Aug 10

It’s already election season, and we have 15 months to look forward to our politicians each jockeying for position, name calling, debating, all the way to the final two (or three?) we can choose from in November 2016. I am a personal finance blogger, and do my best to stay non-partisan, but when I hear proposals that will affect our tax code or cause me to change my advice on investing, I’m going to analyze it here.

Today, it’s Chris Christie’s proposal to cut social security benefits. First, he’d like to push the age for full retirement benefits from the current 67 to 69. For this part of his proposal, I’d like to address the elephant in the room. The fact that this impacts black men disproportionately from whites.

From the CDC, “In 2011, life expectancy at birth was 78.7 years for the total U.S. population, 76.3 years for males, and 81.1 years for females. Life expectancy was highest for Hispanics for both males and females. In each racial/ethnic group, females had higher life expectancies than males. Life expectancy ranged from 71.7 years for non-Hispanic black males to 83.7 years for Hispanic females.”


In other words, on average, a 67 year old black man has 4.7 years left to live, and a white man, 9.3. This cuts the benefit by 42% for black men, but only 21% for whites. I read his proposal and didn’t have to search too long to find government number for life expectancy. Yet, in all the media I consume, all the articles on the Christie proposal, I have yet to see this addressed by anyone. (To my readers – This observation opens a discussion of a far larger issue, health care. In the long term, instead of tinkering with Social Security benefits, we need to close this gap.)

Next, we have his plan to reduce benefits for that he believes simply don’t need the money. How much is that? He would phase out the benefit for those with incomes from $80K to $200K. For a single person, that’s quite the range. In the last election, I recall $250K/yr being considered rich. And we discussed the difference between rich income vs rich wealth. It’s possible to make $250K and blow through every dime, and it’s also possible to make $100K and save your way to a $2M retirement fund. But here, we’re talking about retirement, and the connection between $80K and the wealth it represents is best thought of via the 4% rule. In other words, assuming I spent a lifetime of work saving to my 401(k) and IRA, pretax, it would take $2M of wealth to let me withdraw $80K per year. This takes an above average wage (or wages for a couple, but if one person passes early than the other, we still have a single person dealing with this money) but nowhere near what we consider “rich.”

At $80K taxable, we’ll ignore deductions for this discussion. This person might have as much as $40K in Social Security benefits. The furnace breaks, the roof needs replacing, a child needs help sending your granddaughter to college. Whatever the reason, $60K extra is withdraw from the 401(k). The tax rate this year would be 28%, netting $43,200 to pay a year’s tuition. But Christie would add an effective tax of $20K (i.e. confiscate half the SS benefit) and the net result is $23,200 from that $60,000 withdrawal. This results in a marginal rate of 61.3%.

What I find most troubling is the Catch-22 in which we all seem to find ourselves. Social Security feels like a retirement plan. From the time I started working, I’d get an annual statement, basically telling me that if I kept working to a certain age, 62,65,70, I’d expect a certain benefit. Yet, as many have noticed, the statement have a warning.

Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits.

This, and the warning that it’s really not a retirement plan, but an insurance, leaves us all encouraged to save all we can, 10-15% of our income being ideal. In my example above, it was more about how the retiree saved than how much. In hindsight, had the savings been post tax, subject to a 25% margin rate, the accumulation might be $1.5M instead of $2M. The tax on dividends would be 15%, as would cap gains. But withdrawals wouldn’t be considered income, and Christie’s horrific proposal could be moot. To be clear, his proposal doesn’t just hit the wealthy, but those who simply saved what they could in a responsible way.

More to come on the topics raised here. What do think about Christie’s proposal? If you agree with him, what am I missing? If not, how would it impact you? Last do you feel that Social Security is a “Entitlement” or do prefer to call it an “Earned Benefit”?

written by Joe \\ tags: , ,

Jul 24

Today, a guest post from Crystal –

Many of us dream about hitting the road or traveling the globe… ideally without sapping our savings dry! To travel while working is the ultimate lifestyle. Here are some ways you can explore the world while still earning a living.


Thanks to the internet and the rise of sites such as Elance and Freelancer, there is a whole suite of opportunities for writers, journalists, editors, graphic designers and programmers. These sites give professionals the ability to list their résumé and experience online and then bid for thousands of jobs available.

Initially, it can be a slow start as you build you profile and reputation. But once you are established, there is regular, paid work to be found and even a decent income to be had. The best thing is the work can be done from anywhere – an office, the beach or your dining table – using only an internet connection and laptop. Jobs are invoiced and paid online, with job tracking and even time tracking included as part of the service.


New technology has also changed the face of sales, meaning it’s no longer a door-to-door profession or needs to be based from a sales office. For example, companies such as Telcoinabox offer the opportunity for those with sales skills to essentially set themselves up as a telecommunications provider. Everyone uses telecommunications products every day, meaning anyone is a potential customer and they can be serviced from anywhere with a phone and computer.


If you’re an expert in your field then consulting is a great way to earn money while on the road. With experience in fields like human resources, finance, IT or business mentoring, consultants can charge big dollars to help start up or shape up a business.


It’s old school but noble. Tutoring, whether it’s in English, maths or general studies, is a great way to earn cash while traveling. It’s also a great way for you to engage in a little culture while overseas as you get to know new people and share your skills.

There are some great organizations that can find you positions overseas and provide you with accreditation, or you can establish yourself as an independent traveling tutor.


If you’re a great writer and have knowledge or wit to share then setting up your own website or blog could provide a steady income while you’re on the road. Income is derived through advertising or membership, but it’s a competitive field, so ensure your topic is of interest and you have a new take on it.

From parenting to food blogging, there are people making good money after establishing their own sites.

As technology and access to it improves by the day, more and more opportunities are opening up to global citizens looking to make the world their workplace. Whether it’s using your language skills, professional expertise or sales smarts, it’s simply a matter of taking the leap and finding the field to suit you. Then you can sit back on that beach in Thailand while the money keeps coming in.

written by Joe \\ tags: ,

Jul 09

I was listening to my local news station when a segment came on, a 5 minute bit of money advice with a local author and financial planner, Jonathan Pond.

I like his conservative approach. What’s unfortunate is that a quick few minutes to discuss any financial topic is going to miss some important details. In this case, the host asked what one should do with their 401(k) when they leave a job. Jon’s answer was to not leave it languish in the old account, to move it to an IRA. I hope listeners took that advice as “don’t forget about the 401(k), get more information.” I often say that it’s called personal finance  for a reason. Not all situations are identical. Let’s review 3 situations where leaving the account where it is would be best:

  • You were 55 or older when you left the company. Did you know that if you retire at 55, and try to take an IRA withdrawal before age 59-1/2, you’ll pay a 10% penalty? Yes there are some workarounds, a Sec (72t) withdrawal for instance. The simplest thing, however is to leave the funds in your 401(k) where you can withdraw with a 20% tax withholding, but no penalty, if you separated at 55 or older.
  • Your old 401(k) had great investing options. It’s possible. My old company 401(k) uses a Vanguard S&P fund that has a .02% annual expense. This is a $200 fee for every $million invested. The typical 401(k) expense is 1% or .02% per week.
  • Last, you’ve been doing well, well enough that you can’t make a pre-tax IRA deposit. Still, each year, you can do the back door Roth. Deposit to the IRA and immediately convert to Roth. Easy, right? Yes, but if you transfer your 401(k) to an IRA, and then try this maneuver, you’ll be in for a headache and tax bill. Conversions to Roth are prorated, all your IRA money is considered. So if you had $95K in your IRA and then deposit $5K to convert, 95% of the conversion will be taxable. Keeping the funds inside the 401(k) is the way to keep these funds segregated.

Are you making this decision right now? What factors have been part of your thought process? Have friends or family been giving you advice to go one way or the other?

written by Joe \\ tags: ,

May 18

The David (as I fondly call the entertainer Dave Ramsey) is known for his hyperbole. And his “my way or the highway” view on all things financial. One of his more memorable quotes is “No one ever says they got rich off of credit card points.” It seems to me that if I say so, and offer some supporting evidence, then he’s wrong. If he ever repeats himself, you can reply and tell him you know a guy that did. Let’s start here.

Screen shot 2015-05-02 at 3.28.43 PM

Above is a snapshot of my 529 account funded solely with the 2% cash back from my credit card. We use a credit card that offers 2% cash back on all purchases, and have had the card for nearly 16 years. It’s invested in an S&P index, so the number above includes the growth of the market. We have 2 years till my daughter goes off to college. Or 6 until her senior year. I’m hoping this account can grow to $40K and cover a full semester’s cost. That will make another topic for an article here.

In 2012, I wrote a guest post How I Made $4,000+ on a Cash Back Credit Card Offer. The exact number was $4550. That was a one time opportunity, for me, a way to take advantage of the institution we all hate, the bank that pays you .01% on you money, but charges you 5% on your mortgage, and a fee for every little thing. You can read all about it at the linked article.

Last, I’ve also had an Amex card that averaged over $500/yr in rebates for Costco and gas purchases, so another $10K on top of this. This all totals $40K, give or take.

There’s a site Global Rich List that puts wealth and income into perspective. I put in $40,000 and found

Screen shot 2015-05-02 at 3.44.56 PM


If instead of wealth, we look at income, how about I look at the $1600/yr I can withdraw from the $40,000, and add $2000/yr, the amount I’ve been getting back in rewards, so $3600/yr.

Screen shot 2015-05-02 at 3.47.43 PM

I offer this a bit tongue in cheek, as I know that $40,000 isn’t really rich, nor is $3600/yr living the dream. But $40,000 is still a chunk of change. If you look at how much we’ve saved for retirement in the US –


That $40,000 is more than 40% of those nearing retirement have saved. Did I really get rich on credit card points? We can debate that. But first, ask the 31% of 55 year olds who have less than $10,000 saved if an extra $40,000 would make them feel rich, and then decide.

written by Joe \\ tags: ,

Apr 16

I’d always thought, and advised others, that to retire, one should have their mortgage paid in full. And that was always my own plan. But, anyone who knows finance knows that you can’t plan on an exact stock market return, you can’t plan on your own health being excellent, nor your marriage outlasting your mortgage. In our case, these things actually all are going pretty well, thank-you. What changed was our income which I posted about a few months back. While we were working, we saved, over 20% per year on average. We topped off the 401(k)s and IRAs, and put aside money for our daughter’s college tuition. In hindsight, we could have saved a bit less, and aggressively paid off the mortgage, and I know there are people who are in the Dave Ramsey “debt is evil” camp who will agree, but I have no regrets. I’m a numbers guy and as rates fell, I was a serial refinancer. We entered our retirement phase with a fresh 15 year 3.5% mortgage.

When we lost our jobs, the balance was $265K, and I did the math to see what it would have taken to have no loan on that day. Our average interest rate was 6.0% over the prior 15 years. An extra $935 per month for that time and we’d have no loan. Keep in mind, the market was interesting during that 15 year stretch from 1998-2012. A 3 year slo-mo crash with a cumulative 38% market loss. A 2008 loss of 37%. The compound growth during this stretch was 4.4%. But didn’t I just say my average loan rate was 6%? Yes. The difference was going into our retirement accounts. Not the matched portion, although that would certain tip the numbers in my favor. Just the regular pretax savings. And even with that disparity between my mortgage rate and the low market return, the 401(k) had $349K extra vs our $265K mortgage. What’s interesting to note here is that the money went into our retirement account at a marginal 28% tax bracket most years. But now, the withdrawals are at 15%. At a current rate of 3.5%, the mortgage payment is $1966, and if you do the math, it takes $2313 from the 401(k) to make this payment.

Two years have since passed, and the market in 2013 and 14 was very rewarding. A gain of over 50%. We ended 2014 with the mortgage at $233K and the calculated 401(k) extra funds at $453K. The interest deduction wasn’t part of my math, although it helps my numbers a bit. Instead of the whole payment being subject to the 15%, the first $8,000 is interest and, with some good planning, keeps us from hitting the 25% bracket.. No one should keep a mortgage “for the deduction” of course, paying a dollar to save 25 cents makes no sense. From where I sit, it simply means my 3.5% mortgage is actually 2.6%.

The fact that we hit our number while taking the mortgage payment into account, and not counting on social security which is still quite a few years away, is what lets me really sleep at night. Right now, I can’t say whether the mortgage will be paid off before we decide to move. Either way is fine by me. Paid off, our number drops, freeing up our savings for other endeavors.  A move would drop our cost of living, as we’re currently in one of the higher expense parts of the country.

The bottom line? 2 crashes over a 15 year span and the results are still in my favor. The key thing was that the difference was put into savings, not just absorbed into the spending portion of our budget. No regrets.

written by Joe \\ tags: , , ,