54% of workers said they have less than $25,000 saved for retirement

24% have delayed their retirement in the past year

27% of workers said they have less than $1000 saved

43% have less than $10,000 saved for retirement

Personally, I think there is a reason that defined benefit plans like pensions have been such a popular thing.  It would appear that the majority of people either don’t  know how to save, or have never been able to put themselves in a financial position to have the extra money to save at the end of the month.  Either way, it doesn’t speak well for our collective future.  While I’m glad not to be in any of the statistics above, I still wonder how it will impact me.

As we thought about it a bit, we realized that we’d be foolish not to register our daughter as a UK citizen.  While she is automatically a “UK citizen by descent”, it makes sense for us to get her officially recognized so that she’ll be able to freely move in and out of the country and work there if she chooses.  It also gives her access to UK healthcare which might come in handy some day if we happen to be there visiting, or if we lose our insurance here in the US and she is in need of care we can’t afford.

We have also been contemplating moving to the UK when we retire.  My wife would love to live back in the UK.  She spent summers there when she was growing up and obviously feels a strong connection to the country.  When we first started talking about this we thought we’d discovered an incredible option for our retirement that would let us live comfortably and have free health care.  (I would have to wait three years to become a UK citizen to qualify for the healthcare but that’s not a big deal).  As we put more thought in to it, it became clear that our plan wasn’t as great as it first appeared.  While we would ultimately have universal health coverage over there, it definitely wouldn’t be free.  It hadn’t initially occurred to us that we’d really end up paying for this healthcare through much higher taxes to our pension, investments and social security income.  Our assumption is that it would probably end up being more expensive than just staying in the US and buying private health insurance.  Once we hit medicare age (assuming it still exists), we’d almost definitely be better off staying in the US.

The one situation that it still might be a good idea to move to the UK is if we end up having very little money because I invested all of our money in a fool proof pyramid scheme or finally fell victim to a “hard luck” story from Nigeria.  In that case, if we were low income and wouldn’t be showing much income, we might be better off moving to the UK.  We would face very little taxes and would have access to the social benefits that the UK offers.

Who knows what will happen in the next 20 years before we retire.  It’s likely that we’ll retire here and spend time in Arizona or somewhere else warm in the winters but just having the additional options makes us feel fortunate.

With this in mind, we are setting a goal to increase our emergency fund by 50% this year. It’s not a terribly aggressive goal for us but I know we have some expenses in our future so I’m going to be conservative on this goal.

The second goal for the year will be to increase our 401K contributions. While I have been contributing the maximum to my 401K account in the past, I need to bump it up a bit so that it reaches the $16,500 limit for 2010 (I didn’t increase it from $15K in 2009). We also need to increase my wife’s contribution to get her closer to the maximum. If we are able to get her’s up to the maximum, that would be a full $33,000 towards our retirement accounts in 2010. My only concern with this is that we are putting a LOT of our funds in IRA sheltered accounts and I’m concerned that if I stop working prior to 59 1/2, I won’t have a good income stream outside of this.

That leads me to my third goal. I need to increase contributions to a standard brokerage account. I’d like to automate this but I’m concerned about keeping track of my basis for tax purposes. Does anyone have any advice on how to do this fairly easily?

Are you setting any financial goals for 2010?

A couple years ago I was having a conversation with a friend of mine.  He is very investment savvy and has been investing almost as long as I’ve been alive.  I call him my personal Warren Buffet because he is very much a "value investor".  He’s given me more than a few good tips over the years but more importantly he has helped me change my thinking on investing.  Until I met him I was guilty of being a follower and trying to chase the latest hot stocks or segments of the market.  He has been anticipating a significant buying opportunity in the market for at least the last 3 years.  He believes that a good buying opportunity might come around every 8 to 10 years and with all the hype over the last few years, he felt it was about time.  He sure was right.

I hadn’t talked to him for a couple months when I called him late last week.  I wanted to get his take on the recent market turmoil and see what he was doing.  I can’t say I was surprised to hear the pleasure in his voice as he described some of the stocks that were very much on sale.  He had been buying all week and I’m sure that buying continued this week.  I have no doubt that he’ll do well as the market bumps around.

The number one thing that I have thanked him for, was giving me the advice to keep a percentage of my investments in a cash account (like a money market acct etc).  Because I listened to his advice a couple years ago I’m finding myself in the position to buy a few investments at prices I wouldn’t have imagined even a few months ago.  My only conflict is when I think the prices will near their bottom.

1) Retire at 65 and do absolutely NOTHING

This is the least attractive scenario for me.  The magical number of 65 would (in theory) give me access to medicare if it’s still around.  It would also give me a longer saving horizon giving more of my money time to compound.  If I retire at 55 with $1 million, waiting until 65 could increase the number to over $2.3 million without contributing another cent.  That assumes I get 9% on my money, although that may be aggressive considering I’ll be less interested in the risk to get a 9% return.

I really don’t want to wait until I’m 65 to quit working.  Frankly, I don’t like work and would much rather pursue other interests.

Pros:

• Longer saving horizon
• More health care options
• Less risk in outliving my money

Cons:

• I’d have to wait until I’m 65
• Less quality years ahead of me
• Life is short
• Less time to pursue other interests

2) Retire at 55 and Do Nothing

This option sounds pretty darned attractive to me but I’m concerned I’d get pretty bored and I KNOW I’d annoy the heck out of my wife while trying to keep busy.  This option also carries a lot of risk in it.  While we are saving pretty aggressively, we aren’t saving aggressively enough to live on our money for 35+ years.  If things went well in the economy, we could probably pull it off, but I’ve proven to myself that I’m pretty darned risk averse and would like to have as much cushion as possible.

55 is a good age to stop working, but I just don’t know what I’d do with the time.

Pros:

• No longer a slave to a job I’m not too excited about
• More chance to try new things and explore the world
• Potentially many quality, healthy years ahead of us

Cons:

• What do we do about health care?
• How would we make our money last?

3) Retire at 50 and get a lower paid job in an industry that I am interested in

There are lots of jobs out there that I would love to do but the money is terrible.  We just couldn’t live on the salaries that these jobs pay.  I think this option is probably the most practical and interesting option of the 3.  If we scaled back our consumption and had our homes paid off, we could easily live on much less than we do today.  Our only bills would be taxes and ongoing living expenses like power, water, cable etc.  By retiring (aka switching careers) at 50, we could work less, and do work that was more meaningful to us.  This option would also give us access to health care options that we wouldn’t have if we sat at home.

We are on target to pay off our houses before we turn 50 and we don’t maintain any other debt so this option is actually quite achievable.  The only gotcha here is that our daughter will just be going in to college.  We are hoping to offset that by investing today in a 529 plan for her.

Pros:

• Pursue work that we enjoy
• Access to health care options
• More time for hobbies and other interests
• Use much less of our invested assets due to income from the low paying jobs
• More time for invested money to compound

Cons:

• Quitting your high paying job while your daughter is in college doesn’t feel too good
• May not have as much time to travel and enjoy "retirement"

Real estate in various parts of Arizona is dirt cheap these days.  Mind you, that comes from someone living in the Seattle area where prices are much higher.  In 2006 the median price of a home in the Seattle area peaked around $400K.  That has come down a bit since then but it’s still much higher than the price of many new homes in Arizona.  The median price of a house in Arizona in 2006 was half of Seattle’s.  I found brand new housing developments down there with houses starting in the $110K range.  During the real estate "run up" that we’ve experienced over the last X number of years, the prices in Arizona seemed to be going crazy.  Just like Vegas, reality is setting in though.

Over the years I’ve also realized that owning a second home isn’t a low cost endeavor.  Whether it’s used as a vacation home or a rental, there are many monthly costs to contend with.  Since long distance landlording (Hey, did I just make up a new word?) doesn’t sound very appealing to me, I’d most likely just sit on the property and let it drain my bank accounts.  For my personality profile, being a landlord just doesn’t feel like a good fit.

So what am I doing instead?  Well, for starters, I’m saving money.  On top of that, we have the second home out near the lake that we are enjoying during our younger saving years.  By my estimation, we’ll be able to sell it as we get closer to retirement age and use the proceeds to buy a place in Arizona.  Who knows.  By that time, we may decide to invest the proceeds of the sale and just rent a place there in the winter time.  The important thing for us now is to keep on task by saving and watching our spending so that we have all of the potential options open to us later.

1. I don’t have a job

Yeah, this is a pretty darned good excuse.  If you aren’t working, you really can’t save.  The only thing you can really do in this situation is look hard for employment.  Network with people you know.  Ask them if they know of any jobs, or know someone that might.  Talk to recruiting agencies.  If things are getting desperate, consider doing day laboring to start getting some money in the door while you work to find a job that is right for you.  The bottom line is you need to actively search for positions.  Submitting resumes is really not enough these days.  It takes a lot of perseverance and you should exploit every possible angle.

2. I don’t have any money

Why don’t you have any money?  Are you earning income?  If so, you have money, you are just having to make choices about where that money goes.  In many cases you might have more bills than you have income.  Take a long hard look at those bills.  (See number 3).

3. My bills are higher than my income

So, you aren’t bringing in enough money to pay all of your bills.  It’s time to start making some sacrifices.  Take all of your bills and categorize them by "fixed", "variable" and "optional".  Your fixed bills are the things you can’t change easily.  Your mortgage, your health insurance etc.  While they appear to be non-negotiable, you do have choices.  Can you get a better mortgage at a lower rate with a smaller payment?  Should you move?  Can you shop for cheaper health insurance?  Should you change your deductibles?  You get the point.  Variable expenses are much more fluid.  Do you absolutely need these things every month?  Variable expenses might be things like cable tv, high speed internet, home phone service, cellular phone service etc.  This is where you can usually make some improvements.  Can you opt for a less expensive cable tv package?  How about just getting the very basic channels?  Is there a slower internet service in your area that is cheaper?  Have you called your internet company to see if they’ll lower your price when you threaten to leave?  Do you need both home phone service and cellular service?  Consider dropping one.  Do you need a cel phone?  Maybe not.  The point here is that while they seem like "must haves" there is often alternatives, or you might be able to do without.  That brings me to the "optional" bills.  Things like this are Tivo, Netflix, dining out, newspapers etc.  If you lived in a third world country, you wouldn’t even have access to most of these optional type expenses.  Can you live without them?  You bet you can.  The trick here is to be very honest with yourself about what you absolutely need.  This doesn’t have to be permanent.  Get rid of these until you get caught up and start saving for your future and then bring them back one at a time as you can afford them.

4. I want to enjoy life while I’m young

Who doesn’t want to enjoy life while they are young?  It’s important to set some personal boundaries about what fun means.  Maybe you have evolved your taste so much that fun to you means extravagant purchases at the department store and $200 meals in restaurants.  The measurable difference between a $200 meal and a $40 meal is very small, if it’s even measurable.  $300 pants do not bring you 10 times more enjoyment than the $30 pair.  The strategy here is to start being honest with yourself.  If you believe you must hemorrhage money while you are young to enjoy life, then you are missing out on some pretty basic human satisfactions.  The key on this is moderation.  Just like the motto of this website, the goal is to live life for today while planning for tomorrow.  You can do both.  It’s not that hard.

5. Why save for a day that may never come?

You’re right.  You might not even make it to retirement.  Are you married?  Do you have kids?  The chances of none of you making it to an old age are slim.  Shouldn’t you plan a bit for them?  What if you make it to an age where you can’t retire, but your life might be eased by having a nest egg to draw on in a crisis?  You aren’t saving everything until you are sitting in a rocking chair.  A huge reason to save is to begin to have your money working for you, instead of just working for your money.  That old saying that "It takes money to make money" is pretty darned true.  Look at it this way, if you are able to amass $100,000 in 20 years, at the end of that time you could supplement your income by $8000 per year by getting 8% interest on it.  That’s a pretty decent raise.  By the time you reach $100,000, I think you’ll find it makes even more sense to roll that interest back in and generate even more of a nest egg.  The fact of the matter is that amassing wealth gives you options.  Not amassing any wealth and spending for the day robs you of options.

6. I don’t make enough money

Fair enough.  There are a ton of people in our country that aren’t making enough money.  The only person that can change this is you.  Have you looked at finding a new job?  If you don’t have the skills, can you find any training opportunities in your area to improve your skills?  Look around you.  Are the people that do make more than you doing work that you could do?  Talk to them.  Ask them how you can get in to their line of work.  The better you are at building relationships, the easier it will be to find help in this area.

7. I’m really busy.  I’ll get around to it later

Tomorrow is coming a lot faster than you think.  There will never be an optimum time to start.  You have to take a few minutes to start drafting a plan.  Are you saving through your job?  If not, this is the easiest way to start saving.  Call your HR rep, or your manager and ask them how to start.  It’s usually just a phone call away.  Call your bank, or even better, find a credit union, and ask how you can set up an automatic transfer from your main acct to a savings acct.  Go to Etrade.com or schwab.com, or any number of online brokerage companies and see what it takes to open an acct.  Worst case scenario, just call their 800 number and talk to a representative.  They’ll help you get started.

8. I deserve to have some luxuries in life

Don’t we all deserve a few luxuries in life.  Rather than look at luxuries as a god given right, how about looking at them as rewards.  As you start improving your financial situation, consider using a small percentage of your income to reward yourself.  The key here is that your rewards should be much smaller than your accomplishments.  If you save $1000, go out to a nice dinner.  If you save $10,000, maybe you can decide to get a new TV.  The key here is not to deprive yourself of all luxuries, but instead think of luxuries as a reward for meeting other goals.

9. I’ll count on someone else to take care of this

No one else will take care of this.  I suppose if your helicopter mom is going to stay alongside you through your entire life, maybe you can count on someone else.  She can plan your saving, and investing.  She can make all of your financial decisions for you.  If you are like the other 99.9% of the population, you need to do it yourself.  I kid you not.  No one else is going to make sure your future self is well taken care of.  It just doesn’t happen very often.

10. I spend money on things that give me immediate returns

Sure, hookers give you an immediate return (Besides the obvious STD’s), but I guarantee they won’t help your future self.  Lots of things give you an immediate "return" but what does that mean, anyway?  I struggle to think of any purchase you can make today, in lieu of saving, that will make you better off later.  I suppose the one exception would be finding a Picasso at a garage sale.

11. I save in a 401k

You are saving in a 401k?  GREAT!!!  Is that all you are doing?  Do you have any additional income that you can save in a ROTH IRA?  How about funding a 529 plan for your children?  How about investing in a brokerage account?  There are lots of places to save additional money.  Certainly investing in a 401k is a great first step in your savings plan.

12. I’ll work until I die.  There is no need to save

My mother has always said she’ll work until she drops.  Now that she’s 63 years old, she’s starting to change her tune.  Luckily she has saved some in her 401k and also has real estate to help fund her lifestyle.  My point here is that it’s easy to say you’ll work until you drop when you are young, but your future self may have a change of heart.  Why not plan for a day that you can decide whether you want to stop working or not.

13. I will inherit some money

I’m sure you’ve met someone that doesn’t save at all because they are expecting to inherit some money from a relative some day.  What if that relative loses all their money?  They could be sued, come down with a nasty gambling habit, lose it all in a divorce.  You get the picture.  It’s probably a good idea to have a plan B.  And what if you fall out of their good graces?  Have they told you that you are going to receive X amount of money?  Is it in a will?  Any way you slice it, plan B’s are a great idea.

14. I’ve got plenty of equity in my house

Have you seen the real estate market lately?  You have less equity than you used to.  Even if you still have a significant amount of equity, in order to access that equity you’ll need to move.  Sure there are reverse mortgages, but that isn’t necessarily the optimum financial arrangement.  No matter how much you have tied up in your home equity, you should always have multiple types of investments to ride out the various economic crashes.

15. It’s so cheap to borrow money these days, that you would be a fool not to

I wonder who invented the saying "You’d be a fool not to borrow money when it’s this cheap".  If you have to borrow money to buy a home, or another major purchase, sure it makes sense to borrow the cheapest money you can, but if the interest rate drives your purchases, then you probably have a problem.  If crack cocaine is cheap, should you buy it?  If toilet paper at Costco is half price, should you buy 10,000 rolls?  For the average Joe, it makes the most sense to moderate your behaviors and just chip away at saving, paying down debt, and planning for the future regardless of how cheap money happens to be.

I think it stems from a few things.  First is seeing how happy my friend who retired is.  Sure, he’s older than I am but that doesn’t change the fact that I would sure like to be in his lifestyle situation.  He did a lot of things right to retire around 50.  It’s unrealistic to think that I have done lots of things right that would give me the ability to retire at that age, or even earlier, for that matter.  Sure we are savers and have amassed a decent set of assets but not nearly enough to check out now.

I also keep thinking about all the posts that JD @ Get Rich Slowly has done on the 4 hour work week and reading about various people that have bucked the trend and are working on their terms.  Blogging for a living is a little scary and I can’t even begin to dream about that because I don’t have the readership, or revenues of some of the other guys that have actually done that.  The chicken in me also worries about what I would do if the income stream died off.  Frankly, it would be a lot harder to generate my current income level on my own than it is to just stay at my current job.

As I get a little bit older, I find myself wondering, "What’s the point of it all?"  I suppose this might be due to the fact that I’m not doing work that I’m passionate about.  I mean, do you know anyone that is passionate about doing process development and managing lots of customer expectations?  I don’t.  "Why don’t you do something that you are passionate about then?" you ask.  Well, probably because I don’t know what that is.  Frankly, I probably need the type of job where I’m out and about all day visiting customers.  I absolutely love dealing with people and working from home just doesn’t give me as much of that.

So, what are my options?  Well, I could sell everything I own and end up with a decent chunk of change that I could generate basic interest income off of.  It would probably give me enough to rent a modest apartment and buy basic necessities but the reality is that there are too many variables that could tank that plan.  I don’t have enough that I could take whatever life might throw at me and probably won’t for at least another ten years.  Even then, it would be a very modest lifestyle.

I’ve also thought a lot about selling our primary residence and living rent free at our lake house.  With the money I’m making online, interest income I could generate, and maybe a part time job, I could get by.  But then there is the issue of what kind of life that would be for my daughter.  Is it selfish of me to drastically adjust our lifestyle and potentially rob my daughter of opportunities later as she struggles to figure out how to pay for college etc?  That doesn’t really feel right either.

So, here I sit.  Wondering what the best solution would be for my family.  Wondering if I’ll live a long life and all of the working and saving now will pay off later.  Wondering if I’ll kick the bucket much sooner and then regret not having ever taken a big chance on another way of life.

No matter what happens, I am grateful for the lifestyle and way of life my family has today.  Don’t get me wrong.  If nothing changed for the rest of my life, I’m still very, very grateful for being where we are at.  I just can’t help but wonder what else there might be…….

 -We have increased our 401k contributions

When we bought the the place we made quite a few sacrifices.  One of which was to lower my 401k contributions to only 8%.  Why 8%?  It’s pretty simple, really.  My company matches 75 cents on the dollar up to 8% of my income.  No matter what we did, I wasn’t about to miss out on any company matching.  Now that things are getting back to normal, I have bumped the contributions back up and am now maxing out my 401k again.  During construction, the extra money came in very handy for materials.  Our goal was to not take on any debt to complete the place.  We succeeded by cutting down unnecessary expenses, scaling back our investing and pacing the work to our budget.

-We are investing in a ROTH again

Same story on the ROTH.  We stopped contributing to the ROTH temporarily while we finished the construction.  We are now starting to contribute to that again.

-We are increasing contributions to our daughters 529 plan

While we never cut down on contributions to our daughter’s 529 plan, we have decided to increase the contributions now that we have more money in the budget.

-We plan to start paying down the mortgage more aggressively

For a long time we were contributing an extra $150 per month towards the mortgage.  We also stopped that during construction but will now be doing that again.  It’s exciting to see the total mortgage go down extra every month.  I watch that fairly closely because I anticipate hitting a point where we could sell our lake house and use the proceeds to pay off our primary home mortgage.  By doing this, we could end up living mortgage free in our early 40’s.  That fits nicely in to our master plan of retiring early.

Another significant milestone that is coming up for us is that our daughter is going to be starting kindergarten.  It’s an amazingly exciting milestone for our family but it also has financial implications.  We have been paying $800 per month for daycare for the last two years.  That expense is going away which is going to drastically improve our budget surplus.  We’ll definitely take a portion of this and start directing that at our daughter’s 529 plan.