Category Archives: Retirement

Don’t Leave Them Hanging

Don’t leave them hanging. Specifically don’t leave your spouse hanging financially. Recently my girlfriend introduced me to someone who recently widowed. She is in her late 60’s and is now trying to figure out life without her partner. I’m sure it is a scary time as I have lost aunts and grandparents and I know their spouses go through a lot trying to cope with their new life, which I am sure can feel lonely. What makes this situation even harder is being thrown into something you have never had to worry about in your entire life, money.

From what I have seen it is pretty common in a relationship where one spouse may fulfill a certain role and the other spouse may fulfill a different role. Maybe one spouse cooks and the other does the dishes and laundry. Maybe one spouse earns an income and the other stays home to raise a family. Maybe one spouse takes care of the home, while the other handles the money. Now this is where a big problem may lie.

Say your spouse has done the laundry for the last 35 years and you don’t know how to wash your dirty underwear. I am sure your kids or relatives or YouTube could teach you how to run a washing machine and clothes dryer in about five minutes. Don’t know how to cook? I’m sure those same friends and relatives could teach you how to bake some chicken or use a slow cooker one weekend so that you don’t starve. All the years of not washing your own clothes or cooking your own food can be remedied, quite easily I might add. The issue lies if your spouse has “taken care of” the household finances your entire life and never involved you in that process. This can leave scars that are very hard to remedy.

Back to the woman I met. Her husband took care of the money throughout their marriage. Now she is left alone trying to learn how to pay her bills, where the money is, where the debt is, and what to do with their little nest egg they have left. Why? “Because he always handled the money and I maintained the house.” People who do this might think they are helping their spouse by not letting them worry about the household’s finances, but what they are really doing is hurting them. When the person who handles the finances passes away, suddenly loans against life insurance policies make their appearance, credit card collectors start calling asking for their payment, and you are stuck mourning your loss while wondering if you need to sell the house to be able to meet your living expenses.

This is a wake up call to those who think they are helping their spouses or even children by saying “don’t worry about the money, I’ve got it.” What you are really doing is making their time without you that much harder. It might be easy to learn how to mow the lawn or vacuum, but leaving a spouse to scrape together an income in their 60’s to survive is not how it should be done. Invite them to a monthly money talk and make it fun with booze, snacks, and maybe some Frank Sinatra. Make it a team effort. Involve them from the beginning of the relationship, even if it isn’t “their thing.” This will be something that stays with them long after you are gone.

Do you and your spouse handle money as a team? If not, why not?

Lifestyle Inflation Talks

Not everyday does something happen in my personal or professional life where I can talk about personal finance and the related topics which we so freely discuss online in this community. So obviously when the opportunity presented itself when I was riding in my boss’s car, I hopped all over it.

I know that my boss makes multiple hundreds of thousands of dollars a year. It’s no secret in my profession. He owns a large home within commuting distance to Manhattan, and also a summer home which I visited during this trip which I’m discussing. I being nosey, Zillowed the address afterwards and was pretty shocked at how much he paid. Let’s just be honest and say you don’t get much bang for your buck when buying a beach home within driving distance to NYC.

After our trip, he gave me a ride back to the train station so I could get back to Manhattan. During the car rise we started talking about money, relationships, and how they intertwine. First thing we discussed is buying a home. My boss made a statement that millennials don’t want to purchase homes. My response was my normal rant about how a primary residence is NOT an investment. He actually agreed! And then noted that he has made money on both of his home sales in the past, but his current primary residence he has lost his shirt on and may never recuperate the costs. Basically he bought a dumpy house in a really nice neighborhood and basically had to scrap it and build again. I was pretty impressed as most people aren’t willing to share their money mistakes and admit that their primary residence is not an investment.

Next topic of conversation was relationships. He had just purchased his wife a new SUV (she stays at home) of the $40 thousand American made variety. Well they were riding with another couple one weekend, and they were in that couples’ $70 thousand foreign made SUV. My boss went on to discuss that after that night, he could sense that his wife was disappointed about her cheaper SUV after riding in luxury. I think it stung him a little because he had just shelled out 40 G’s on his wife’s car, which she now seemed to not like as much.

After the car conversation, he transitioned into explaining that he doesn’t actually live in the real world and it’s actually a little bubble. He must for his wife not to like a $40 thousand SUV and actually expect to have something more expensive. He lives in an upscale neighborhood, and he knows everyone has to make lots of money to afford homes in the area. On top of the homes that hover around low seven figures, $70 thousand cars aren’t even really a big deal. He kind of questioned how he found himself in his current situation. He was not born into this life, not by a long shot. From my observations, it’s pretty simple to figure out how he got there. He grew up lower class, wished and hoped to make it rich, busted his ass, and now he’s found himself upper class. Sad thing is… I don’t think it is as sweet as he first imagined.

I could definitely relate (to an extent). From the time I was a kid through probably 25 years old, I aspired to live a life just like this guy. Make the big bucks, have two houses, and nice cars. My first “big boy” car purchase when I was 22 was a Cadillac for Pete’s sake. But then here I am in a car with the person I wanted to be for so long, and he was basically admitting it wasn’t all it’s cracked up to be.

So as you can imagine, I really enjoyed this car ride. My boss could easily retire in the next few years if he didn’t let the lifestyle inflation effect him in his bubble which he and his family lives. But I bet he’ll continue to grind, work long hours, and stress to keep up the lifestyle. He’s now got a wife and kids who are used to the life, and I bet would not be easily convinced otherwise. Honestly I don’t think he could even convince himself to “turn it off” even though he notices how crazy it all is. To each his own, but as I bet you can guess – I don’t think it’s worth it. At least not for me.

Have you ever found yourself in a riveting personal finance question with a boss or coworker? How did you handle it?

$23,500 of New Debt!

I have a confession to make… I have not actually gotten myself into $23,500 of new debt. It’s actually quite the contrary as I’m pushing my savings efforts in 2015 to the limits! I decided at the end of 2014 that 2015 was going to be different, and I was going to max out my pre-tax 401k and Roth IRA. I decided to max them out for multiple reasons which I could not ignore.

Pre-tax 401k – The main reason I have decided to max out my pre-tax 401k is because of awful, ugly taxes! For those who have lived in NYC, or other areas in the US with high income taxes, know how bad we get hit here by the taxman! Living in NYC, you pay about 10% for state and local tax on your income if you’re in the 25%/28% federal marginal tax brackets. I have no plans on living anywhere in the US where the taxes are this high when I retire, and expect my income at that time to be lower. Therefore I will 100% take the tax savings now, and max this account out. The IRS contribution limit for a pre-tax 401k in 2015 is $18,000, and usually increases every few years to keep pace with inflation. Most people think you cannot tap this account until you leave your job and reach the age of 59.5 without incurring penalties, but this is untrue. There are two great methods to draw on this vehicle in early retirement which are the SEPP / 72(t) distributions and a traditional to Roth IRA pipeline strategy. I will not go into detail on these methods as madFIentist and LivingaFI have great posts on these topics which I would highly recommend to anyone trying to learn more about these strategies.

Roth IRA – Direct contributions to your Roth IRA can be withdrawn at any time tax and penalty free. This is a great vehicle to use for those who plan on retiring before 59.5 years old, and even though I have no plans to tap this account until my financial independence / early retirement, I have great peace of mind knowing I can withdraw my contributions tax and penalty free if an emergency situation arose (knock on wood). Also individuals have until April 15th of the following year to fund their Roth IRA, so there still is time in 2015 to fund your 2014 Roth IRAs! The IRS contribution limit for the Roth IRA in 2014 and 2015 is $5,500, and this also increases every few years to keep pace with inflation. There is an income phaseout for the Roth IRA, unlike a 401k, for Modified Adjusted Gross Incomes (MAGI) for single filers which begins at $116k for 2015.

I invest 100% of my contributions into these retirements savings accounts in passive index funds. No stock picking or actively managed funds for me when it comes to my 401k and Roth IRA. I’ll go into further detail on my choices for index funds in a later post, but for anyone doing there due diligence in investing knows that index funds that are not actively managed with low expense ratios are the way to go! I’m also contributing to an HSA in 2015 which is also a great vehicle to save pre-tax income in, but I’ll give this it’s own post in the future.

Now back to my title of this post “$23,500 of New Debt!” I’ve found that if I treat my retirement savings as debt, it is much easier to justify maxing out these accounts, rather then spending it on other discretionary items. I take the “set it and forget” approach with my deferral percentage for my 401k and set it at the beginning of the year to a percentage so that at the end of 2015, I’m sure it will be maxed out. I also have been taking any leftover money after I pay all my monthly bills and depositing them into my Roth IRA. Even if it’s $100 that I know I don’t need sitting in my checking account, it gets shipped over to my Roth IRA. If I treat this $5,500 as debt, I’m less likely to spend it elsewhere as I just think of it as a pesky student loan debt with a high interest rate I’m trying to get rid of! Saving for retirement is essential for financial independence, and a great way to lower your tax liability. Therefore I don’t mind maxing out these accounts as it feels like I’m killing two birds with one stone!

-FF