6-11 month CD: .65%

12-17 month CD: .95%

36-47 month CD: 1.76%

60 month CD: 2.27%

If rates were this low at my beloved credit union, I started wondering what the rates were like at a popular “for profit” bank.  I checked out Chase’s rates for a CD less than $10,000 and here’s what I found:

9 month CD: .25%

12 month CD: .25%

36 month CD: 1.01%

If you have more than $10,000 to lock up in a CD, you can actually get a pretty competitive rate for a 60 month CD (see below).  Chase’s rate is only .02% less than my credit union.  Anything less than $10K and you’d be much better off at the credit union or simply stashing your cash in an online savings account like ING which is currently paying 1.1%.

60 month CD: 2.25%

Bottom line is that it’s just not a very good time to try to earn much from your savings.  The big question is where should you put your emergency funds to maximize your yield……..

He told me that he’s not happy about having to drive farther but he’s finding a ray of hope in the situation because he may be able to retire at age 55.  That would mean he’d have to tolerate the brutal commute for 4 years, unless he was able to find another job somewhere else in the company.  As we talked, we started to discuss more specifics.  He’ll get a decent pension, but he would be foolish to start taking the reduced pension at 55 so he’s better off waiting until 59 or 60 so that he can get a larger amount.  That would leave him with no income for roughly 4 years, until he started drawing on his pension.  The good news is that he and his wife have been good savers and have amassed roughly $1 million dollars in their retirement accounts.  Yes, that money is kind of tied up until he hits age 59.5 too, but he could consider taking a regular distribution to start drawing on his 401K early without a penalty.  Here are the rules from the IRS website:

Tax on early distributions. If a distribution is made to you under the plan before you reach age 59½, you may have to pay a 10% additional tax on the distribution. This tax applies to the amount received that you must include in income.

Exceptions. The 10% tax will not apply if distributions before age 59 ½ are made in any of the following circumstances:

• Made to a beneficiary (or to the estate of the participant) on or after the death of the participant,

• Made because the participant has a qualifying disability,

• Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.),

• Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55,

• Made to an alternate payee under a qualified domestic relations order (QDRO),

• Made to a participant for medical care up to the amount allowable as a medical expense deduction (determined without regard to whether the participant itemizes deductions),

• Timely made to reduce excess contributions,

• Timely made to reduce excess employee or matching employer contributions,

• Timely made to reduce excess elective deferrals, or

• Made because of an IRS levy on the plan.

• Made on account of certain disasters for which IRS relief has been granted.

In looking at the rules, he could opt to take regular distributions from age 55 to his “technical retirement” at 59.5 to avoid the 10% early withdrawal penalty.  Assuming that would work for him, does he have enough money to be able to do this?  If he has $1M total and used a 4% withdrawal rate, he could expect to generate $40,000 before taxes.  Depending on his overall financial situation, he may not have to pay too much in the way of taxes, although let’s just assume 20% would go toward taxes.  That would leave him with $32,000 in annual income from his nest egg which would equate to roughly $2666 a month.  If he was debt free and lived a modest lifestyle, he might be able to swing it.  Of course the big unknown is health care.  At age 55 he wouldn’t qualify for medicare.  If his company gives him retiree health care (which I believe they do), he’d be okay.  Otherwise, health care might be a deal breaker and force him to stay in the workforce longer.

That just seems sad.  A guy manages to amass a $1M nest egg over his working life and it still might not be enough to retire at 55.  If anything, it makes me want to save even more than we are already saving because I REALLY want to stop working by age 55.  If I can’t stop working fully, I may just switch gears and find a part time job to supplement my investment income at age 55.

Unfortunately for all the investors, it was all a scam.  Rhonda stole over $11 million over at least 10 years.  Now she’s facing upwards of 8 years in jail.  She cites the need to live like all the rich people around her (and believe me, there are plenty of wealthy individuals in the Kirkland, WA area) as much of the reason for her scams.  It’s a classic case of materialism and keeping up with the Jones’ with a felony twist.

Here’s the article about her: Seattle Times

JD ultimately realized how fortunate he is in his CURRENT home and situation.  He references lifestyle inflation which is incredibly important to pay attention to.  It’s so easy to slowly increase your spending as your income levels go up.  It’s something I’ve battled for all of my adult working years and it’s why we’ve managed to keep our spending at 47% of our after tax, after investment income.

A few things came to mind as I was reading the blog post.  First, along with a large house like that comes large expenses.  Even if I could afford to buy a “mansion on the hill”, I probably couldn’t afford even the most basic expenses.  Heating and cooling a place like that would cost many hundreds of dollars a month.  Taxes on a $2.3M house would be exorbitant.  Even paying to keep the landscaping looking decent would be a significant burden.  And the list goes on and on.  For all those extra expenses, would I find myself content?  It’s doubtful.  There is always more to covet.

Secondly, I’m not sure I’d enjoy isolating myself on to a gated estate.  I’m a social person and actually enjoy conversing with my neighbors.  In a house like the one JD highlights, I’d basically be walling off the rest of my neighbors and would probably, at best, just get a wave as I drove by the people near me.

The bottom line is that I’m pretty darned happy with where I’m at in life as well.  We have a nice, reasonable house to live in that has a new roof, new siding and should be ample to last us through raising our daughter.  There is plenty of room (2700 sq feet) and we have nice neighbors.  While we could upgrade to a nicer house in a nicer neighborhood, I don’t think the economic tradeoff would come close to being worth it and I know as soon as I got there, I’d find myself yearning for the bigger, nicer house down the street.  It’s really not about the houses at all, but rather, it’s about managing your expectations and being happy with what you have.

A few months ago my wife and I talked it over and decided that we’d try to avoid any major expenditures in 2010.  For the last couple years we’ve had to spend thousands and thousands of dollars on a new roof, construction at the lake, buying a new car for my wife, and the list goes on and on.  The last thing we really need to do is replace the windows in our house.  I’ve been contemplating doing that to take advantage of the 30% energy tax credit, but so far I’ve decided to forgo the tax credit and just build our savings account.  Had we not spent so much money on our house over the last couple years, I’d be much more inclined to take advantage of it.

So, for the rest of the summer we’ll be spending time at the local amusement/water park that my aunt bought us season tickets to, visiting our lake house that we built a couple years ago and just taking short day trips around the area.  Hopefully we’ll be able to enjoy ourselves thoroughly AND see our savings account increase.

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.

A combination of factors helped boost our income this month and helped us add a solid $5500 to our savings account in February.  The first factor was the blog.  There were a few renewals as well as some new business.  I book the entire prepaid amount for advertising in the month that I receive payment (as opposed to averaging it across the subscription period), so I saw a bit of a spike in the blog income in February.

The second contributor was my annual bonus at work.  It wasn’t as large as it has been in the past but it was better than zero and definitely helped increase our income for the month.

Along with the extra income, we also locked down our spending more than we have in quite awhile.  As I reviewed our Mint.com spending summary for February I was happy to see that we only exceeded our budgeted spending by a few hundred dollars.  That’s mostly my fault because I bought a new audio receiver from Newegg.com that was ridiculously priced (low).  No regrets.  The other area that we were over budget on was our food/dining.  Not a big surprise.  We usually overrun this, although we are trying to do better at it.

Needless to say, I’m happy with how the month turned out from a budget perspective.  I’m also fairly optimistic about the rest of the year as we don’t anticipate any major expenses this year.  Luckily most of the big expenses are out of the way for the foreseeable future.  We shouldn’t need a car for the next 5+ years, we have a new roof and new siding on the house, and the lake house construction is basically complete.  Sure, we could probably come up with a few ideas on how to blow a bunch of money, but the overall theme at our house this year is going to be SAVING!  If we are able to control our spending we should be able to double our savings through 2010.  With the potential instability with my employment next year, frankly, the more we save, the better.

Am I saving enough?

It’s a thought I have often.  We are saving well over 20% of our before tax income in our retirement accounts and are trying to build our emergency fund up higher, although I will confess I’ve slipped up on that goal more than a few times.  The good news is that we do have at least 6 months of income saved up and it’s easily accessible.  When you combine that with the safety nets that the local/federal government provide (unemployment benefits), our emergency fund should last us more than a year.  On top of that, the most likely scenario is that one of us would still be working.  In that case, we could go for years without my income because we have kept our fixed expenses very low.

Is my resume current?

I haven’t done a very good job of keeping up my resume, but with a few minutes of work, I think I could have it tuned up and ready to send out.  I’ve also kept up my contacts at previous companies and try to maintain a large network of contacts that I would certainly get in touch with if I found myself looking for work.  The most likely way that I would find a new job is through referrals and connections.  Blindly sending out a resume in this environment would likely not yield any results so my personal network is as important as ever.

Am I doing all I can to be valuable at work?

I’m definitely reevaluating my role at work and am going the extra mile to make sure things are done right and done quickly.  I’m also keeping in touch with my boss to be sure I’m doing all that’s needed.  I actually just met with him yesterday to lay out performance goals for the year and then we had lunch afterward.  My sense is that I’m still considered a valuable member of the team and would be one of the last to go if layoffs were to happen in our group.  I’ll continue to watch my performance and volunteer for extra work.  By doing this, it will help me gain even more visibility with my management chain and hopefully reinforce that I’m one of the key players on the team.

Are we keeping our bills to a minimum?

I’m still religiously watching our fixed monthly expenses so I know we are doing all we can to keep our bills low.  Our total fixed bills for things like mortgage, utilities, gas, food etc are still floating around 50% of our after tax income.  If we were to lose our jobs, we could probably reduce that another 5-7% by really locking down spending and getting rid of expenses like Netflix, cable and a couple other “extra” expenses that we have now.

All in all, I think we are doing all we can to prepare for the day that we might be faced with a layoff.  By spending far less than we make, and saving some of our monthly excess income, it is providing us with a level of security to weather most any storm.  If we hadn’t been doing this for so long, I think we’d be much more stressed out about potentially losing our jobs, that’s for sure.

The report, Forrester’s annual Customer Advocacy rankings, ranks nearly 50 financial services firms in the United States by the percentage of each firm’s customers who agree with the statement: "My financial provider does what’s best for me, not just its own bottom line." The results are based on a survey of about 4,500 consumers.

The bottom seven of this year’s rankings, first to last, are Bank of America, Chase, Capital One, TD/Commerce, Fifth Third, Citibank, and in last place, HSBC.

Among Bank of America customers, 33 percent agreed with the statement above, while 31 percent of Chase customers agreed, 29 percent of Capital One customers agreed, 28 percent of TD/Commerce Bank customers agreed, 27 percent of Fifth Third Bank customers agreed and 26 percent of Citibank customers agreed.

A full 33% of Bank of America’s customers believe that their bank is looking out for them.  That means 67% do NOT.  Wow.

Have I mentioned I’m a big fan of credit unions?  The number one reason that I like doing business with a credit union is that they aren’t trying to make a profit from me.  That results in higher rates on deposits, lower rates on loans and lower fees.

Anyway, go check out the article.  It’s worth reading

Rather than just sitting around worrying about what might happen, I’ve been mapping out our strategy for weathering any financial storm. I have done this previously but it’s always a good idea to periodically look at options. Most of it has to do with validating what we’ve been doing all along and then asking whether we can do more.

Here are the scenarios that we plan for:

Scenario 1:
My wife loses her job

Nothing really changes at our house because we can very comfortably live on my income. We’ll certainly take a harder look at our spending and do our best to boost our emergency fund further but we’ll be relatively unscathed by the job loss. This is possible because we spend less than we earn. Our total fixed bills each month total about 50% of our after tax income. Spending less than we earn is a key part of our overall financial strategy.

Scenario 2:
I lose my job

This is a much more significant issue for us. If I lose my job, we will have to immediately start reducing luxuries and stick to a very strict budget. With unemployment we would still have an excess of cash left over at the end of each month but we will definitely need to minimize spending to make that last. Once unemployment runs out, we’ll have to start dipping in to our emergency fund. Currently our emergency fund could keep us going for almost two years if my wife was working and I wasn’t. That two year clock starts AFTER unemployment runs out so we really have a pretty good buffer. The ability to last this long goes back to that core part of our financial strategy: spend less than you earn. By spending less than we earn, we are able to continually increase our savings and cover any emergencies that come up in day to day life. If we do face a financial setback, like a job loss, we are able to live comfortably much longer because we maintain a more modest lifestyle. Spending less than you earn is really a double impact concept! It gives you the ability to save more when you are working and spend less when you aren’t without feeling much of an impact.

Scenario 3:
We both lose our jobs

This isn’t a very likely scenario but it’s worth thinking about. If we were to both lose our jobs we would have to get very aggressive in our cost cutting. While we could get by if we were both getting unemployment, in the current state of the economy, we would immediately consider selling our house and moving to our vacation house that is paid for. Certainly it wouldn’t be a crisis because we could live off of our emergency fund for about 9 months once the unemployment runs out but it would be silly to try to hang on to two houses while we were indefinitely out of work. By selling one house, we would be able to keep our heads above the financial water line for a much longer period of time.

So, those are the doomsday scenarios that we think about being prepared for. We are fortunate that we haven’t been hit by a setback yet but we feel pretty confident that even if we do experience job losses, we can still weather the storm for a reasonable amount of time. As I mentioned in an earlier post, we’ll be focusing on increasing our savings this year to give us additional wiggle room for any financial setback.

Do you think about what you will do if you have a financial setback? How do you prepare?