Monthly Net Worth & Goals Update – December 2009

Net Worth Chart 2009

Wow, December already…

Credit Card Debt
Up until now, I have taken money from credit cards at 0% APR and placed it into online savings accounts, bank CDs, or savings bonds that earn up to 4-5% interest (less recently), and keeping the difference as profit. However, given the current lack of good no fee 0% APR balance transfer offers , I am no longer playing this “game”. The balance that you do see is either before the end of the statement or during the grace period, where I’m also not paying any interest.

Retirement and Brokerage accounts
Mrs. MMB and I have both maxed out our 401k salary deferrals for 2009. We have also started to invest in regular taxable accounts by investing $30,000 that was previously being held as cash. I’ll outline the trade activity in an upcoming portfolio update.

Our total retirement portfolio is now $231,368 or on an estimated after-tax basis, $191,475. At a theoretical 4% withdrawal rate, this would provide $638 per month in after-tax retirement income, which brings me to 26% of my long-term goal of $2,500 per month.

We are also getting ready for a Traditional-to-Roth conversion once the income limits are removed in 2010. We’ll need to gather up some information in order to see how much tax we owe on any gains. More details on this to come.

Cash Savings and Emergency Funds
We keep a year’s worth of expenses in our emergency fund. Potential large expenses include $10,000 for home improvement projects (minor roof repair and solar water heating), as well as $15,000-$20,000 on a new car to replace our 1995 Nissan. Hope it can last us 15 years as well!

Home Value
I am no longer using any internet home valuation tools to track home value. Some people have suggested using my tax assessed value, but I also think that is too high. I simply picked what I felt is a conservative number based on recent comparables, $480,000, and keep it for at least 6 months if not a year. (Currently on month 3 out of 6.) For the most part I am concerned about mortgage payoff, which I still plan to accomplish in 20 years at most.

You can view previous net worth updates here.

Comments

  1. What are your thoughts on holding so much money in retirement accounts at such a young age?

    Most of your retirement savings, ~$200k is in tax-sheltered accounts that can only be tapped at age 59.5. Assuming you are 35 (although, I think you are younger), it seems like you have more than enough post-60 nest egg already. Even at 6%, and no further contributions, you will have $1M by the time you can withdraw it.

    As I understand it, your goal is be financially independent long before you turn 60. It seems like this will require more contributions to your non-tax-sheltered accounts, as they will have less time to grow.

    Just wondering what your thoughts are on this topic. I am in a similar position and am already thinking about not putting anything in my Roth next year.

  2. Joseph Sangl says:

    Outstanding update – I am in the same boat with the house valuation. I have decided to just leave it at the purchase price that I paid several years ago and leave it unchanged.

    What company are you using to manage your taxable investment accounts?

  3. A $30K lump sum into stocks at this level, wow! The market has a P/E of 20, it’s not terribly overpriced and is still about 20% away from being called a bubble by recent standard.

  4. You are doing well, keep it up!

    A concern I have recently (maybe because it’s everywhere on the net) is the declining value of the US Dollar. If the Dow goes to 30,000 but the dollar is worth less, do we really have anymore wealth? Gold seems too high and who knows if it is a true measure of currency.

  5. “I simply picked what I felt is a conservative number based on recent comparables, $480,000, and keep it for at least 6 months if not a year. (Currently on month 3 out of 6.) For the most part I am concerned about mortgage payoff, which I still plan to accomplish in 20 years at most.”

    This is exactly what I do. We’ve already agreed on this before. Thus, I’m just taking up space in your comments. :)

    (_8′()

  6. Love your blog!
    Do you invest in gold and silver? Do you fear the shrinking dollar value?

  7. I have the same question as bert – why invest so much in your retirment account if you want to use it a lot earlier?

    For myself I have a similar concern – my family tends to not get very old and I so I want to be able to access my money whenever I please. I’ve been using a regular brokerage account for my investments, for this reason. Sometimes I feel that this is not the smartest thing tax-wise but I’d hate to see it disappear behind this 25 year barrier.

  8. “I have the same question as bert – why invest so much in your retirment account if you want to use it a lot earlier?”

    The IRS rule 72(t) allows for substantially equal withdrawals from an IRA prior to age 59.5 without penalty. There are a few formulas an account holder can choose and must keep the same plan for 5 years or until the person turns 59.5 whichever is longer.

  9. Interesting thought about not putting any more money into retirement accounts at all and just investing in regular taxable accounts once you hit a certain amount. I don’t think I ever thought about this. Here is what I’m thinking now:

    Invest in retirement accounts until I reach an amount that would grow to about 700K to 1M by age 60. Then invest the rest in taxable accounts until I have enough to quit working to the point where the regular taxable accounts can more than carry me to age 59.5. I think you’ve discussed this before but I didn’t really give it much thought then.

  10. Thanks Mike! That rule is a nice trick.

    I guess I should continue to max out my retirement accounts. Although, there is the risk that the government will void the 72(t) exception. However, I think this is remote.

    Searching MMB, it looks like you have already thought about this, see http://www.mymoneyblog.com/arc.....r-ira.html

  11. Thanks Mike, and Bert, too.

  12. Jonathan,

    I’m curious about your reasons for going with a roth conversion next year. I’ve considered it as well, but believe that congress will find a way around the current advantage of roths (income tax free withdraws) by going with a VAT or some other national sales tax. So with a conversion, you may end of paying taxes now to convert and taxes much later when you purchase something after withdrawing funds from a roth. Bottom line, our national government is going need to raise revenues eventually and they can only get money from people who have money, so they’ll find a way. I have a roth 401k option which is nice, but I’m not sure which is the better way to go with contributions for this same reason.

  13. DD, not sure that makes any sense. You would pay a VAT regardless of whether you use withdraws from a roth 401k or traditional 401k. That is unless you are arguing that with a VAT they will lower income taxes (yeah right)

  14. Chad,

    I’m thinking about the scenario where your motivation to do a roth conversion or contribution now is because you believe income tax rates will rise significantly in the future, so you pay income taxes now to protect your future withdraws/income from those high rates. But down the road with the national government needing money, instead of (or in addition to higher income tax rates), the government institutes a VAT, so the investor’s original motivation is no longer valid (the government gets more of your retirement money than you originally planned for).

  15. bert: “Assuming you are 35 (although, I think you are younger), it seems like you have more than enough post-60 nest egg already. Even at 6%, and no further contributions, you will have $1M by the time you can withdraw it.”

    Don’t forget that $1M will not be in 25 years what it is today. Even today, at a reasonable 4%, that’s only $40,000 per year, which is not much if you want to enjoy your retirement. Imagine what that will be like in 25 years. Well, it will still be $40,000 :)… but it will *seem* like much less in today’s dollars. You get the picture.

    Personally, I’m shooting for $4.5M by age 59 (30 years from now), which will surprisingly only throw off $70,000 per year in today’s dollars, due to the inflation.

  16. “Personally, I’m shooting for $4.5M by age 59 (30 years from now), which will surprisingly only throw off $70,000 per year in today’s dollars, due to the inflation.”

    Of course that’s all conjecture, but you have to take some kind of guess at what inflation will be like on average. I believe I used 3.25% to calculate those numbers.

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