Lazy Man and Money

We’ve Stopped Our Retirement Contributions. Here’s Why.

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Today’s update is going to be very quick. We’ve got a storm, so the kids are home from school. My wife has 4.2 zillion Zoom meetings and I have a lot of snow shoveling to do. We haven’t had a storm in a few years, so finally the kids are old enough to pick up a shovel and help a bit too.

It was back in middle of January this year that I asked, Is it okay NOT to save for retirement. Some stuff happened since then*, and now it’s time to announce that we’ve decided not to save for retirement… at least for the next 6-7 months.

My wife won’t add funds to her government TSP plan (like a 401k). I won’t add funds to my solo 401k. We’ll still max out our Roth IRAs, but that is only because we can withdraw those contributions at any time without penalty.

Why the move now?

A lot of it has to do with the way the stock market has gone this year. I’m not referring to the drop in March. Back in January, I had felt like our retirement accounts were getting too high in comparison to the liquid cash we had on hand. It wasn’t like we were each 401k millionaires with 30 cents to our name, but it was lopsided nonetheless.

And here we are in December. I look at our retirement accounts and they are up 27% for the year.

We do have more liquid cash than we did at the start of the year due to less travel, grooming, and eating out. At the end of the day that 27% gain moves the needle even more past the point where I was questioning it before.

There are two other things weighing on the decision:

  1. More liquid cash now means my wife can choose to retire when she wants to. In some ways she can with a great pension already vested. There are some golden handcuff issues to consider. Also, sometimes she seems to be on the fence on whether she wants to retire or not. In any case, having more cash on hand makes that easier.
  2. If we invest some of this money in dividend stocks outside of retirement, we may end up paying fewer taxes down the line. If we take money out of a 401k plan we’ll have to pay taxes at our regular income tax rate. With my wife’s pension, that income tax rate may be fairly high. Well, it wouldn’t be too high, but it would be much higher than what qualified dividends get taxed at. Since our Roth IRAs are not taxed, we can pull out that money without considering tax rates.

There’s more detail in the original article that I linked to above. That’s about all I can do for today.

* Understatement of the year, right?!?!

Raising Awareness of the Roth IRA

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Three weeks ago I got an email from Jeff Rose at Good Financial Cents. He was speaking to around 50 seniors at his college alma mater about personal finance, and when he polled the crowd to see if they had heard of Roth IRAs, not a single person raised his/her hand. Rose had done talks like this in the past, but always a few people raised their hands.

This shocked Rose. If it were me, I would have chalked it up to a few factors…

  • I’ve found that people generally don’t like to call attention to themselves in a crowded audience.
  • I could see a scenario where a few people had heard of Roth IRAs, but didn’t raise their hands because they feared they would be called on to put their knowledge to a test.
  • I thought back to when I was in college. The people with jobs had them because they needed the money (let’s make “need” very flexible in this case to include funding beer and Ramen Noodle budgets). The people without jobs were mostly focused on their studies (or getting the most out of their beer budget). In short, given the audience, most of whom either have no income to be Roth IRA eligible or no money to contribute to one. It is natural for people to dismiss something that wouldn’t be applicable to them.
  • These people are likely close to 50 years away from retirement. (Can I presume that retirement age for a 22 year old, given the state of Social Security, might be close to 72?) I can forgive for them not thinking that far ahead.

However, it wasn’t me giving the talk and Jeff rose is anything but Lazy. He decided to do something about it. With that he created a movement to spread the word about Roth IRAs. With that movement he has convinced a bazillion personal finance bloggers (though realistically closer to 150) to write about Roth IRAs today.

I’m always one to join a movement and I agreed. I just have a couple of little problems, that I didn’t think through. I tend to think my audience knows about Roth IRAs because I mention them from time to time. Raising awareness about Roth IRAs on a personal finance blog is like explaining how tagging up works in baseball to someone who has held season tickets for a dozen years. It’s preaching to the choir. What we really need is someone like Wes Welker who can reach an entire audience of people not familiar with Roth IRAs.

The other problem that I have is that Roth IRAs are boring. I’m one of the world’s biggest math dork/nerds and I find them boring. With that out of the way, let’s make this pretty quick and move on to more interesting topics. Roth IRAs are a great place to save for your retirement because investment gains are not taxed. It isn’t often that Uncle Sam gives us a way to make money without pay him his fair share. Take advantage of it.

Oh and those 401k things… in general they are pretty cool too.

I Share My Asset Allocation (as do 7 other Money Writers)

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The Money Writers is having a group writing project. Each of us have decided to share our asset allocation and performance from the first of the year to last Friday. You might want to put the children to sleep, this could get ugly.

Asset Allocation

I would like to say that I put together a great graph for you, but I didn’t. My only excuse is what you already know… I’m Lazy. Instead I’ve put together my portfolio holdings inside my retirement accounts. You may ask why I don’t have significant money invested outside of retirement accounts. Good question and I’m not sure I have the best answer. I believe in having a healthy emergency fund as well as maxing out my retirement accounts (401Ks and Roth IRAs). I’ve also bought some significant private stock in companies I used to work at. I can’t sell these shares and I can’t communicate them to you (they’d give away my anonymity to a number of people).

Below is my asset allocation. You’ll notice that one Roth 401k doesn’t make the tickers very readily available. I know I could look them up if I went to click through some PDFs, but it’s not really important to me. My goal with each account is to be fairly diversified. I know it’s not perfect diversification, but I plan to roll them over into a Zecco IRA when the economy rebounds. There I can invest in low cost ETF (as you’ll see in my Roth IRA where I have more trading ability). I don’t want to move it while the prices are low in the off chance that we get a recovery while I’m out of the market shifting the money.

lazy-man-portfolio.jpg

I don’t know if anything in particular sticks out with this asset allocation. I suppose the shares of Google stand out, since it’s the only single company that I specifically went out of my way to own. I like to think of it as a hedge. Many websites, including this one, rely to some degree on Google sending traffic which leads directly to advertising dollars. If Google continues to monopolize Internet search, I want to stand to gain in the off-chance that they update their algorithm to hurt my sites. That said, you can tell I still don’t have a lot of money in Google.

The other thing that I find interesting is that I have just 20% of my money in international stocks. This is the first time that I’ve looked at it in totality and I’m disappointed in that allocation. I want to have much more money overseas. I don’t mean that to be anti-American.  I think it’s simply arrogant to keep 80% of my money in one country. It’s not just any one country, but the one country that I depend on for my income. It feels like working at a company and investing in the company stock… one bad turn of events and you could be wiped out.

You are probably wondering two things at this point. The first: What’s the return on portfolio like this? I’m 7.22% in the hole YTD. I would like to say that I found a way to stay positive, but the market has just not been good. Long term, I still think diversified equities is a solid investment.

The other question you might be wondering at this point: How are the other Money Writers doing this year? I’m afraid to look, I’m sure they are doing better than me. Just so you have good laugh at my misery check out their asset allocations: