My Pocket Change

If you’re like me, you think pensions went extinct with the dinosaurs eons ago.  All we hear about in the news is how thousands of employees and retirees have been loosing their pensions as one big company after another fails to adapt to changing economic environments.  In today’s world, having a pension almost seems more like a liability than a benefit…

But as it turns out, my employer offers one in addition to a 401K savings program.  Perhaps because of the negative press about pensions in previous years, I hadn’t actually looked into exactly how my pension plan works.  I knew there was nothing for me to pick or set (unlike a 401K where we choose funds, percent contributions, etc.), so I was never motivated to figure it out. 

But recently, I have been trying to figure out exactly how I need to contribute towards my retirement each month.  So now how my pension works has become quite relevant.  So here we go…   Continue Reading »

No Comments »

I recently finished posting the three steps in my path to retirement where we determine how much money we need to put away each month.  Hopefully the steps aren’t too hard to follow, but I thought running a few examples would be helpful and also allow me to highlight some of the more interesting issues.

I am going to explore two very different scenarios.  First, we will look at a young professional just starting his (or her) career.  In a later post, we will also look at someone near the opposite end the spectrum.  Let’s take someone in their 50s who needs to reevaluate his (or her…) retirement planning.   Continue Reading »

4 Comments »

It’s time for the final step in our retirement planning. With a little more math, we can answer:

How much money do I need to put away each month in order to reach my nest egg?

To briefly recap, we’ve been using a real value approach to model the first two steps required to determine our necessary monthly retirement contributions.  First, we estimated how much money we’d need to provide ourselves annually while in our golden years.  Second, we determined what size nest egg would be necessary to give us that money.  In this third and final step, we’ll calculate how much money we’ll need to put away each month to reach that desired nest egg.   Continue Reading »

1 Comment »

Onwards to step two of our retirement planning (warning, we’ll need some math):

How big do I need to make my nest egg?

In part one, we found the amount of real valued money we’d need to supply to ourselves annually during our retirement years.  This effectively is the amount of money we’ll need to remove from our nest egg (and put into our checking account) each year so that we can live the lifestyle we wish to live.  This money along with social security, pensions, rental incomes, and other secondary incomes will make up our total income during retirement.

With that number, we can now figure out exactly how much real valued money we’d need in our nest egg in order to retire.  To be clear, this is the total amount of money we’d like in our retirement accounts entering into retirement.  There are two methods to do this 1) living off interest and 2) depleting your funds when you pass away.     Continue Reading »

1 Comment »

Here’s the first step in our retirement plan:

How much money do I want per year while in retirement? 

When you retire, how much real valued annual income would you like?  Ideally, I bet we’ll all answer… a million dollars!  And if all goes according to plan, maybe we’ll all get there!  But in the mean time, here we are hoping to establish a baseline plan for retirement — a minimum, if you will.  Back to the question, how much?

One way to answer this question is to simply come up with what seems like a reasonable number.  $40k?  $100k?  This is obviously a highly subjective question.  But let’s tackle the question with a little more rigor.   Continue Reading »

4 Comments »

Most people know they should put money towards their retirement, but very few know how much.  The more, the better – sure!  But personal finance is a balancing act.  And to balance retirement into your budget, you need a clear plan with goals.  A path forward.  So, how much should we budget each month for retirement?  And more importantly, why?  Over the next few posts, I hope to outline my answer to these questions.  For myself, I’ve found that number to be a little over $1000 a month.  I’ll break down this answer into three steps.  There will be a fair amount of math involved, but I’ll spare the details for those interested.   Continue Reading »

5 Comments »

Within the last month, I’ve had two friends ask me the same question. Both friends have healthy jobs (lawyer in LA and finance in NYC) with salaries well into the six figures. Their salaries make them ineligible for deductible traditional IRAs and Roth IRAs. Their question was this: Since I can’t get a tax-deductible or Roth IRA, should I even bother in getting an IRA?

(I would like to note that I originally posted this subject here, but Samerwriter pointed out an error in my assumptions.  This is my revised conclusions.  Big thank you for Samerwriter!)

The answer? MAYBE (unsatisfying, I know).  Non-deductible traditional IRAs offer great tax benefits that should not be overlooked. While you can’t deduct your contributions or pull your money out tax free, you can grow your money tax differed.  However, as Samewriter pointed out to me, IRA distributions are taxed as income, not just capital gains. Okay, what does this really mean? I’ve broken this down into five main points. Continue Reading »

13 Comments »

[This post is being re-done here after a commenter's great input.  The new results will be quite different!]

Within the last month, I’ve had two friends ask me the same question.  Both friends have healthy jobs (lawyer in LA and finance in NYC) with salaries well into the six figures.  Their salaries make them ineligible for deductible traditional IRAs and Roth IRAs.  Their question was this:  Since I can’t get a tax-deductible or Roth IRA, should I even bother in getting an IRA? 

Here’s the short answer.  YES!!!  Even non-deductible traditional IRAs offer great tax benefits that should not be overlooked.  They don’t allow you to deduct your contributions or pull your money out tax free, but they do allow you grow your money tax differed.  Okay, what does this really mean?  I’ve broken this down into four critical points.  Continue Reading »

4 Comments »

I finished reading The Four Pillars of Investing by William Bernstein a good six months ago.  Why write a review now?  Even half a year later, I refer to this book almost weekly.  That’s how good this book is.

Continue Reading »

4 Comments »

This is the final step in my basic outline to retirement.

Well, if you still have money to put towards retirement after the first four steps, then you truly are a champion of retirement savings!  Between 401Ks and IRAs, we can put away around $18k a year.  But there certainly are many people out there that want to put away more than that.  Maybe they make a pretty hefty salary, or maybe they got started saving late.  Either way, the question is… what to do now? Continue Reading »

1 Comment »