Life if full of mysteries and part of the joy of life is exploring them and trying to find out the answers. Some of crazy complicated, and you can never figure them out (ex. The human heart and its emotions). Some it just takes some real world experience to identify why things are.
I have always contributed to my retirement savings on a regular basis, through payroll deductions either to my 401K, or through monthly payments to my IRA. I think I have been doing since my first post-military job. Even when I was a young lieutenant making $25,657/year, we were putting away almost $1,000/month in savings (Note that this was because we were on military base housing, so rent & utilities were paid for).
I always wondered why you could contribute to your IRA all the way into April of the following year – i.e. I could be putting money into my IRA for 2018 as late as April 2019. Could even deduct it on my taxes, as if I had already done it (though you would get into a lot of trouble if you said you would to the IRS, but did not). Yet, I asked why people would wait until the following year, and miss the benefits of a year of growth, and the potential upside of dollar cost averaging. Did not make sense to me.
Well, as of this year, I finally figured out why. I stumbled on it when we did our Roth conversion last year, and I discovered that we had overdone it, and because our income was now too high, we could do our regular monthly ROTH investments. I had to pull that money back and place it in our normal IRAs. Ouch! Major paperwork issue – though it has been sorted out.
Therefore, I stopped contributing monthly to our Roth IRAs, and instead put the money into our normal, post-tax investments. Fast forward to November, and we are considering doing a smaller ($40k) Roth rollover. Why so small? Because if we do more, it may dump us over the threshold of being able to contribute. Therefore, we are going to keep it at $40K, and then, when we do our taxes in early 2020, we will see if we can contribute to our Roth for 2019.
Thus, in March of 2020, I will be contributing funds to my 2019 Roth IRA. Now I know why.
Mr. 39 Months
We’ve all seen the articles and data on ‘sequence of return risk’ where, depending on how the markets do in the first couple of years of retirement, you can be in great shape, or you can be in a world of hurt.
Go Curry Cracker has spent the time to do the numbers on how things are going for folks that retired right around the time of our two most recent “crashes.” An excellent read!
I know there is a lot of talk about a pending recession in the US. All I can say is, its going to happen sometime, so don’t panic too much. Stick with your plan, and be flexible depending on the market.
Mr. 39 Months
A lot of ink has been spilled over the last 10 years on the state of the United States’ social security program. For those outside the US, this is the base retirement investment program, which takes 6.2% of someone’s salary, and another 6.2% of the salary from the employer, and uses this tax to pay for current retirees. Most folks think they are paying into an “account” for themselves, but it is actually sort of a giant Ponzi scheme, where current tax money is used to pay off outstanding bills. For folks in the FI community, Social Security is a part of the program, but probably not a major part.
Like so many Ponzi schemes, it is predicated on getting more and more people/taxpayers to pay into it in order to keep it rolling. Unfortunately, the folks in the US have not been having 3+ kids to help defer this, and the bill for the “Baby Boomers” is coming due. The taxes taken in are now not enough to pay current beneficiaries, and so the system is spending up the excess it has built up over the past decades. Depending on which accounting system you use, the year it goes “belly up” is around 2032. Unless something is done, benefits will be cut to 75%, which could be very serious for the ones who most depend on social security.
This happened previously, and the two sides of the political aisle got together in the 1980s and came up with a series of items (extend retirement age, tax benefits, etc.) to fix it, at least for the next several decades. Well, we are fast approaching the time when we need to do something similar, but both sides of the US political aisle seem to not want to even discuss it. Probably because it has been called the “third rail” (i.e. the electrical rail for trains) for politics – to touch it means death.
Which is sad, because the closer we get to the magical date, the more severe the changes that will need to be made in order to keep it solvent. I recently read a report from the Society of Actuaries (an accounting field that specializes in longevity, insurance, etc.) on potential fixes, and what percentage they could go to in fixing the problem.
- Raise the retirement age to 70. Life expectancy is longer, but it could be hard on people with physically demanding jobs or who are disabled. +68% of fix
- Reduce the cost-of-living-allowance (COLA) by a certain percentage. A congressional commission felt the consumer price index (CPI) was overstated by 1.1%, meaning the COLA was too high. However, these would be cumulative, so as retirees get older, they fall further behind in purchasing power. +37% fix
- Reduce benefits by 5% for future retirees: Puts everyone in the same boat, but would hit low income the hardest. +26%
- Increase the number of years used to calculate average wage from 35 to 40 years. This would encourage people to work longer, but would hurt folks who work less than 40 years, especially mothers. +24%
- Affluence test: Reduce benefits for those whose total retirement income exceeds $50k/year. This preserves the benefits for most, but discourages savings and encourages people to hide assets. It also changes Social Security from a universal, “all in this together” program, to one of need. Would hurt support for program. +75%
- Raise payroll taxes from 12.4% to 13.4%. Would not hurt because real wages are going up, but we may also have to increase Medicare payroll tax (it is in even worse shape) so total taxation would be burdensome. +53%
- Increase wages to social security tax: Currently capped at , this would make Social Security a worse deal for higher incomes, further eroding universal support
- Invest 40% of Social Security Trust Fund in private investments. Could boost returns with less risk to individuals, but this would be 5% of private market. Stock voting and selection could be politicized. +48%
While there does not seem to be one single answer, the best way to do this is with a series of 3-5 of these, and this will get us over the 2032 “hump.” All we have to do is have the political will to do it.
That is the problem.
Sorry to be a bit of a bummer, but we all need to be planning on our financial future, and for those in the US, this is an important part of it.
Mr. 39 months
Memorial Day is a day in the United States that has been set aside to honor those who died serving in the armed forces of the US. It was originally established in 1868 for May 30th, to honor those lost in the US Civil War. In that war, almost 10% of the adult male population died, so there wasn’t a family in the country that wasn’t touched by the conflict. Often families lost multiple members, and the need to mourn the dead and honor the sacrifice was felt by all family members.
The holiday continued from 1868 to 1970 to be celebrated on May 30th, no matter which day of the week it fell on. In 1971 it was changed to the last Monday of the month of May, to enable folks to have a 3-day weekend. I’m still of two minds here, because I tend to believe by making these kind of changes (President’s weekend, Labor Day weekend) we weaken the actual reason why we are having the memorial holiday. That is one of the reason I’m glad that US Veteran’s Day (to celebrate military veterans) still falls on November 11th. The date marks the end of World War 1 (the great war) which ended at the 11th hour of the 11th day of the 11th month. Let’s keep it that way.
For many folks, Memorial Day marks the start of summer. Kids look forward to summer vacation, and many folks start taking holidays and travel. For many of these folks, stuck in their 9-5 existence, this is the only time they get to enjoy their free time. For the FIRE community, we’ve reached the point where we can take time off when we want, any time of the year. We aren’t tied down to when/if our boss can let us go.
At least that is where I hope to be shortly (13 months!). We spent the weekend visiting some of Mrs. 39 Months family. Her brother and sister-in-law both retired about 5 years ago, and true to form, they’ve now started volunteering at various spots (their daughter works at a museum, and the helping out there), exploring new interests (the wife has
joined two bands with her oboe) and traveling (her brothers are both heading to Nepal this fall to hike to Everest base camp & back).
Today, we’re going to be with friends for a “bad movie night” (I’ve written about it before). Good friends and good times.
Hopefully you are enjoying your time this weekend!
Mr. 39 Months
Happy Mother’s Day!
Been traveling down to be with my mother this weekend. She just recently (3 months ago) lost her husband of 47 years (my stepfather) so I wanted to be down there to support and show her my love. Like most people, a major part of who I am is based on her teaching and modeling as I grew up.
She supported my efforts growing up (sports, Boy Scouts, etc.). She provided a safe home, and after my parent’s divorce, she was the rock that helped all of us make it through. It was due to her that I was able to follow my military interest (she got me into West Point with a lot of effort) and while there, I met the future Mrs. 39 Months. After 33 years of marriage, we are still going strong.
It was a good weekend, and with one of my brothers, we worked on a variety of small tasks around the house that she needed done. She stated that she doesn’t really want “things” anymore for Mother’s Day, birthdays, etc. She would just like our help and to be able to see us. We got her car cleaned up, planted some flowers in a bed that she wanted, and generally cleaned out some leftover items and took them to Charity.
We also discussed her finances and how she was doing. Like most children of the Depression in the US, she was an avid saver and has a lot of money in her own right. In addition, she has an annuity from my stepfather, as well as a partial pension from my stepfather. She is also reviewing whether to take his Social Security or keep her own (as you know, she is eligible to take the one that is larger). She is the executor of the estate for my stepfather and is in contact with his three children, who will inherit the estate. A lot of details to go through, all while she is dealing with her own issues.
I hope you all had a great Mother’s Day, and made sure to share your love.
Mr. 39 Months
I was listening to one of my FIRE/Finance podcasts this week, and they discussed an interesting test or quiz you should consider as you prepare for early retirement. A lot of us who have caught the FIRE bug dream about our time post-FI, and do a lot of thinking/considering/planning for what we will do, what our day will be like, and how we will occupy our time. For many of us, it is the fuel which keeps us going as we accumulate the resources to be financially independent.
Yet a lot of folks who are in the community have not been able to get their significant other as “pumped” as we are in reference to this, and often discussions do not go very far. A lot of our spouses just aren’t that turned on by finances, Roth conversions, and travel hacking. I know, because I have constantly tried to involve Mrs. 39 Months in our finances, but she resists. The best I can get her to do is look at our net worth statement at the beginning of each year and file it away.
So the podcast suggested you ask your significant other a simple question, one that they probably could wrap their heads around and provide feedback on. The question for your partner was “describe a typical day for yourself post-retirement.” From this, you should be able to tell a lot about the sort of life you may lead, some potential budgetary points, and how compatible your plans are with your partner.
Well, for Mrs. 39 Months, I got this:
- “Wake up late”
- “Spend time in morning to meditate and stretch”
- “Leisurely breakfast”
- “Time to take walks outside”
- “Time on my arts & crafts (she plays the dulcimer and makes leather shoes and jewelry)
- “Some travel”
For a little background, Mrs. 39 Months worked for a company for 18 years, where her hours were 10am – 6pm. She had time for a relaxing morning, and she enjoyed it. Eventually the company was bought and moved, and she didn’t like the commute, so she left. Now she has to head to work at 8am, and she doesn’t enjoy the earlier mornings, and how it affects her schedule. Thus, her desire for a more leisurely morning.
It also shows that she doesn’t have a desire for a lot of money-intensive actions in our retirement. We can probably maintain our current lifestyle (though I’ll probably bump up the numbers for travel in our budget). This will help me plan better and keep on track.
So I’m glad I asked, and I hope this will help spark a continued interest by her in our retirement plans.
I hope you folks are communicating well as you progress!
Mr. 39 Months
Its called “They shall not grow old” and it was created by Peter Jackson (Lord of the Rings, The Hobbit, etc.) and the British War Museum to mark the end of World War I.
World War I really was the turning point of the modern world. What Peter Jackson did was take the footage from the British Museum (the old, grainy black & white, silent movies) and digitize it/clean it up so it can be viewed today. He then colorized it and added sound effects/voices so that it is just as good as movies made today.
All the voices are from actual WWI veterans, recordings the BBC had from years ago.
Its a monumental task, and it makes a gripping movie. At the end, Peter Jackson spends about 25 minutes going through all the technology that was used to make it happen – and a great & funny story about how the closing song for the credits was made.
All the reviews are 5 stars on Rotten Tomatoes, and I can’t recommend it enough. It had a short run (one weekend) back in December, but it is back in the US for another short run. Go see it!
Heard this today on a Nov podcast for The Retirement Answer Man
“If you put all your troubles into a pile with everyone else’s, you will want yours back”