4/2 Assuming you want to retire at age 60 and plan to have no pension and no job in retirement, you need to have… 1.6 times your salary in savings at age 35 3.5 times your salary in savings at age 40 5.8 times your salary in savings at age 45 8.5 times your salary in savings at age 50 11.9 times your salary in savings at age 55 16.0 times your salary in savings at age 60
So… how much should I be saving for retirement each week if I want out at age 60? It depends on your age. If you can get 1.6 times your annual salary into retirement savings at age 35, then you need to be putting about a quarter of a percent of your annual salary into your retirement plan each week to be able to retire at age 60 and just enjoy life. So, if you make $50,000 a year, that means an investment of $125 a week into your 401(k) and/or Roth IRA should be sufficient to lead to an enjoyable early retirement.
"Your Money or Your Life" by Joe Dominguez and Vicki Robin
Your Money or Your Life is a bit unusual in terms of personal finance books that you’ll typically find at your local bookstore. For starters, the book has very little concrete information about increasing your wealth. In a section that typically is loaded with books about becoming a millionaire, this is an unusual approach.
So what does Your Money or Your Life offer instead? Rather than focusing on being rich, the book instead looks deeply at finding the central values in one’s life and realigning your life and money to follow these values. The idea here is that most people’s money problems are actually connected to a lack of fundamental direction in their life: they work just to earn money, not because it’s what they love doing.
A capital gains tax is a tax that the government charges you when you sell an asset and make a profit on it. If you buy a stock at $10 and then sell it at $15, you have to pay capital gains tax on that $5 difference. Typically, capital gains tax are filed as part of your income tax return and are typically subject to a lower tax rate than normal income. More importantly, if you have a capital loss in a given year, you can subtract that loss from the gain and only pay taxes on the overall gain.
Sometimes you are subject to capital gains tax even if you don’t sell anything from a mutual fund. This is called turnover and occurs when a fund does a lot of selling of assets during a year without replacing these sales - they instead distribute the fund’s gains to the holders, putting them on the hook for capital gains. This distribution usually reduces the value of the fund, so it basically means that part of your investment can be handed right back to you and you have to pay capital gains tax on it.
Here’s an example of why turnover can be bad. Let’s say you bought $70,000 worth of a fund. It goes to $100,000. Two days later, the annual distribution occurs. You get a check for $30,000 and your fund’s value drops back to $70,000. You’re then on the hook for the capital gains tax on that $30,000 whether you like it or not.
One way to avoid this is to look for funds with low turnover, because those are much less likely to do a distribution (and thus cost you money).
"Businesses must invest in products and people in order to create new wealth." -- John Hoeven
"If you depend on your company to take care of your retirement, your future income will be divided by five. Take care of it yourself, and you can multiply your future income by five." -- Jim Rohn
"Investigate carefully before you invest. Spend as much time researching the investment as you spend earning the money." -- Brian Tracy
"Investing is simple, but not easy." -- Warren Buffet
Tax-Managed Mutual Funds: The easy way involves picking a tax-managed mutual fund where the administrator works to minimize taxable distributions. With your typical actively managed fund, the manager will buy and sell securities to gain a solid return and as a result will create realized gains, which you then must take as distributions and pay taxes on. A tax-managed mutual fund manager will take great pains to minimize realized gains. thesimpledollar.com
index funds - mutual funds that match the holdings of a particular index. Since they match an index, they usually won’t have a real manager, and so you really compete on the basis of price - or the expenses. The “hard” part of index fund investing is picking the right mix of indicies so you aren’t overexposed to a particular market, so take great care in selecting your allocations.
Target-Date Retirement Funds: If you don’t like deciding for yourself what kind of mix to buy, have the “experts” do it for you. Not all target date retirement funds are created equal so be sure to do your homework and ensure that their mix is something that you want. This is the “easiest way” because once you pick one that is the right mix, they will adjust it according to risk profiles for your target date (and assuming your age and risk tolerance). The closer you are to the date, the more conservative the fund will be. The only knock against these types of funds is that they aren’t as tax efficient as the other two but you do get the convenience of not needing to rebalance your portfolio every year.
Taxpayers should be wary of advisers who encourage them to shift under-valued property to Roth Individual Retirement Arrangements (IRAs). In one variation, a promoter has the taxpayer move under-valued common stock into a Roth IRA, circumventing the annual maximum contribution limit and allowing otherwise taxable income to go untaxed.
definition: Wealth comes from having enough assets that generate enough income so that all of your expenses are covered and there is enough left over to invest in more assets.
4/5 "bad idea" loan subprime loan is a loan offered to someone with relatively poor credit, and it usually has a very high interest rate to “compensate” for the poor credit of the borrower. Subprime loans include everything from unusually structured home loans all the way down to payday loans.
4/19 financial plan: 1. Seeing how your past holds the key to your financial future 2. Facing your fears and creating new truths 3. Being honest with yourself 4. Being responsible to those you love 5. Being respectful of yourself and your money 6. Trusting yourself more than you trust others 7. Being open to receive all that you are meant to have 8. Understanding the ebb and flow of the money cycle 9. Recognizing true wealth
5/7 Ockham’s razor, which basically states that all things being equal, the simplest solution tends to be the best one. From there, he talks about the general investing strategy of investing in a very wide array of stocks (he uses the S&P 500 as an example) matches the overall success of the stock market over a long term. Then he compares the S&P 500 to large cap funds from other companies and finds that in 26 of the last 35 years, the S&P 500 outpaces the average large cap fund from other companies.
19 Comments:
patents are wise
By
BethC, at 6:59 AM
4/2
Assuming you want to retire at age 60 and plan to have no pension and no job in retirement, you need to have…
1.6 times your salary in savings at age 35
3.5 times your salary in savings at age 40
5.8 times your salary in savings at age 45
8.5 times your salary in savings at age 50
11.9 times your salary in savings at age 55
16.0 times your salary in savings at age 60
By
BethC, at 7:04 AM
So… how much should I be saving for retirement each week if I want out at age 60? It depends on your age. If you can get 1.6 times your annual salary into retirement savings at age 35, then you need to be putting about a quarter of a percent of your annual salary into your retirement plan each week to be able to retire at age 60 and just enjoy life. So, if you make $50,000 a year, that means an investment of $125 a week into your 401(k) and/or Roth IRA should be sufficient to lead to an enjoyable early retirement.
By
BethC, at 7:05 AM
"Your Money or Your Life" by
Joe Dominguez and Vicki Robin
Your Money or Your Life is a bit unusual in terms of personal finance books that you’ll typically find at your local bookstore. For starters, the book has very little concrete information about increasing your wealth. In a section that typically is loaded with books about becoming a millionaire, this is an unusual approach.
So what does Your Money or Your Life offer instead? Rather than focusing on being rich, the book instead looks deeply at finding the central values in one’s life and realigning your life and money to follow these values. The idea here is that most people’s money problems are actually connected to a lack of fundamental direction in their life: they work just to earn money, not because it’s what they love doing.
By
BethC, at 7:07 AM
The Simple Dollar.com is a blog and website that you can read and subscribe to about understanding everyday functions of money and financial wisdom.
By
BethC, at 7:10 AM
capital gains tax. How do they work?
A capital gains tax is a tax that the government charges you when you sell an asset and make a profit on it. If you buy a stock at $10 and then sell it at $15, you have to pay capital gains tax on that $5 difference. Typically, capital gains tax are filed as part of your income tax return and are typically subject to a lower tax rate than normal income. More importantly, if you have a capital loss in a given year, you can subtract that loss from the gain and only pay taxes on the overall gain.
Sometimes you are subject to capital gains tax even if you don’t sell anything from a mutual fund. This is called turnover and occurs when a fund does a lot of selling of assets during a year without replacing these sales - they instead distribute the fund’s gains to the holders, putting them on the hook for capital gains. This distribution usually reduces the value of the fund, so it basically means that part of your investment can be handed right back to you and you have to pay capital gains tax on it.
Here’s an example of why turnover can be bad. Let’s say you bought $70,000 worth of a fund. It goes to $100,000. Two days later, the annual distribution occurs. You get a check for $30,000 and your fund’s value drops back to $70,000. You’re then on the hook for the capital gains tax on that $30,000 whether you like it or not.
One way to avoid this is to look for funds with low turnover, because those are much less likely to do a distribution (and thus cost you money).
By
BethC, at 7:42 AM
SAVING/INVESTING
"Businesses must invest in products and people in order to create new wealth." -- John Hoeven
"If you depend on your company to take care of your retirement, your future income will be divided by five. Take care of it yourself, and you can multiply your future income by five." -- Jim Rohn
"Investigate carefully before you invest. Spend as much time researching the investment as you spend earning the money." -- Brian Tracy
"Investing is simple, but not easy." -- Warren Buffet
By
BethC, at 7:50 AM
Tax-Managed Mutual Funds:
The easy way involves picking a tax-managed mutual fund where the administrator works to minimize taxable distributions. With your typical actively managed fund, the manager will buy and sell securities to gain a solid return and as a result will create realized gains, which you then must take as distributions and pay taxes on. A tax-managed mutual fund manager will take great pains to minimize realized gains.
thesimpledollar.com
By
BethC, at 6:17 AM
index funds -
mutual funds that match the holdings of a particular index. Since they match an index, they usually won’t have a real manager, and so you really compete on the basis of price - or the expenses. The “hard” part of index fund investing is picking the right mix of indicies so you aren’t overexposed to a particular market, so take great care in selecting your allocations.
By
BethC, at 6:25 AM
Target-Date Retirement Funds:
If you don’t like deciding for yourself what kind of mix to buy, have the “experts” do it for you. Not all target date retirement funds are created equal so be sure to do your homework and ensure that their mix is something that you want. This is the “easiest way” because once you pick one that is the right mix, they will adjust it according to risk profiles for your target date (and assuming your age and risk tolerance). The closer you are to the date, the more conservative the fund will be. The only knock against these types of funds is that they aren’t as tax efficient as the other two but you do get the convenience of not needing to rebalance your portfolio every year.
By
BethC, at 6:26 AM
Taxpayers should be wary of advisers who encourage them to shift under-valued property to Roth Individual Retirement Arrangements (IRAs). In one variation, a promoter has the taxpayer move under-valued common stock into a Roth IRA, circumventing the annual maximum contribution limit and allowing otherwise taxable income to go untaxed.
By
BethC, at 6:55 AM
definition:
Wealth comes from having enough assets that generate enough income so that all of your expenses are covered and there is enough left over to invest in more assets.
By
BethC, at 7:53 AM
4/5
"bad idea" loan
subprime loan is a loan offered to someone with relatively poor credit, and it usually has a very high interest rate to “compensate” for the poor credit of the borrower.
Subprime loans include everything from unusually structured home loans all the way down to payday loans.
By
BethC, at 6:28 AM
4/10
We seriously need to break our habit of short term desires messing up our long term plans.
By
BethC, at 6:18 AM
4/19
financial plan:
1.
Seeing how your past holds the key to your financial future
2.
Facing your fears and creating new truths
3.
Being honest with yourself
4.
Being responsible to those you love
5.
Being respectful of yourself and your money
6.
Trusting yourself more than you trust others
7.
Being open to receive all that you are meant to have
8.
Understanding the ebb and flow of the money cycle
9.
Recognizing true wealth
By
BethC, at 11:18 AM
"A rich person is someone who has more than enough."
By
BethC, at 5:40 AM
THINKING BIG quote:
"It's kind of fun to do the impossible." -- Walt Disney
By
BethC, at 6:52 AM
5/7
Ockham’s razor, which basically states that all things being equal, the simplest solution tends to be the best one.
From there, he talks about the general investing strategy of investing in a very wide array of stocks (he uses the S&P 500 as an example) matches the overall success of the stock market over a long term. Then he compares the S&P 500 to large cap funds from other companies and finds that in 26 of the last 35 years, the S&P 500 outpaces the average large cap fund from other companies.
By
BethC, at 7:56 AM
5/15/07
fatpitchfinancials.com is a cool blog i just came across today about investment advice and wisdom
let's hear a shout from my peeps!
By
BethC, at 6:38 AM
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