Curve Balls

My sister was diagnosed with breast cancer today. Our suspicions were confirmed. 

Just another reminder that life really does throw curve balls at you. 

The silver lining to this pandemic is that my work schedule is very flexible right now. I can help my sister with her appointments and my mom with her errands more.

2020 is continuing to be a dumpster fire year.

Choosing Pain

I have this horrible personality defect where I would rather do anything other than what I'm supposed to be doing. I guess that's how I initially picked up running as a hobby - - I would rather do something I detested than do whatever task I had to do. 

Running was also a distraction from my miserable life: I was now middle-aged; I was stuck in a horrible job where my employer didn't respect me, yet took advantage of my expertise; I was gaining weight and my health metrics were deteriorating; I suffered from insomnia.  Running gave me a new goal and purpose in life. 

Despite the numerous benefits I reaped from my new hobby (weight loss, better health metrics, better sleep), I still hate running. I wake up at an ungodly hour to run pre-dawn. Running also leaves me low-key exhausted and sore all the time. And I don't care what anyone says... running is HARD. It's hard on my body and my mind. But I run anyways because this is a pain that I choose to undergo; I tolerate the pain/misery of running because I choose to do so. When I choose to overcome laziness and lack of motivation, I am strengthening my mind and body to be prepared for any obstacles life will throw my way. I will have the confidence in knowing that if I can bear the pain of finishing a Marathon, I can overcome anything.

~~~~

At the beginning of this year, I made a couple of pretty dramatic changes to my finances: (1) I switched from contributing to a traditional pre-tax 401k to a Roth 401k and (2) I also started contributing beyond the annual 401k contribution limit because my company's 401k plan allows for after tax contributions into the traditional 401k with a mega backdoor Roth conversion. 

Just to illustrate the additional financial "pain" I've chosen to inflict upon myself, last year I contributed $18.8k into my traditional 401k.  This year, I am on track to contribute $19,500 into my Roth 401k plus $12,450 after-tax contributions. (That's almost a 70% increase in my 401k contributions!)

These changes reduced my take-home pay by about 15% which was initially hard.  But I've since adjusted, and to be frank, the pandemic has helped me reduce my spending considerably. I also anticipate that my income tax bill will be higher come April 2021.

The catalyst for this change came about last year when I saw that in a couple of years, I will be eligible to contribute approximately $7500 extra into my 401k for the over-50 catch-up allowance. I freaked out. 

After the initial freak out, I wondered to myself, if I was 50 now, would I be able to contribute the current catch-up limit of $6500?  Around the same time, I learned that my Company allows for after-tax contributions with an in-service Roth conversion. That got me thinking, "Why don't I pretend I'm already 50 and contribute (beyond the $19.5k limit) on an after-tax basis up to $6500?" I took a deep breath and took the plunge.

Due to a serious miscalculation on my part, I ended up contributing almost double the rate of what I was planning on an after-tax basis. 😝  But by choosing to inflict this "pain" on myself, I discovered that I was capable of doing so much more than what I thought I could.  Retirement savings is a metaphorical Marathon - - I choose pain now to get to the finish line faster.

 

Thank You, My 35 Year Old Self

People often joke that their pandemic life isn't different much from their normal life. In many ways, this is true for me, but not completely. Like many people, I've reduced my spending considerably: I haven't traveled anywhere this year; I haven't purchased any new clothes for myself; I've put my gym and massage accounts on hold until next March; I haven't purchased gas for my car as often; and I haven't signed up for any races (10ks/half marathons/marathons). In essence, all my savings are in the non-essential, "want" categories.  The spending on my "needs," i.e., housing, food, insurance and transportation (except gas), are all either flat or slightly up. 

To be blunt, I'm living a life without much fluff and fun right now. And it reminds me when was I in the throes of student loan repayment hell. In my mid-30s, I had a Come-To-Jesus moment when I came to the realization that I was drowning in debt. I made a commitment to attack my student loan and credit card debts the best I could. This meant implementing an austerity lifestyle which included, among other things, an $8.70/day food budget. I remember being holed up in my dark, 1-bedroom apartment day after day, pitying myself for not having any money for fun, travel or shopping. Boy, those were some depressing days.

And now, I'm in my late 40s, quickly approaching 50. My life has considerably improved since then: I have at least 1 year's emergency fund saved, ~$740k in my retirement funds, own a rental property and live in a nicely furnished 2-BR condo in a posh neighborhood. My net worth (including real estate) is now over $1 million. 

Unlike my mid-30s, I now have money to spend without digging myself into debt. But I've chosen not to spend for stuff out of my "want" categories to do a pause-and-reset of my finances. This is a conscientious choice; the Spartan lifestyle of my 30s was out of necessity.  This makes a big difference psychologically and emotionally. 

Ironically, frugality now feels like a luxury because I know the sacrifices will reap rich rewards down the road. Back in my 30s, I wasn't so sure the sacrifices would make any difference in my debt levels, which only fueled my anxiety and misery. Despite this, my 35 year old self soldiered on. So I am using this opportunity to thank my 35 year old self for taking that first step despite all of her misgivings, FOMO and jealousy. I hope to make my 65 year old future self just as proud.

Bummer - Layoffs Are Coming

 Just got the news yesterday that layoffs have started at my company. Additionally, "some further assessments are ongoing." Translation: More layoffs coming our way. On the one hand, I am grateful I made great progress with my finances and that I am in relatively good condition to weather this storm right now.  On the other hand, I would hate to have worked this hard only to take many steps backwards now.

Long Absence

Wow.  It's been over 6 years since my last post. To be honest, my personal finances just went on autopilot after I bought my first home in January 2012. My personal finance situation at the time, although not ideal, was less dire than in my 30s. 

What has happened since then? I fell off the austerity lifestyle wagon of my 30s and started living my life. I turned 40 in 2012. Started traveling more, eating at nicer restaurants and increased my standard of living while still living within my means. Hired a personal trainer and successfully ran my first 5k and 10k in 2016. Quit my miserable job and moved to another state in 2017 to start another job. Bought a second home and rented out my first. Ran my first 15k, half marathon and marathon in 2017. Paid off my student loans completely in 2018. Hired a running coach in 2019 and PR'd my half marathon in 2019. PR'd my third marathon in 2020, right before the pandemic. 

When I look back at my financial struggles of my 30s and compare it to where I am today, I feel an overwhelming sense of accomplishment and satisfaction. In hindsight, I am glad I went through the struggles of my 30s. What felt like an immense, depression-inducing burden then, I now feel my student loan debt was a great character builder. 

I am now at an age where my peers are starting to freak out about their own personal finances since our respective retirement horizons (voluntary or forced) are within sight. They are now contemplating the same lifestyle changes and sacrifices that I was forced to make in my 30s. Welcome to the club! 😉

So where am I now? I'm going to turn 50 in a couple of years! 😲 Based on the Millionaire Next Door formula, I am doing better than the Average Accumulator of Wealth (AAW) but am not a Prodigious Accumulator of Wealth (PAW). Yet. The next stage of my life will be all about catching up and accelerating my savings and paying down two (2) mortgages.

Milestones Towards Retirement To Keep in Mind

US News and World Report has a pretty nifty slideshow titled, 9 Important Ages for Retirement.

Of significant importance to me is Age 55 -- I can leave (or get shit-canned from) my job in the calendar year I turn 55 and still take 401(k) withdrawals from the retirement account associated with the job I left without having to pay the 10% penalty tax, according to IRS Code
72(t)(2)(A)(v).  If I roll my 401k into an IRA, I have to wait until I'm 59 1/2 years old.

(t) 10-percent additional tax on early distributions from qualified retirement plans

(1) Imposition of additional tax

If any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974 (c)), the taxpayer’s tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.

(2) Subsection not to apply to certain distributions

Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:

(A) In general

Distributions which are—

…

(v) made to an employee after separation from service after attainment of age 55….

NOTE TO SELF:  If I change jobs between now and when I turn 55, assuming that my new company's 401k is not completely craptastic, it would appear that rolling my 401k into my new company's 401k plan would be a better strategy than rolling it into an IRA.

Operation Retirement in Fourteen... Errrrr.... Fifteen Years Maybe?

I'm already changing my mind about the timing of my retirement.  I was pretty convinced that I would retire in fourteen years once I paid off my mortgage.  I was thinking I could fulfill two dreams at once:  burning my mortgage documents and quitting via cake.

But the more I thought about it, I think the better plan would be to retire in fifteen.  I think I need the final year as a "test-run" to see what my true cost of living sans old major expenses would be and to plan for new major expense (e.g., health insurance, long term care insurance).  I did some rudimentary math to see what my anticipated cost of living (assuming 4%/year inflation) might be compared to now.

My monthly expenses currently run around $4,600/month.

Payee	2014
Credit Card	$     520.00
Cable + Cell + Massage	$     319.00
Monthly Living Expenses - Food, Gas, Entertainment, Misc.	$     800.00
DOE (Student Loans)	$     360.00
Mortgage	$   1,289.00
HOA I - Subdivision	$     290.00
HOA II - Master Assoc	$       30.00
Bank of Mom	$     225.00
Prop Tax	$     375.00
Gas & Electric	$       55.00
Life Insurance	$       48.00
Auto Home/Insurance	$     185.00
EF	$     100.00
TOTAL (Monthly)	$   4,596.00
TOTAL (Annual)	$ 55,152.00

In 2029, I'm expecting my monthly expense will run about $5,290.91/month.  It's a bit hard to foresee what other expenses I might have then that I don't have now.  Hence, why I think an additional year in the workforce would be helpful.

Anticipated Expenses	2029
Healthcare	$     742.85
Cable + Cell + Massage	$     571.01
Living Expenses	$   1,432.00
LTC	$     644.40
HOA I - Subdivision	$     519.10
HOA II - Master Assoc	$       53.70
Prop Tax	$     671.25
Gas & Electric	$       98.45
Life Ins	$       48.00
Auto/Home Ins	$     331.15
EF	$     179.00
TOTAL (Monthly)	$   5,290.91
TOTAL (Annual)	$ 63,490.92

My exercise above was to see whether I can live just of off the dividends I earn in my 401k, Roth IRA and traditional IRA.  Assuming a 2% dividend yield (pretty much what I'm earning now) and an projected balance in my 401k of $1.4 million, I'll run out of funds in my 401k when I'm about 85 years old (taking into account I claim Social Security at age 72).  If the dividend yield goes up to 3%, I'm golden indefinitely.

This is a wake-up call that I need to get more serious about increasing my savings rates.  ... And not getting fired in the mean time.