- Max out Individual Retirement Account (IRA) - In 2014, the limit was $5,500. This is always my first goal and I've been maxing it out every year for almost a decade. This is my first goal in 2015 as well. I use Fidelity to manage my IRA; if you're interested in starting a Fidelity account please let me know so I can refer you. In 2014, I met this goal.
- Put $XXK into my "high-yield" savings account - This is my emergency savings account. I'm expanding it beyond the 6 months of bills (the typical advice) to add 12 months of bills for my new house. My goal is to have the ability to absorb a whole year of not having a renter when we PCS and have to rent this house out. Some of the increase will also be for a new car in 1 1/2 years. I use CapitalOne 360 (the bank that bought ING Direct) for my "high-yield" savings account; if you're interested in starting a CapitalOne 360 account please let me know so I can refer you and we both get money. In 2014, I met this goal.
- Save at least $XK from each paycheck - Ever since I was an E-4 I've been creating this goal. No matter how hard you plan, you'll always have unexpected costs throughout the year. For this goal, I'm focused on the end goal so if I can't save the goal from one paycheck, I'll make sure I save a little more from a future paycheck. But this gives me an average savings goal from each paycheck and allows me to see if I'm exceeding my goal or not meeting it. In 2014, I met this goal.
- Increase dividend income by X% to $XK - One of my retirement goals is to supplement the amount I lose by retiring with dividend and interest income by the time I retire from the Air Force. This is a lofty goal and I may need several years after Air Force retirement to achieve it. Nonetheless, I try finding better return rates on my investments to achieve this goal. One of my new investments this year was Lending Club. They offer loans ($35K or less) to people and investors can contribute $25 increments to their loan so it spreads the risk while offering a better yield. By playing it safe, I earned a 9%+ return on investment this year. If you're interested in starting a Lending Club account please let me know so I can refer you and we both get money. In 2014, I DID NOT meet this goal. I was very close but missed the goal by less than $200. I'm not too worried, but next year I would like to say I exceeded the new goal I set.
- Net Assets of $XXXK by the end of the year - This is just an overall goal. I don't focus on how much I have saved total. I focus on what the money is doing and what return on investment I'm getting. People focus on a round number like $1M without figuring out what their going to do with it once they get there. Most rich people don't even care how much total they are worth, they only care how much money it's earning so they can use it. Either way, it helps me focus and ensure I'm earning a decent of return on investment. In 2014, I DID NOT meet this goal. I tried to do some ultra-risky investments to help my wife pay off her school loans and they all back fired on me. I lost a lot of money this year on those investments and it stings pretty badly. My house equity didn't rise at all either like I had expected. In fact, I manage my Dad's IRA and it's pretty conservative and safe and he crushed my returns this year.
Showing posts with label investments. Show all posts
Showing posts with label investments. Show all posts
Sunday, January 4, 2015
2014 Year in Review and 2015 New Year's Resolutions
Every year I create financial goals to help guide me through the year. I first read this quote when I started my fitness journey regarding meal preparing, "If you fail to prepare, then you are prepared to fail." (Unknown). I think this is relevant in any goal management, but especially with financial goals. Here's a sneak peek at how I managed my finances in 2014.
Friday, July 5, 2013
What do I Need to Retire?
The day after Independence Day is a great time to start your journey to becoming financially independent. So What do I Need to Retire...This is one of the most popular questions that I get from people. What do I need to retire? Or another similar question, How do I create a good retirement plan? What you need to retire is...a chair. You will need to create a metaphorical retirement chair. Each leg represents a revenue stream, so the more legs you have, the sturdier the chair will be. If you have no legs, then you are sitting on the ground like being homeless, metaphorically.
1. The first leg of your retirement chair is a pension or a defined retirement plan. This is becoming more rare with civilian employers now, so finding a job with a pension may be difficult. The most common, and most applicable to this blog, is the military retirement. Civil Servants have the FERS pension and teachers, firefighters and police have their individual state pensions. I would like to say this is the safest leg to lean on, but I can't anymore. Corporations, with help of corrupt government officials, have made it where companies in financial trouble can reduce or eliminate pensions promised to workers that have fulfilled the requirements of earning a pension. Either way, defaulting on pensions is uncommon and defined retirement plans should be a leg in your retirement pay. The higher you go up in your career and the longer you work there, the stronger this leg becomes.
2. The second leg of your retirement chair is your own retirement investments. This leg is my favorite because it's something within our own control. We make the leg as big or as small as we want. Your retirement investments can be from 401(k)s, TSP, 403(b)s, etc. At the minimum, and if applicable, you should ALWAYS at least invest enough to maximize your employer's contributions. Your employer's contributions are basically free money. This leg is also where your IRAs, both ROTH and/or traditional, fall under. And lastly, this is where any other taxable money that you've managed to save comes in. The more you save, the more revenue you can generate making the leg stronger.
3. The third leg of your retirement chair is property. This leg should include a paid-off house in good condition, and depending on your income range, a rental property that is managed by a property management company. If your plan is to retire by 60, then you should own a house by 30 if you plan on getting a 30-year mortgage or 45 if you get a 15-year mortgage. Due to unknown health reasons, you may be unable to take care of the house by yourself anymore once you reach retirement age, so make sure it's continuously in good condition by doing all the required preventative maintenance. Your retirement income is usually less than your working income (it's usually 75-85% of your income) so it's sound financial planning if you could have the house paid off to maximize your disposable retirement income (and to spoil any grand children rotten :). A rental property, managed by a good property management firm, is a great way to strengthen this leg and keep some good passive income.
4. The fourth leg, and my least favorite, is your social security check. I have plenty of personal opinions regarding Social Security, but I'll keep them to myself. Your social security benefits can be increased by the length of time you work. Also, you can increase your benefits by delaying when you get them when you are of the applicable age. Social Security benefits continuously reduce while we continuously pay more to it, but there's nothing we can do about it. The best way to use Social Security is to get as much of it you can and as soon as you can.
These four legs create a sturdy chair of retirement. If you open a side business, get another job, write a book, etc. and earn a revenue stream with it while in retirement, then you are just increasing the sturdiness of your retirement and will be more independent.
1. The first leg of your retirement chair is a pension or a defined retirement plan. This is becoming more rare with civilian employers now, so finding a job with a pension may be difficult. The most common, and most applicable to this blog, is the military retirement. Civil Servants have the FERS pension and teachers, firefighters and police have their individual state pensions. I would like to say this is the safest leg to lean on, but I can't anymore. Corporations, with help of corrupt government officials, have made it where companies in financial trouble can reduce or eliminate pensions promised to workers that have fulfilled the requirements of earning a pension. Either way, defaulting on pensions is uncommon and defined retirement plans should be a leg in your retirement pay. The higher you go up in your career and the longer you work there, the stronger this leg becomes.
2. The second leg of your retirement chair is your own retirement investments. This leg is my favorite because it's something within our own control. We make the leg as big or as small as we want. Your retirement investments can be from 401(k)s, TSP, 403(b)s, etc. At the minimum, and if applicable, you should ALWAYS at least invest enough to maximize your employer's contributions. Your employer's contributions are basically free money. This leg is also where your IRAs, both ROTH and/or traditional, fall under. And lastly, this is where any other taxable money that you've managed to save comes in. The more you save, the more revenue you can generate making the leg stronger.
3. The third leg of your retirement chair is property. This leg should include a paid-off house in good condition, and depending on your income range, a rental property that is managed by a property management company. If your plan is to retire by 60, then you should own a house by 30 if you plan on getting a 30-year mortgage or 45 if you get a 15-year mortgage. Due to unknown health reasons, you may be unable to take care of the house by yourself anymore once you reach retirement age, so make sure it's continuously in good condition by doing all the required preventative maintenance. Your retirement income is usually less than your working income (it's usually 75-85% of your income) so it's sound financial planning if you could have the house paid off to maximize your disposable retirement income (and to spoil any grand children rotten :). A rental property, managed by a good property management firm, is a great way to strengthen this leg and keep some good passive income.
4. The fourth leg, and my least favorite, is your social security check. I have plenty of personal opinions regarding Social Security, but I'll keep them to myself. Your social security benefits can be increased by the length of time you work. Also, you can increase your benefits by delaying when you get them when you are of the applicable age. Social Security benefits continuously reduce while we continuously pay more to it, but there's nothing we can do about it. The best way to use Social Security is to get as much of it you can and as soon as you can.
These four legs create a sturdy chair of retirement. If you open a side business, get another job, write a book, etc. and earn a revenue stream with it while in retirement, then you are just increasing the sturdiness of your retirement and will be more independent.
Sunday, June 23, 2013
What's the Value of a Military Retirement?
With all the talk about the Federal Reserve eventually raising interest rates, we should discuss how it affects the value of the military retirement. As interest rates rise, the theoretical value of a military retirement is reduced. This is because you can get a higher rate of return on safer, long-term assets with civilian 401(k)s or saving-account equivalents. Also, the military retirement is fixed for that year and as mortgage rates and loan rates go up, it makes the retirement worth less than the previous year. The COLA annual increase helps decrease the impact of rising interest rates.
If an O4 with 20 years was about to retire this year (2013), he or she could expect to receive $43,702, annually, before taxes in retirement ($7,283.70/50% * 12 months). To generate this annual income, one would have to invest in the safest, longest-term asset and the usual measure for this is the 30-year US government bond which currently yields 3.567%. The value of the retirement at this interest rate is $1,225,175. This is all theoretical and the only practical use would be to compare what you would have had in a 401(k) after 20 years in a civilian company.
Using the same assumptions, an E7 at 20 years would expect to receive $25,970 before taxes. The value of the retirement would be $728,074.
If the 30-year bond interest rate goes up 1% to 4.567%, then the O4's retirement value would decrease to $956,913 and the E7's to $568,653. Again, these values are theoretical, but it is important to know that fixed incomes, like a military retirement, is worth "less" in an environment of higher interest rates.
If an O4 with 20 years was about to retire this year (2013), he or she could expect to receive $43,702, annually, before taxes in retirement ($7,283.70/50% * 12 months). To generate this annual income, one would have to invest in the safest, longest-term asset and the usual measure for this is the 30-year US government bond which currently yields 3.567%. The value of the retirement at this interest rate is $1,225,175. This is all theoretical and the only practical use would be to compare what you would have had in a 401(k) after 20 years in a civilian company.
Using the same assumptions, an E7 at 20 years would expect to receive $25,970 before taxes. The value of the retirement would be $728,074.
If the 30-year bond interest rate goes up 1% to 4.567%, then the O4's retirement value would decrease to $956,913 and the E7's to $568,653. Again, these values are theoretical, but it is important to know that fixed incomes, like a military retirement, is worth "less" in an environment of higher interest rates.
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