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.

2009 Roth IRA's Fully Funded

We have fully funded our 2009 Roth IRA's; $5,000 to my wife's Roth IRA & $5,000 to my Roth IRA!

It feels good to hit this goal, especially since we only contributed $3,125 to each of our Roth IRA's last year.

Once our planned 401(k) contributions go in this month, we'll have contributed a total of $19,437.41, or 15.87% of our gross income, to our retirement accounts (401k's & Roth IRA's) for 2009.

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

Blood On The Streets

Wow, I just checked our retirement accounts after having not looked at them for 1 week and they dropped a total of another $3,000. So, we did what any sensible young couple would do and contributed $500 into our Roth IRAs.

I like this quote from William Bernstein, author of "The Four Pillars of Investing":

"A young person saving for retirement should get down on his knees and pray for a market crash, so that he can purchase his nest egg at fire sale prices."

I don't really want to see a market crash, but when there is blood on the streets, we're buying!

Economic Stimulus Tax Rebate Check

In anticipation of receiving our Economic Stimulus Tax Rebate Check on the May 16, we made a $1,200 contribution to our Roth IRAs. We've contributed $3,400 total so far this year, leaving us with $6,600 more to go to reach the 2008 max of $10,000 ($5K each) .

During a BBQ with our neighbors over the weekend, we discussed what we were going to do with our stimulus checks. One of my neighbors said he has already spent his on various items, including $400 shoes. When I mentioned that we planned to deposit ours into our Roth IRAs, he asked why we bother to at such a young age. My response was, "Because I do not want to work after age 52". He said he did not want to work past 50 either. More power to him.

Finished Husband's Roth IRA

We just contributed the final $500 to my Roth IRA for 2007! It feels great to have maxed out our Roth IRA's this year ($4,000 each for my wife and I). Hopefully we can do the same next year. It will be a bit more of a challenge with the new $5,000 max contribution per person, but it will be fun trying.

Wife's 1st Paycheck At New Job

My wife just received her 1st paycheck at her new company. The $1,211.54 check she received was for 9 days of work. For the 1st 3 months of her employement, she is 1099. Therefore, her paychecks will not have any taxes taken out. After 3 months, she will be a salaried employee with taxes taken out of her check automatically. That being said, we will deposit $300 per check to our savings account while she is 1099 to ensure that we have enough for taxes in April.

After recieving her paycheck, we deposited $500 into our savings account ($300 for taxes and $200 to boost our savings) and contributed another $500 to my Roth. We have only $500 more to go to reach my 2007 max contribution of $4000.

Final Commission Check?

Great news! My wife received a final commission check from her old company today for $1,057.94. The first thing we did was log onto Vanguard and contribute another $300 to her Roth IRA , which completes her contributions for 2007 ($4,000 total). We also paid off the $377.74 air conditioner that we purchased earlier this month on our cash rewards credit card. The remainder of the check will be deposited into our saving account at the end of the month.

The good news continues. This is not actually be her final commission check from her old company. Her records indicated that three commissions were not included in the check. She called her old company and determined that these jobs are scheduled to be completed this month, so she will be paid commissions on them next month. She estimates that next months commission check from them will be $799.09.

My wife is a money making machine.

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.

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.

Another Contribution to Wife's Roth IRA

We deposited another $200 into my Wife's Roth IRA, and plan to deposit another $300 next month to bring her total contributions to $4,000, the maximum for 2007. We have another $1,000 to contribute to my Roth IRA to reach the maximum for 2007.

Next year, the maximum contribution goes up to $5,000 for each of us. That will be a fun challenge.

Additional Contribution to Wife's Roth IRA

With the market down, my wife suggested that now would be a good time to do another contribution to her Roth IRA, which is invested in the Vanguard 500 Index Fund.

She opened her Roth IRA back on May 8, 2007 by purchasing $3,000 of Vanguard 500 Index Fund at $139.02/share. It is now trading at $132.16/share. With $1,000 left to fully fund her Roth IRA for the year, we decided to invest another $500 this month. We will likely invest the final $500 in her Roth IRA next month to get her to the $4,000 fully funded level.

After her Roth is fully funded, we will have just $1,000 left for my Roth IRA to be fully funded for the year, which will likely be done just before year end.

That will bring us to a total of $8,000 invested for the year in our Roth IRA's. Next year, the maximums increase and we will be able to invest up to $10,000 in our Roth IRA's ($5,000 in each) . Good stuff.

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.

Opened Roth IRA

As you may recall, we opened a Roth IRA for my wife last month. I’m happy to report that we just opened a Roth IRA with Vanguard for myself as well. I invested in Vanguard’s Total Stock Market Index Fund (VTSMX).

We had planned to open my Roth IRA next month, but I received a $1,000 reimbursement check from my company a month or two before the business expense will post to my credit card. So, we used the $1,000 reimbursement check and $2,000 from our savings account to open my Roth IRA. The $1,000 business expense will be paid off (using savings) as soon as it posts to my credit card. In the meantime, it has allowed us to open my Roth IRA a little sooner than expected.

So, my wife and I each have $3,000 in our Roth IRA’s thus far for 2007. We plan to contribute another $1,000 each in the coming months to fully fund our Roth IRA’s for 2007.

Pride of Ownership

I don’t want to put words in her mouth, but I think my wife is now as obsessed with watching our investments as I am.

One of the first things I do each morning is to check the status of our investments. Not to react to the ups and downs of the market, just because I enjoy seeing how things are going.

While my wife has been very interested and active with our investments, she hasn’t been as OCD as am I in terms of checking them daily. At least, not until recently. . .

She just opened a Roth IRA account with Vanguard over the weekend and funded it with $3,000.00. Since then, she has been getting a kick out of checking the progress each day. I’m convinced that this peaked interest has something to do with setting-up the account herself and having it in her name. There’s definitely something to be said for pride of ownership.

Opened Roth IRA For Wife

We opened a Roth IRA for my wife this weekend, selecting the Vanguard 500 Index Fund as her investment. The Vanguard 500 Index Fund is the largest mutual fund in the world and attempts to attempt to mirror the S&P 500.

The fund has an initial minimum investment of $3,000; additional investments are $100. We plan to fully fund her Roth IRA ($4,000 in 2007) , as well as open and fully fund a Roth IRA for me.