Retirement Accounts Total Balance Passed $100K

Today our retirement accounts total balance (401k, Roth IRA, & Traditional IRA) passed $100,000.

Our retirement accounts total balance is $100,697.64!  This is a major blessing and milestone for us.  I've always heard the first $100K is the hardest and that it just gets easier.  Let's hope that's the case.

Poaching Retirement Accounts For Down Payment

We are currently in escrow on a beautiful 5 bed/3 bath home that should fit our needs for many, many years to come. To keep our monthly mortgage payment low and to avoid PMI, we have elected to raid our retirement accounts for some of the down payment. I know, I know, hear me out..

The 2 bedroom condo that we are renting is $1,550/month and, with our growing family, it is a tight squeeze. After finding our dream home, we quickly realized that the ~$47,000 in our savings was not enough for a 20% down payment. The home was $489,000, so 20% down is $97,800, meaning that we needed to come up with another $51,000.

We poached $51,000 from our almost $100,000 in retirement savings. $30,000 came from Roth IRA contributions and $21,000 was borrowed from my 401(k). You can withdraw Roth IRA contributions at any time without penalty or taxes. The 401(k) loan has a 5 year payment schedule at $179.44/check. If I were to leave my company for any reason before the loan is paid back, the balance would be due, or I would have to pay a 10% penalty and income tax on the money.

If the deal goes through, our interest rate will be 3.75%, resulting in a monthly mortgage payment of $1,811 on a mortgage of $391,200. Add $600/month for tax and insurance and we are up to $2,411/month. This is a very comfortable number for us, especially when you consider the tax benefits of owning a home.

Our gross annual income is $150,460, not including my wife’s quarterly bonuses. Using the rule of thumb to spend no more than 35% of our gross income on housing, we can “afford” $4,388/month. Frankly, we had no intentions of spending anywhere close to that. We simply want a nice home with payments that we can still afford if one of us lost our job.

Retirement Savings Just Passed $70,000

Our retirement accounts balance (401k, Roth IRA, and Traditional IRA) just passed $70,000! As of this morning, our total retirement savings is $70,169.27. Still a long way to go to early retirement, but we're on our way.

Rebalanced 401(k)

I just finished rebalancing my 401(k) to move our current asset allocation back in line to ouroriginally planned asset allocation.

The percentages weren't off by much, but I figure this is a good habit for us to get into at the end of each year. Here's what the 401(k) looked like:


Here's what it was rebalanced to:


My wife's 401(k) was opened mid way through the year and is a much smaller balance, so we're not going to bother rebalancing it this year.

Increased my 401(k) Contribution

We've wanted to contribute at least 10% to each of our 401(k)'s for a while now. My wife just increased her 401(k) contribution to 15% in August, but mine was only at 8%. I'm happy to say that I've now increased my 401(k) contribution to 15%, effective my 1st paycheck in January.

If we're both able to keep our jobs throughout 2010, we’ll contribute a total of $18,366 to our 401(k) accounts from our regular paychecks. My wife also has 15% contributed from her quarterly bonus checks. God willing, we may be able to break $20K in total contributions to our 401(k)'s in 2010.

Retirement Accounts Just Passed $50,000

As a follow on to my post yesterday regarding our increased retirement contributions, I checked our retirement account balances this morning and we just broke the $50,000 mark. I'll provide the specifics when I post our net worth spreadsheet at the end of the month, but it feels great to be making solid progress. In December 2008, our retirement accounts totaled $23,506.87, so it's doubled in less than 1 year.

Step Up Our Retirement Contributions in 2009

We’ve done a good job of increasing our retirement account contributions this year. Thus far, we’ve contributed $3,802.39 to my 401(k) and $3,976.48 to my wife’s 401(k) and a total of $8,400 ($4,200 each) to our Roth IRA’s. That puts us at $16,178.87 in total contributions to our retirement accounts so far for the year.

By the end of the year, another $617.91 will be contributed to my 401(k) and another $1,040.63 to my wife’s 401(k). We hope to contribute another $800 to each of our Roth IRAs to fully fund them for the year. If we’re able to do that, we’d have a total retirement account contribution of $19,437.41 (roughly $1,620/month) for 2009. That’s a huge increase over our $12,111.56 retirement contributions in 2008 and our $12,330.19 retirement contributions in 2007. We’re feel very blessed to be able to sock this kind of money away for early retirement.

Solid 6 Month

I always feel like we could be doing more to reach our goal of early retirement, but am very thankful for all of our blessings. I'm also thankful for my parents for being such great personal finance role models.

We've been working hard to increase the contributions to our retirement accounts and have done a good job over the past 6 months. Our average monthly contribution since May has been $1,453.

Here's a month-by-month breakdown:
May
$1,025.19

June
$1,675.19

July
$1,743.52

August
$1,181.48

September
$1,592.71

October
~$1,500.00

Increased Wife's 401(k) Contribution From 5% to 15%

We increased my Wife's 401(k) contribution from 5% to 15%. This takes her contribution from $2,775/year to $8,325/year. We're still waiting to hear back from her HR department as to when the new contribution level go into effect.

We decided to increase our 401(k) contributions as much as possible and force ourselves to get used to the lower take home pay. We may not be able to put as much into our Roth IRA's, but at least we know the money will be invested before we can get our hands on it.

Wife Beginning New 401(k) Plan

My wife's eligible to contribute to her new company’s 401(k) beginning next month. She completed the online forms over the weekend and will begin contribution 5% of her pay in May. It works out to be a $115.63 contribution per check or $2,775.12 per year. I'm currently contributing 5% to my 401(k) plan ($3,171.15/year) and we're hoping to max out our Roth IRA contributions this year ($5,000 each). So far, we've contributed $2,000 this year towards our $10,000 total contribution.

If we’re able to fully fund our Roth IRA’s and don’t make any other changes to our 401(k) plans, we’ll be looking at a total contribution to our retirement accounts this year of $15,946.15. This is 13.41% of our gross income - not including any bonuses that my wife receives. If successful, this will be the largest percentage of our income we have invested to our retirement accounts. Ideally, we will slowly increase this percentage every year.

Wife Opened a Traditional IRA

My wife rolled over a $1,493.85 balance from her old company 401(k) into an traditional IRA with Vanguard. We already have our Roth IRAs with Vanguard and like the company. She chose to invest the traditional IRA money in Vanguard STAR Fund (VGSTX) a balanced fund of stocks, bonds, and short-term investments. She is eligible to contribute to her new company 401(k) in April.

Received My Profit Sharing

Good news, a $730.72 company profit sharing contribution was deposited into my 401(k) account today.

With the poor economy, my company only contributed $12K total to the plan this year, much less than last year. Therefore, I knew I would not be receiving the $3K that they gave me last year. Nonetheless, I was happy to relieve 6% of the total they contributed to profit sharing this year. There are close to 40 employees in the company, so I feel like I received more than my fair share.

I'm fully vested, so 100% of the money is ours, although we won't be touching it for 20+ years.

Almost Profit Sharing Season

My company's annual profit sharing contribution should process in the next week or two. I am anxiously waiting to see what my share will be.

Most of the years I have been with the company, my share of the annual profit sharing has been ~$500. Last year was my 7th year with the company and my first full year as a Sales Manager. I was surprised to see my profit sharing jump to $3,005.63. I don't expect to receive that much this year because of the challenging economy that we're in, but I still hope to get a nice little boost to my 401(k).

I'll keep you posted.

401(k) Increase Time

I just submitted paperwork to increase my 401(k) contribution by 1% next year (effective 1/2/08). This will bring us to a 4% total contribution to my 401(k) plan. This percentage is low because our first priority is to contribute the max to our Roth IRA’s each year ($5,000 each in 2008).

Based on my current income, a 4% contribution represents $2,646 annually. However, my annual review is also in January, and I would guess that my raise will be ~5% this year. If that assumption is true, the total 2008 contribution will be $2,778. In addition to my 401(k) contribution, I also receive company profit sharing into my 401(k) in September, which last year was $3,005.63.

Our plan is to increase my 401(k) contribution 1% each year until we reach the maximum contribution. By timing this increase with my annual raise, we don’t even feel the effects of the extra contribution money missing from my paychecks.

Retirement Account Forecasting

To help keep myself motivated on our early retirement goal, I like to review our 20 year retirement account forecast from time-to-time.

I was happy to see today that our current retirement account balances (assuming no additional contributions) should be worth just over $100,000 in 20 years. I calculated this using an 8% average return rate, which I believe to be conservative given that the historical average return rate of the stock market is ~10%.

Obviously, we plan to continue contributing to our retirement accounts, and even hopefully increase our contributions; it’s just nice to envision what our sacrifices now will be worth later, God willing.

2007 Profit Sharing

I've been eagerly awaiting my company's annual profit sharing. In the past, it has represented a $550 increase to my 401(k) each year. It's typically paid around July, but my company was running a bit late this year because of administration issues.

Well, I woke up this morning and was shocked to see that my 401(k) balance jumped $3,000 since yesterday. I checked the transaction history and it turns out a $3,005.63 employer contribution was made!

I had heard that the profit sharing contribution was going to be big this year, but that's quite a jump compared to previous years. I hope it is not a mistake. I'm not sure how each person's share is calculated, but I've been told it has something to do with how long you have been with the company and that being in management helps too. I've been with the company over 6 years and have been a manager for ~1-1/2. I hope these are the reasons for the dramatic increase.

Assuming there was not a mistake, this would mean that we will likely hit our 2007 net worth goal of $22,000 this month, 3 months early. What a blessing!

Balancing Act

My wife and I are trying to find the balance between long term investing (retirement) and short term savings (emergency fund, house, etc.).

I tend to focus too much on investing for retirement, and am eager to put all of our spare money into either our Roth IRA’s or 401(k). The power of compounding is amazing and time is the most important element. The more money we can invest now, the better off we should be later. This simple table demonstrates that a person who invests early and for just eight years will have more money at 65 years old than will someone who starts late and invests for nearly 40 years.

My wife, on the other hand, reminds me that we can't keep all of our money tied up in retirement accounts. We want to buy a house in a few years and need to save for a down payment. We also need to have cash on hand for unexpected emergencies. We had a real world example of why this is important when my wife was recently laid off. The value of an emergency fund, even the smallish amount we had in our savings at the time (~$3,000), provided a great deal of peace of mind. Thankfully, my wife found a new job within a week, and we did not have to dip into our savings.

Like most things in life, we have to find a balance. Currently, our retirement investments represent 78.30% of our total liquid assets. We’ve agreed to work on increasing our savings, but not at the expense of fully funding our Roth IRA’s. In fact, we have already added another $1,300 to our savings this month, while simultaneously investing another $200 in my wife’s Roth IRA.

Investing Plan - Update

We have made good progress with our Investing Plan, and have tweaked it a bit along the way.

401(k)
Our 401(k) is currently at $13,184.13. We have increase our contribution from 2% to 3%, effective July 4. To better diversify our 401(k), we have reduced the percentage allocation of each mutual fund, and added a couple of additional funds. Our current holdings are:

16% - JH Lifestyle Aggressive (1.47% expense ratio)
16% - Pacific Rim Fund (1.46% expense ratio)
16% - Real Est. Securities Fund (1.19% expense ratio)
20% - Natural Resources Fund (1.49% expense ratio)
16% - International Small Cap Fund (1.55% expense ratio)
16% - Small Cap Index Fund (0.95% expense ratio)

I really dislike the high expense ratios of my 401(k) choices, and I was surprised to find they increased on some of the funds since my last post, and went down on others.

My wife is eligible to enroll in her company's 401(k) plan in October. She will get a 100% match on the first 3% and a 50% match for the next 2%. Needless to say, we plan to invest 5% of her paycheck to get the company match (free money).

Roth IRA's
My wife and I have opened Roth IRA's thru Vanguard.

For my wife, we invested $3,000 in Vanguard 500 Index Fund Investor Shares (VFINX) (0.18% expense ratio).

And for me, we invested $3,000 in Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) (0.19% expense ratio).

We hope to have both Roths fully funded by the end of the year.

Taxable Accounts (Brokerage, Prosper, etc.)
Our 300 shares of ADVENTRX Pharmaceuticals (ANX) are now worth $798.00. My parents gave me this stock, and have a large amount of money invested in this stock. Since they first bought in, the stock has almost doubled. They expect it will go to $10/share. That would be sweet.

My wife and I invested $100 in two Proper loans. Both loans are current and our average interest rate is 12.23%, which is great, but for a variety of reasons, I'm glad we didn't invest more money.

Savings Accounts
With just a $1,286.79 balance, we haven't made as much progress on our saving as we would like. Most of our spare money has gone to funding our Roth IRA's. We should be able to build this up the 2nd half of the year. Our goal is to eventually have a $10,000 emergency fund.

We feel that things are clicking along nicely. We're working towards our goals, while not having to overly sacrifice. God willing, this success will continue.

Roth IRA vs 401(k)

We currently have $12,688.05 invested in my company's 401(k) plan and $630.00 saved up to begin funding Roth IRA’s for my wife (minimum required to open a Vanguard Roth IRA is $3,000).

The 401(k) money was accumulated (no company match) over the past 5 years of off and on investing without a plan or a goal. Now that we do have a plan and a goal, we have decided to focus on fully funding our Roth IRA’s this year, while still contributing a small amount (2% of my salary) to my company's 401(k) plan. The Roth IRA money will be invested in the Vanguard 500 Index Fund.

The main reasons we choose to focus on the Roth IRA’s are:

• The average expense ratio of Vanguard 500 Index Fund is just 0.18%, while the average expense ratio of our 401(k) investments is 1.48%


• The Roth IRA principal can be withdrawn penalty-free, while the 401(k) has limited loan availability


• The Roth IRA has no mandatory withdrawals, while the 401(k) withdrawals must start at 70-1/2
  

Since Roth IRA contributions are limited to $4,000 in 2007 (increases to $5K in 2008) we will be investing a total of $8,000 for my wife and I this year.

Stong Financial Foundation

Simple ideas for a strong financial foundation:

Live below your means
I believe this is one of the most important steps to a strong financial foundation and, for me, one of the hardest. If you try to keep up with your rich looking friends and associates, you may end up like most of them: lots of nice stuff, but a low net worth. Every dollar that you save is worth more than an extra dollar earned because the extra dollar earned is taxed.

Start an emergency fund
Job loss, health issues, and expenisve repairs are financial blows that can affect us all. Open a high yeild savings account (Emigrant Direct, ING, etc.) and start saving for the unexpected.

Aviod credit card debt
Credit card debt is the path to financial ruin. Been there, done that. Believe me when I tell you that digging the hole is very, very easy and climbing out is often a long, hard fought battle. The only thing we use credit cards for now are monthly bills because we get cash back from our Citi credit card. Don’t do this if can’t pay off the balance in full each month.

Track spending / create a budget
It’s easy to overspend if you don’t know what you’re spending. Track spending for a few months and use this information to create a budget. The budget will help keep you on track and hopefully help you find areas where you can reduce spending.

Learn all you can about investing
Most financial planners are more interested in their commission, rather than what is in your best interest. If you educate yourself, you can save A LOT of money and probably do just as good a job, if not better.

Invest at least 10% of your gross income
The future is coming whether you want it to our not. The magic of compound interest can make your consistent contributions grow into a large nest egg. Take advantage of tax sheltered retirement account such as a 401(k) and/or Roth IRA. If your employer offers a 401(k) with a company match, take advantage of the free money.