I simply don’t know what JB will choose when the time comes, going to college and graduating is a relatively new thing in our immigrant family. All of PiC’s family went to college and even went on to higher education. That was true even if you went back a generation.
In my immediate family, I’m the only college graduate. My parents went to college but didn’t have the time or money to graduate, they were already raising us by then. Grandparents? Hah. Grandma was smart as a whip and she used her natural intelligence to the fullest, parlaying a 2nd grade education into raising a huge family and running a tiny farm and growing it into something that sustained her into her 80s.
It always disappointed Mom that I didn’t go on to graduate school because she hoped for more, and better, for me, but that just wasn’t my path. Formal education, Asian though I am, simply wasn’t my forte. Working hard and smart was. I got my English BA and hit the working road hard. Honestly, there’s not much a Masters would do for me in my current line of work, I’d have to pursue a PhD to make any difference in my working path and even then I doubt it’d be worth the investment. The ego boost doesn’t seem worth the price tag, either.
Our current savings plan: We’ve been working on contributing $14,000 (the maximum for one parent) per year to JB’s college savings aiming to go north of $100,000 but … there are too many unknowns here for me to be really comfortable with that much or more.
I simply cannot predict JB’s interests and commitment to higher ed, and what the landscape of higher ed will be in 15 years. I’m tempted to forgo much more in the way of contributions to the 529 and simply invest in our brokerage toward our hoped-for early retirement and mortgage paydown, and plan to cash flow college should the expenses rise above the saved amounts. We’d be abandoning tax free growth but if ze didn’t use the money, there would be a penalty to get that money out as well.
:: Am I being too risk averse (avoiding that penalty) with that line of thinking? What would you do?
October 1, 2018
I’ve been thinking about this a lot. Obviously. Even as I gear up for the next recession, whenever that may be, it’s obvious how heavily my thoughts and feelings on our financial security are influenced by the last one. Sometimes I’m levelheaded about it and make action plans. Sometimes I’m weighed down by anxiety and worries.
The first question is always: are we over-committed financially? If we aren’t, then it shouldn’t be a problem, right? We’d just tighten our belts for a while and ride it out with our cash in hand.
Answer: not with two jobs. Also true: to my disaster brain this means yes, we are over-committed. We should be able to handle all our expenses on one income. That’s one area I’m extremely sensitive to – this mortgage really messes with our financial position. I’ve reduced it by nearly 1/3 and recast so that our monthly commitment is several hundred dollars less but it’s still not anywhere in the neighborhood of low and low is what we’d need for me to feel like we weren’t over-committed. Mortgage aside, having children is a serious financial commitment between basic childcare and saving for college for them. If we wanted to add to our family, that’s a huge expense we’d be adding and I hate that we have to look first at the price tag and second at the joy (and pain) of having children.
The second question is: are we prepared for expensive life events and emergencies? In my previous experience, one spot of bad luck is absolutely manageable. We’ve absolutely got that covered. My previous experience also says that bad luck doesn’t tend to happen in ones, they tend to be a streak. I’ve planned just fine for a limited series of bad luck but not beyond more crap than two job losses. Compound that and we won’t be able to hold out as long as I projected. So that’s another sensitive area these fears keep prodding with a sharp stick. See, that’s what fed my cash hoarding. This fear that says putting lots of cash into the stock market now “right before” (except hah, who knows when “right before”really is) a market correction or crash makes us vulnerable to financial ruin and that cash hoarding will fend off financial ruin.
(more…)
September 26, 2018
Parental responsibility paradox
I’ve always been responsible enough to cover at least two adults, if not three, and my condition hasn’t gotten better since becoming a parent. It’s led to some weird perspectives on money so I’m never quite sure of the etiquette.
If a friend was ill and you sent them food for a week, would you let them pay you back?
If you visit chosen family every year, they always feed you, and don’t let you contribute, would you engage in a long, probably losing, battle over it? Or is this a thing that family does and you’re supposed to sit down and shut it?
Income and savings
Once upon a time, at least ten years ago, I told a friend “I can’t wait until I make $100,000 a year. Can you imagine how much I could save???”
Answer: Not as much as I had originally planned. But still a healthy amount!
How much could you save on a $100,000 salary and do you have a single income, dual income, and/or any dependents?
Skills
“You know, I lied before. I didn’t really learn to play guitar. I just kinda … gave myself the ability. I did the same when I learned French.” – Chuck, Supernatural
If you could, would you just give yourself talents (musical, lingual, or athletic)? What would you pick?
Massive loans
We’re whittling away at the redwood that is our mortgage and I periodically check to see whether we should refinance for a lower interest rate. Now is really not the time – interest rates are approaching 5%! Our rate is a not great but not horrible 3.875%. I miss our previously pretty great rate that was a full percentage point lower.
What’s the best interest you’ve ever had on a loan?
September 17, 2018
The anniversary of the Lehman Brother’s collapse is coming up. I keep hearing about the ten year recession cycle and that anniversary is symbolically looming large in my mind.
That was my first recession as an adult and I didn’t really know anything about recession cycles or how the market functions – nothing! All I knew was the financial world had come crashing down, my favorite bank (WAMU) had been eaten, the banks were dropping like flies, and that I didn’t know enough about stocks to make smart picks during the tumult. I did know enough to buy BRK-B at the first buying opportunity but I had so little money at that time I bought less than ten shares. Still I bought them and they’ve doubled in value so that was one good decision made in near total ignorance.
I’ve been thinking a lot about how to “recession proof” our lives and our portfolios. This time around, we’re incredibly lucky to have been able to build up a solid foundation already. I’ve still got a bit to learn but the basic outlines are relatively clear to me. We’re personally at least a decade or more away from FIRE even with a bull market so overall we need to stay aggressively invested to build up our wealth. We added some bond funds for stability recently but I’m still thinking about how much we need in bonds to endure a bear market in good health.
Several scenarios come to mind:
(A) a recession with an extended bear market but no job loss,
(B) a bear market + recession + 1 job loss,
and (C) a bear market + recession + both jobs lost.
In scenario A, in theory, I want to have cash on hand to buy more stocks / stock funds as their prices drop. This is assuming that we’re still making decent incomes and expenses stay the same – our savings would remain intact and we’d have cash flow to invest with.
In practice, I need to think about where my purchases should be made (individual stocks that bear dividends vs stock funds) ahead of time so when the prices are dropping during a stressful time, I won’t be irrational and go ostrich. With a buying plan, I’ll actually buy. Without one, I’d hunker down and miss out on good pricing.
Jonathan’s stress test, as a person looking to live off his portfolio for another 40 years, is also a useful thought process though he is far more heavily invested in bonds since he’s further along the process.
In scenario B, we would have to stop saving and investing to make up for the lost cash flow. Mind, we’d have lost half our income (at least) so we’d only be diverting savings from the remaining income. In any case, no cash flow would be available for buying but I could make an argument for diverting a bit of money to buy at low prices. Depending on which of us loses our job, we could also lose childcare which is linked to a job so that reduces one large expense in addition to creating a bit of logistical difficulty job hunting and minding JB at the same time. I’m not factoring in unemployment income specifically because I don’t know how much we could draw and how long it would last. It would simply be plugged in to cover non optional expenses if it does exist.
In scenario C, we start drawing down our savings to cover expenses and slash any optional expenses until we have a new job. We have 1 year in cash and CDs and 6 months in bond funds. Naturally, we would have to make cuts to variable / disposable income type expenses but we don’t have a ton of those. If we lost both our jobs, I would hope that 18 months would let us weather being between jobs but there’s part of me that still worries it’s not enough. I remember how long it took to get another job last time and it’s infinitely more stressful with two adults job hunting and swapping childcare. I’d still be able to do some mini gigs, probably, but that’s really minor income stacked against our expenses.
If we were in a different (better) place financially, I would take a job loss as an opportunity to take a real sabbatical but we’re not in that place yet. I keep looking at our circumstances to find ways we can do better and get to that place but we won’t be there in the next two years.
:: What are your plans for weathering a recession?
September 10, 2018
Sometimes insomnia pricks me badly and I’m not able to sleep even after reading two or three books. I used to be really good at sleep hygiene but the combination of being tired and too tired to sleep overrides the usual tactics.
So I lay awake browsing, trying to find that last bit of something to read that will let my brain relax and say ok, sleepiness! Come in!
All the time hoping and hoping that it won’t take three, four, or five hours. A preschooler, two jobs, and two dogs have no mercy for a mom who failed at sleeping again. Who fails at sleeping?? Who wakes up with new injuries from sleeping?? Not only me, I can tell you that much.
This night I took to writing. This post, and the beginnings of ideas for some freelance work. I shake out my brain for more freelance ideas. I check on sleeping JB and give zir a quick cuddle. Pet the dogs, scratch PiC’s back gently. Finally admit that the uncertainty at our jobs that’s been gnawing away at us is getting to me. I’m worrying about pennies again. I’m worrying about bringing in some extra dollars against the lean days, worrying about wanting to grow our family when we can scarcely afford all the priorities on our plates, worrying about if we could even choose to do that if we let ourselves want it. I’m repressing even the knowledge of what I really want, again, because of money, again, and that’s telling my body it’s the bad ole times, again.
My body responds, predictably. It tightens up. It doesn’t let me sleep. It says ok, stay awake, plan your way out of this mess! (more…)