A Beautiful Wedding…

Back in mid-March, one of my good friends got married. He and his now-wife had a beautiful wedding ceremony and an eventful reception.

Not to detract from the wedding (again, it was wonderful!), but I noticed that the venues were sparsely decorated. I noticed because I spend way too much time thinking about finances! And also because my wife’s part-time job is wedding planning… so there!

But I think my friend and his wife did it intentionally. I’m sure they were very frugal and made very smart financial decisions. Which is an excellent sign for them and for their future together!

Which Brings Me to My Point

According to CNN Money, the cost of weddings average $30,000 (for 2013). To be fair, they include engagement rings in that number. Take that out, and you’re looking at an average cost of $24,000 for the “day of” celebration.

My own wedding was in 2009, and we spent just under $20,000. But we were young and stupid and terrible with our money back then!

I didn’t ask my friend how much they spent on their wedding, but I don’t think it was anywhere near the average. Which is great for them. Because they had a great ceremony and put on a great party!

So, you can be frugal and still have a beautiful wedding. :)

Celebrate the Small Wins: I Have $100,000 in Retirement Savings!!!

I was flipping through the family’s financial accounts last week and made a wonderful discovery. Among my wife’s and my retirement savings accounts (my 401(k), my Roth IRA, and her Roth IRA), we have $100,000!!!

Woot, woot!

It’s just sitting there, waiting for us at retirement. It is a wonderful feeling indeed. (I hope that I don’t have to, but…) If I worked until age 70 (I am 29 now), this $100,000 could turn into nearly $6M, if I never add anything else to it!

Wow!

Then, I started to think about when I could retire, I played around with how much I need to save per year, I tweaked the interest rates… and it left me in a daze. Depending on how I look at things, I could have anywhere from $2M up to $15. That is a HUGE spread!

Somehow, I turned a celebration into a depressing story. I reminded myself, “Self! You need to celebrate the small wins.”

(And also, “All that retirement stuff is Future Self’s problem!” Nah, just kidding.)

Submit Your Taxes!

I dropped off my tax paperwork to my CPA this morning. Hopefully, he will be done in about a week or so. And this time next week, I will submit my tax return to the IRS.

If you haven’t started your tax return yet, it’s time to start! Get them submitted! There’s less than a month to go!

E*TRADE Seminar #6: “Roth IRAs: Beyond the Basics”

This seminar is perhaps the one that I looked forward to the most today.

Defined contribution plans, like Roth IRAs, are how people will retire in the future. If you are younger than, say, 48, you shouldn’t rely on Social Security, and you should control your retirement goals using defined contribution plans.

Here is a summary of parts of the presentation. I summarize the basics of Roth IRAs and the appeal for it. The presenter also went over unique tax consideration and how conversions work; I will not summarize these topics.

The Basics

Roth IRAs have grown in popularity over the last several years. Based on Vanguard’s data from its accounts, about $2 out of every $3 contributed are to Roth IRAs. The other $1 is contributed to traditional IRAs, of course.

Contributions to a traditional IRA are tax deductible. You will be taxed at retirement when you withdraw funds from a traditional IRA. Contributions to a Roth IRA, on the other hand, are made with after-tax dollars. Withdrawals at retirement are not taxed, since you’ve already paid the taxes.

That is the key difference between the two and is the cause of the biggest dilemma for investors. Which do you pick? Do you want to pay your taxes now or do you want to wait until later?

Some other differences include:

  • You can contribute to a Roth IRA at any age. With a traditional IRA, you cannot contribute after age 70 1/2.
  • There is no lifetime required minimum distributions with a Roth IRA. That is, you’re not told when to start withdrawing your money. With a traditional IRA, you must begin withdrawing at age 70 1/2.
  • Your contributions to (but not your earnings from) a Roth IRA can be withdrawn at any time without penalty. With a traditional IRA, you will be penalized if you withdraw your contributions before age 59 1/2.

The Appeal

The presenter asked the question before, but finally answers it: “Which (the traditional or the Roth) do you pick?” The rule of thumb is this: Compared to the tax bracket you’re in now, consider a Roth IRA if you think you’ll be in the same or a higher tax bracket at retirement.

But here are two other reasons to consider a Roth IRA regardless of your tax brackets now and in the future.

One: If you contribute to a tax deductible retirement savings account, like a 401(k) plan, you get tax diversification by also using a Roth IRA.

Perhaps, you don’t want to guess what you tax bracket will be in the future, or you are unsure how the government will change tax laws, Tax diversification helps because you are putting some of your savings into tax deductible accounts and some into after-tax accounts.

Two: You can technically save more in a Roth IRA than a traditional. Since it’s after-tax contributions, $5,500 (the contribution limit for 2014) into a Roth IRA is more than a $5,500 tax deductible contribution into a traditional IRA.

To think about it another way: Suppose you contribute the max limit to a Roth IRA yearly for several years, and your friend contributes the max to a traditional IRAs for the same amount of years. You both invest in the same mutual funds. At retirement, you both have $1,000,000. Well, your Roth IRA doesn’t get taxed, and his traditional IRA does.

The counterargument: You are using more of your money to contribute to a Roth IRA. So, your friend (who has a traditional IRA) could invest the difference (his tax deduction) and be as well of as you.

My response: Really? Will you really contribute the tax deduction? And if so, where else will you contribute it to get the same tax advantages?

My Thoughts About This Seminar

My general thoughts are in line with the summaries above. I personally use a Roth IRA, and here are my reasons:

  • I believe that I will be in a higher tax bracket when I get older. I am relatively young now, so I fully expect my income to grow over the years.
  • I have a hard time convincing others, but I really am contributing more to a Roth IRA since it’s after-tax money.
  • Do you really think that the government will lower the tax brackets? Changes will be made to keep up with inflation, but I sincerely doubt we will get taxed less in the future.
  • I have a 401(k) at work, so I’m tax diversified,

As always, personal finance is personal and about being intentional. If you have strong gut feelings for a traditional IRA, then use it! If you are being intentional about how you invest and what you invest in, then who cares about a few tax dollars here and there. The key thing is that you are doing something!

I like Roth IRAs, and I recommend everyone use them. But if you decide to use a traditional IRA, I am okay with that as well!

E*TRADE Seminar #5: “Securing Your Retirement: Transforming Social Security Into a Winning Retirement Strategy”

Seminar #5. Phew. Social Security. Yay.

The presentation itself was actually really good. There’s a lot of good information. But as a 28-year-old, I’m not expecting much from Social Security for my retirement. Defined contribution plans, like Roth IRAs and 401(k)s, are the investment vehicles I rely on for my retirement income.

There was some discussion about spousal benefits and survivors benefits as well as whether you should take your Social Security early at 62, at your Full Retirement Age (FRA), or at age 70.

I understood what I saw on the presentation, but I am not equipped well enough to explain it here. If you are wondering when you should receive your benefits, you should talk with a financial planner to help you make a decision.

One key note: When you receive your Social Security statement annually, verify that “Your Taxed Social Security Earnings” are correct. Your Social Security benefits will be based on these numbers, so make sure that they are right!

E*TRADE Seminar #4: “Take Action with E*TRADE Tools”

The fourth seminar for Retirement Education Day 2014 is “Take Action with E*TRADE Tools.”

E*TRADE actually has some really good tools to help you out on your financial journey. They are described below.

Portfolio Analyzer

Available here: https://us.etrade.com/investing-trading/portfolio-management-tools (You will need login credentials with E*TRADE.)

The Portfolio Analyzer answers the question “How diversified is my portfolio?”

I have mutual funds in a 401(k) and in Roth IRAs. I also have two 529s for both of my kids. I’ve identified, I feel, fairly diversified mutual funds for each of these accounts. But how can I be sure? Also, how can I be sure that I am diversified across all of the accounts?

That’s where the Portfolio Analyzer comes in. It’ll provide information about how well your portfolio stacks up against a handful of benchmarks. It also breaks down which asset classes you’re in, which stock sectors are in your mutual funds, how the mutual funds are geographically distributed, etc.

It is very powerful. If you have access to E*TRADE, it’s free to use, and I would definitely recommend it.

Risk Analyzer

Available here: https://us.etrade.com/investing-trading/portfolio-management-tools (You will need login credentials with E*TRADE.)

Risk Analyzer is separate tool, but it’s almost an extension of Portfolio Analyzer. As its name suggests, it analyzes how much risk is in your portfolio.

I mentioned that I have mutual funds in various retirement accounts and college savings accounts. I have evaluated each of the mutual funds for its historical returns, its expense ratios, and have tried to evaluate their riskiness.

Risk Analyzer will give me a real look at the riskiness of the mutual funds in my accounts. Like Portfolio Analyzer, Risk Analyzer is very powerful. Again, if you have access to E*TRADE, it’s free, so give it a shot!

Retirement Planning Calculator

Available here: https://us.etrade.com/e/t/plan/retirement/quickplan?vanity=calculator

This E*TRADE tool is free for everyone! Yay! This is another good tool, and it is very much like other online retirement planning tools. You input your age, income, when you want to retire, how long you expect to live, etc.

You then can change your investment style (risk tolerance), how much you can invest per month, and several other parameters to see the likelihood of you achieving your retirement goals.

There are many other online tools out there, and I would recommend using several of them when you run these calculations. They all have differing underlying assumptions, so you’ll want to verify each tools’ calculations again each other.

All in all, it’s free, so there’s no harm in trying it out. I’ve used many of these tools, and this one is near the top of the list for my favorites.

Online Portfolio Advisor

Available here: https://us.etrade.com/investing-trading/online-portfolio-advisor

The Online Portfolio Advisor tool is probably the best of the bunch.

Suppose you are looking to start a Roth IRA and don’t know what to invest in. Online Portfolio Advisor will help you out with this.

Rather than just provide an analysis of your existing portfolio or run retirement planning calculations, the Online Portfolio Advisor takes in inputs and recommends an investment solution that includes ETFs and mutual funds.

Or you can build your own portfolio and the Online Portfolio Advisor will tell if it’s up to snuff.

There is a guest version of the tool, so it’s free for everyone. I recommend this one.

My Thoughts About This Seminar (and the Tools)

The seminar was awesome (at least, in a nerdy kind of way). It scratched the surface of 4 different tools offered by E*TRADE, which all seem very user friendly, quite intuitive, and are free (2 of them require login credentials). I recommend them all as resources for you to evaluate your portfolio and to enable you to establish your retirement goals.

Truth be told, I only tested out the tools during the seminar’s 1-hour duration. Even still, it’s hard not to recommend free tools when a 15-minute sampling of each tool proved positive.

Great seminar, and great tools.

I’m Taking an Intermission

I haven’t eaten lunch yet, so I’m about to take a break.

The following seminars are coming up next and closing out the day:

  • Seminar #4: “Take Action with E*TRADE Tools”
  • Seminar #5: “Securing Your Retirement: Transforming Social Security Into a Winning Retirement Strategy”
  • Seminar #6: “Roth IRAs: Beyond the Basics”

Based on the topic titles, I’m not sure how relevant Seminars #4 and #5 will be to me, so I may not write posts on them. But I’m definitely looking forward to Seminar #6!