Category Archives: Retirement

Posts detailing our path towards early retirement

December 2014 Early Retirement Progress

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We contributed $4,797.72 this month to our retirement accounts  We lost $2,275.18 in investment value this month. 

I did realize that my end of year numbers don’t quite match up with the actual balances in our accounts – the statements don’t include dividends in the “investment gain”.  So our actual end of year balances are almost 10k higher than my value.  I need to figure out how to make sure those dividends get added into the calculations for 2015.

We did really well this year, and I may contribute another $500 to my Roth for 2014 if we fall under the AGI limits.  I have $9500 in there, and another $500 would let me qualify for Fidelity’s advantage class of mutual fund, dropping my investment expenses for that account. I need to do our taxes first before I can see if we can do that this year.

2014 Totals

In 2014 we contributed $45,689.7 (114.22% of our goal of 40k), and we’ve made $29,804.04 in investment gains (147.10% of our planned total).

Our ending account balance (according to my numbers) was $413,181.62 (vs a planned $397,949.15)

Year End Dividends – Happy Holidays!

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Fidelity paid out their end of year distributions on 12/19 this year.  We received just over 5k in the December payouts, bringing us to a total of just over 9k of payouts for the year (vs just over 5k last year).  Unfortunately, all but $60 of that is in tax-advantaged accounts and not available to us yet.  It’s nice to know what our yearly “income” is from our investments though.

Once those payments cover our basic living expenses, we can definitely retire and never need to withdraw our principal.  Of course 9k, covers one month of expenses at the moment, but we’ll be adding more money into the account over the next ten years, and will hopefully pump that up.  In our ideal situation, the dividends/capital gains from our mutual funds completely cover our expenses, but I’m prepared to withdraw principal at a 3% rate as well.

Maybe next year we’ll get almost 20k!  I’ll be happy at 15k, but at the new rate we’re putting in money, we should see a significant increase this year.

Have a Happy and Safe Holiday Season!

Geographic Arbitrage of State Taxation in Retirement

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We’ve come into a very interesting situation since moving states: Pennsylvania taxes all contributions to a “tax-deferred” account (like a 401(k)/403(b) or Traditional IRA).  BUT, it does not tax withdrawals on those accounts.  We have about 400k that we won’t have state taxation on if we stay in the Commonwealth of Pennsylvania – AND we didn’t pay state tax in VA on that amount either.  However, over the next ten years, we’ll be paying PA state tax on about 750k of contributions to our retirement accounts.  If we then move to a state that taxes retirement withdrawals (like Virginia, Colorado, etc), we’ll end up being “double taxed” on that 750k.  If we don’t want to double pay state taxes, we’re stuck with retiring in states that don’t have an income tax or don’t tax retirement withdrawals.

However, it does present a potential for geographic arbitrage if you are so inclined – you may never have to pay state taxes on your retirement money.  Earn it in a state where you can deduct it (following federal rules), and then withdraw it in a state that doesn’t tax it.  Note, I didn’t say *spend* it in that state necessarily….  I have some ideas percolating on how to withdraw all of it prior to leaving the state of PA.  It also bolsters my argument for moving to a state like Wyoming to retire – sorry, most of the other non-tax states are too far south for my tastes!

Disclaimer: I am not a CPA, and this is just my interpretation of PA’s taxation rules.

Have you considered what moving in retirement may do to the taxation of your “tax-advantaged” money?

November 2014 Early Retirement Progress

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GOAL!

We contributed $4,817.72 this month to our retirement accounts  We gained $6,479.76 in investment gains this month. 

We’ve now contributed over our annual goal of $40k into our accounts – one month early.  One big thing that helped us is that my company match changed from 4% to 8%.  The other thing that helped is that both Dad and I are now maxing out our 403(b) plans.

I learned something interesting during open enrollment for Dad – he has a “mandatory” 2% contribution to a 401(a) plan – and it doesn’t count “against” the IRS limit of 17,500 (for 2014).  The IRS limit is for “elected” contributions, and the 2% isn’t elective, so he’s really getting to put aside almost $20,000 through his company’s plan this year.  We just clicked the “take the maximum out” checkbox in February and left it at that.  And as of January 1, 2015, he’ll be fully vested in his 401(a)/403(b) plans.  I still have to wait three years to be vested in my 8% match.

Next year, we’re hoping to contribute up to $70k via company plans, Roths, an HSA and our taxable accounts.  We *might* squeak out $75k.  I’m inordinately excited about how much we can save towards our retirement next year! That makes me weird in a good way right?

2014 Totals

So far, for 2014, we’ve contributed $40,891.98 (102.23% of our goal of 40k), and we’ve made $32,079.22 in investment gains (158.33% of our planned total).

October 2014 Early Retirement Progress

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We contributed $4,381.19 this month to our retirement accounts  We gained $9,654 in investment gains this month.

This month has a slightly decreased contribution since I took a week without pay to go to Europe this month.  So that affected my gross pay and my retirement contributions.  It was worth it though!

We’re again in the positive for investment gains this month, and hopefully that continues for the remaining two months of the year.  We’re still increasing our account balances mostly via contributions rather than investment gains, but that’s to be expected with the amount we are contributing.  Some months, the gains are larger than what we contribute, and sometimes they’re less.  They’re averaging less than we contribute though.

I also discovered a disadvantage to Vanguard as my 403(b) provider – they don’t generate monthly statements, unless I’m willing to have them be generated and mailed to me – so I’m winging it on the investment gains in my 403(b) account.  Taking the end of month balance and subtracting my known contributions.  Otherwise, I’m happy with Vanguard.  I have a meeting with a “free” financial advisor on campus on Tuesday – not sure how that will go, but we’ll see.  I was able to specifically type in what I’d like to talk about, so we’ll see.  I’m going to go in with my Personal Capital “printout” as well as my work laptop, and have my latest Fidelity statements.

2014 Totals

So far, for 2014, we’ve contributed $36,074.26 (90.19% of the new goal of 40k), and we’ve gained $25,599.46 in investment gains (126.35% of our planned total).

2015 IRS contribution limits

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In case you missed it, the IRS published their 2015 contribution limits for 401(k), 403(b), etc plans.  The new limit for 2015 for 403(b) plans (what we have) is $18,000 per year.  I’m inordinately excited that we will be increasing our contributions to match – that’s $36,000 of our dollars that will go to our employer plans next year.  We’re already maxing out the matches, so we won’t get any more from our employers though.

I’m also happy to hear that the Roth IRA phase-out AGIs have been adjusted for inflation and it’s extremely likely we’ll fall below the phase-out range this year, so we’ll be able to contribute.  I’m still going to just save up the money and dump it into the accounts in January/February 2016, just in case we’re close.  But just the tax-deferred contributions should lower our taxable income to below the phase-out range. Add to that our mortgage interest, and/or the standard deduction, and we should be good.

Do you max out your tax-deferred retirement plan at work?  If not, what are you waiting for?

September 2014 Early Retirement Progress

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Now that it’s the middle of October, I should catch up on this. My only excuse was that we’re on vacation – currently in Vienna, Austria (and pouring down rain).

We contributed $4,787.72 this month to our retirement accounts  We lost $10,095.63 in interest this month – a little less than we gained last month.

We have all of our employer offered tax-deferred accounts maxed out at this point. I have about $300 going towards Loyal3 and my taxable Fidelity account per month. Next year, I would like to also save enough to contribute to two Roth IRAs, but it may or may not happen. In the past our AGI has been too close to the limit to even think about Roths, but this year, with 35k going towards 403(b) plans, we might make it (although, we won’t have as many deductions going forward either, so it may be a wash). I’ll try to save the money anyway and we’ll just have to contribute it all at once in that magic time frame between January and April 15.

Watching the markets, this month may wipe out any gains for this year, but we’ll see…

2014 Totals

So far, for 2014, we’ve contributed $31,693.07 (79.23% of the new goal of 40k), and we’ve gained $15,945.46 in investment gains (78.70% of our planned total).

Healthcare updates for 2015

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Dad’s company has sent out details to the health plans for next year. We had to select the HRA plan this year because we were already under an FSA plan when we had to switch from my company’s benefits to his. But, this year, the HSA plan is the only option. The company contributes $2250 for a family plan and we’ll contribute the rest of the allowed maximum – one of the few things that is deductible on PA state taxes. They also lowered the employee contribution prices of their health plans. We’ll be paying $77 less per bi-weekly pay period starting in 2015 (about $166/mth).

We rarely go to the doctor except for preventative appointments (and the random blood test for medicine maintenance), so I don’t foresee that we’ll use a lot of the HSA money – but we’ll be able to keep it from year to year.

I’m also playing with our portfolio goals spreadsheet in Google Sheets – and we *might* be able to contribute a total of 75k (including company contributions and matches) in 2015. I don’t want to say for sure since I can only guesstimate our mortgage and utility payments as of now. But, I think I’m going to be shooting for a 60k contribution goal, which might change as we settle into our new house.

The last bit of good news is that Dad’s company no longer has a vesting schedule. He will be 100% vested in his 403(b) as of January 1, 2015. I still have to wait 3 years until I’m vested in my employer’s contribution, but that’s not a big deal.

Here’s to hoping that in 10 years, we’ll be financially independent!

August 2014 Early Retirement Progress

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We contributed $3,806.57 this month to our retirement accounts  We gained $10,857.66 in interest this month.  That’s almost as good as we did in February when we gained just over $14,000.  The markets were nice to us this month, and hopefully they continue.

At this moment, I’m more concerned about mortgage interest rates remaining relatively low.  We wouldn’t borrow the money for our new house until February at the earliest, March as likeliest, and April as a late option.  Interest rates do more for our monthly payment than our option choices.  We’re looking at about 1900-$2100/month depending on exact rates for the new construction – but that wouldn’t start until March probably (maybe as late as April).  We’re hoping that our house in VA sells before the end of the year – preferably in the next few months, so we can save that payment until we move in.

I’ve maxed out my 403(b) contribution percentage which will start coming out in my September paycheck – 20% of my salary (~$2100/mth with “match”).  That will increase our monthly contribution for the rest of the year, pushing us just over $45k in contributions for the year.  We’re just going to learn to live on a lower take home pay.  (I’ve also figured out that we’ll end up paying more PA taxes at 4.07% of gross than VA’s 6% of Federal AGI 🙁 )  I have to wait until my September paycheck to figure out our new monthly net amount.

2014 Totals

So far, for 2014, we’ve contributed $26,905.35 (67.26% of the new goal of 40k), and we’ve gained $26,041.09 in investment gains (128.53% of our planned total).

July 2014 Early Retirement Progress

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We contributed $3,292.35 this month to our retirement accounts  We “lost” $7,215.19 in interest this month, pretty much wiping out the gains of June, but such is the market.

I put in $900 into our taxable account to sort of make up for the lack of contribution to a retirement fund, and of course, it was deposited and purchased stocks at pretty much the peak of this month.  We almost have enough in the taxable account to get into a mutual find vs the ETFs we’re in now.  There are short term trading fees on one of the ETFs (90 days), so I may have to wait a bit before selling to buy the mutual fund though – and I’ll take the capital gains.  Hopefully, I can get that in before the end of the year, so that we can offset some of those with deducting all of our moving expenses (estimated at 10k).

I won’t be able to contribute more to my Lending Club account (PA residents can’t buy new loans, but they can hold them and buy them on FolioFN).  I don’t want to mess around with buying loans, so I’m just going to let my existing loans run their course, and that’s that.  I haven’t considered whether I will sell the ones I have though (~$400).  Because the balance is so low, I’m not very diversified, but I’m also in mostly A and B loans, which don’t have a high risk of default, so I lean towards just waiting 3 years ’til they all “run out”

The markets have not been good to us this month, but for the year, they’re still doing pretty well, and I suspect we’ll still be able to “meet” our goal of just over 20k in gains this year.

2014 Totals

So far, for 2014, we’ve contributed $23,098.78 (57.75% of the new goal of 40k), and we’ve gained $15,183.43 in investment gains (74.94% of our planned total).