I’ve Paid For This Twice Already…

Archive for the ‘retirement’ Category

This week I got my final (I think) statement from Wachovia indicating my account had been closed. I can’t imagine what else they’d be sending me a statement for now that they’ve indicated my account is closed and my balance is $0, but I’m not going to be sure for a while yet. They already tried to charge an account maintenance fee on a closed account, after all.

So now I have the fun task of totalling up what this little transferring to Vanguard endeavor cost me. For, I am sure that every fee imaginable was squeezed out of me. When I began, I had a Roth IRA with Wachovia that consisted of 6 mutual funds and a money market account. According to my final statement, as far as I can tell, I was charged a $7.50 per mutual fund fee for selling them to transfer the money to Vanguard (that seems reasonable, for a total of $45 for 6 mutual funds) and a $95.00 termination fee to close my account. Lovely. I pay you $95 so you don’t have to deal with me any more. Nice. Not really on board with that, but, what is done is done and at least…. it is d-o-n-e. So, $140 in fees later, my money is finally moved and I don’t have to deal with Wachovia any further (I think).

Unless they try again to get another $75 annual account maintenance fee out of me… but I am hoping they’ve realized their error and have moved on.

Whew. Fees are the enemy of compound interest!!

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When I was in my first year of graduate school, I had a friend who was, in some ways, like my very own personal finance educator. He and I came from very different backgrounds and had very different levels of understanding about money and finance. Mine - minuscule. His - vast (to me at least). I was barely getting by on my graduate school stipend month to month, and he was living off his investments. I’d never been taught by anyone about investing money, and I thought it was something that rich people did. Sadly, my understanding of that extended to retirement as well. 401Ks I understood in theory, but didn’t only rich people have IRAs?

Well, my friend Sheldon taught me that you didn’t have to be rich to invest money. He had made a whole lot of money by having a knack for picking the right companies at the right time, but that isn’t what he taught me. He explained about the importance of investing, if for nothing else at least for retirement, and we had long talks about mutual funds and the value of investing for the long term. Instead of seeming out of reach and foreign, the idea actually seemed approachable and doable. We talked about risks and returns and buying for the long term and staying the course. Investing for my future went from seeming out of reach to feeling imperative. I had a little knowledge, and I felt like I could do something great. But a little knowledge might be a dangerous thing.

In my second year of graduate school I got a flyer in the mail from a local financial advisor targeting graduate students as new clients. In light of all my new awareness of investing for the future, I thought it was a good idea so I went to a free financial assessment. I ended up as a result funding an IRA to the maximum for that time ($2000) and starting a small portfolio of my own ($500). This was most of the savings I had accrued to this point so it was a big step for me.

Yes, there are about a dozen follies in what I did. I didn’t bring Sheldon with me to help. I probably should have. But the intent was good. My financial advisor kind of sucked. But that’s another story.

Almost a year after I did this, invested another $2000 in my IRA, had been steadily investing $50/month in my non-retirement portfolio, and was feeling all proud of myself for making so much money (my investments, retirement and otherwise, had grown by almost 25% independent of new money put in), the dot-com bubble burst, and everything I had pretty much sunk dramatically. I learned firsthand about risk and really, I didn’t like it one bit. The next year, I moved my non-retirement portfolio into my retirement one, and called myself done with investing. I was back to feeling like investing was for rich people, and besides, my life had changed, I was married and had other financial commitments than as a single graduate student.

My account has traveled through a few different firms, as my financial advisor moved up and firms were bought by other firms. Eventually my account was separated from a specific advisor due to its small size. But a funny thing happened. Even though I didn’t do anything else to it, it kept growing, little by little. And slowly as I became more educated about finance, I swung back towards believing in investing for everyone, not just the wealthy. I may have made a multitude of mistakes with my wee bit of knowledge, but I also was lucky enough to end up on the positive side in the long run, so far.

A few months ago, I closed my IRAs with the firm they ended up with, and moved them to Vanguard. Even with all the up and down craziness, my retirement portfolio was at that point worth about 50% more than the actual money I had invested in it 5-7 years ago. Not that this result is necessarily typical, but the upward trend is, in general, typical. I had almost accidentally become an investor, and it actually worked. I can’t go back in time and invest more money in my 20s, but at least I had invested some. Behold the power of compound interest.

I’m excited for what I might be able to accomplish in the future with a little more understanding and a lot more commitment to consistent investing for the long run. A little knowledge may be a dangerous thing but a philosophy of continually learning is a better weapon.

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The “quick and dirty says just what I feared” conservative estimate edition.

We don’t have a lot saved for retirement yet. I’m the first to admit that. We each have an IRA (mine Roth, his not) that have not seen contributions in several years. And 4% of my spouse’s salary (with a 20% match of that 4%) goes to a 401K. The match maxes out at the 6% contribution level, which we are going to go up to…. soon. I don’t know exactly when. But anyway. I know we need to save more for retirement, but the debt reduction is the focus first. We’re both 33, and I assume plan to start taking benefits at 65. So I did some quick and dirty number crunching for my part 1 of figuring out retirement.

I did a conservative estimate using us retiring at 65, living to 90, replacing 100% of my spouse’s salary, and receiving no social security. I used two different calculators that were recommended on Free Money Finance, the ballpark estimate and Fidelity’s My Plan. I started doing FMF’s own very detailed and complex but unendingly thorough calculation and I got a little lost so I decided to try that one again another day when I’ve gotten the hang of thinking about this more. This runthrough is quick and dirty after all, for now. Surprisingly (or not so surprisingly) I got about the same estimates from both calculators. We need to save about $2 million dollars by retirement in ~32 years, and to do that we should a bit over 20% of my spouse’s salary. Maybe 20% doesn’t sound like a huge amount, but that is of his actual salary. If we are talking *take home*, it is more like 33% of my spouse and my *combined* take home after taxes and health insurance are taken out. I know the 401K is taken out pretax, and we already contribute 4% so it would “only” be 16% additional to that in total retirement contributions but… yikes. Basically the quick and dirty estimate gave me the same numbers as what I basically was assuming all along. We need to bump the 401K up to 6% to capture the full 20% match, and then just about max out the IRAs for both of us every year to be in a good place come age 65.

When I told my spouse he snickered and said “That’ll happen” and then told our son he needed to get rich to support his parents in their old age. Kidding! But still.

I know we’re behind the eight ball on this. Our Pudding Score (how you measure up compared to where you “should” be, 100 is average, lower is bad) is 39. I know we’re behind. It just seems unlimitedly daunting to catch up, and just about impossible to imagine. But we will try. Once we knock out the debt. We’ve got time on our side (somewhat) at least.

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Here’s another good reason to get out of debt as soon as possible - when the market keeps falling I can invest more in my IRA.  I always thought I was risk-adverse but really, I was just uninformed.  I was scared of risk because I didn’t know enough about the risk.  The stock market just seemed terrifying to me.  It is fine to be risk-adverse if that is your personal comfort level but it is not good to just be ignorant, and I was definitely ignorant.  Now I’m just semi-ignorant.

In fact, it seems I like a little risk.  My retirement fund is a pretty aggressive portfolio right now, and I keep thinking as the market falls… hmm, too bad I don’t have any extra money to throw in there right now.

As people keep saying… Stocks on sale!  When stuff is on sale at the store I stock up… it is the hoarder in me.  This might be a beneficial side to a hoarder personality.  I’ll have to wait to find out for a few more years though.  Right now it is all hypothetical, my little buying frenzy.  And retirement is a ways off so I can be mellow about whatever is going on.

Speaking of the market and economy, I’m just glad I don’t have a subprime mortgage.  Even with our being in some debt we got a 30 year fixed rate mortgage with a very competitive rate.  I guess the great credit score was good for something.  You don’t need money just a random high number attached to your credit!   Heh.

~J

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My transaction is complete and I am now invested with Vanguard.  So it didn’t take that long at all, nowhere near the November date Vanguard warned me it could take up to.  I now have a little over 362 shares of Vanguard Target Retirement 2040 Fund.  So now you know approximately how old I am and how much money I’m worth.  Too old and not much.  But at least it is only 2007. 
I’m proud of my investment.  I did research, I weighed options, I thought carefully, and I acted.  Nothing like when I first opened this Roth IRA in grad school.  Then I just knew I should be saving for retirement so I went to the first financial planner that mailed me an ad.  Direct mail worked for someone!  And seriously, I knew more than that planner did and that’s not a good thing ;).  But she took my money and invested it in what I chose from the options she gave me, and it has done okay.  That little company was bought by a bigger company that was eventually bought by Wachovia and a few years of horrid customer service later, here we are.  Bye bye Wachovia!  I don’t miss you already.

~J

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