My preferred retirement calculator is

http://www.flexibleretirementplanner.com/java/LaunchFRPWeb.h...

Here are inputs I use (and how I interpret them):

Current age, retirement age and life expectancy. Mostly self explanatory. Always make sure you have a 30 year retirement for best planning (better to die with money than to die destitute).
In my example I am entering 35 for current age and 53 for retirement age.

Inflation- 3.5% I use default then will adjust upward some once I see core numbers with 3.5%. Use default for example.

Investment tax rate- 15% is current long term capital gains rate. This has impact to point where you have taxable accounts. If you have state taxes, you need to add that to the 15% (for example if state rate is 4.5% and fed is 15%, total is 19.5%. Use 20% for example.

Income tax rate is federal+state income tax rate. If you are married making more than 70k taxable income this is 25% federal+ whatever your state bracket is. Use 30% for best planning (this is worst case- I think- for most people). Use 30% for example.

Taxable portfolio- enter present value of taxable accounts. I would NOT include EF in this.
In my example I am using $1000.

Tax deferred portfolio- enter current value of 401ks, rollovers and money you have NOT paid tax on yet. Use 92000 for the example.

Tax free portfolios. Enter current value of roth accounts here. Use 27000 for example.

Min 401k/IRA withdraw age- enter age you will begin withdraws from 401k/IRA. Use 53 for the example.

Taxable annual savings- Enter amount you put into taxable accounts on a yearly basis. Enter 6000 for example ($500/mo).

Tax deferred annual savings. Enter amount you contribute to 401ks, traditional IRAs or similar. Use 24000 for the example.

Tax free annual savings. Enter amounts you contribute to ROTH accounts. In example use 10500 ($5000 for me, $5000 for wife in IRA, plus wife contributes 1% of gross to a Roth 401k).

Investing style- choose aggressive. Note it gives %stocks-%bonds-%international (70-7-23). Also note it gives avg return and standard deviation (10.5% and 15.8).
--
write down the following
moderate risk is 41-45-14
with returns of 8.5% and std deviation of 9.9%.

below avg risk is 30-60-10 with returns of 7.5% and std deviation of 7.1%.
--
Annual retirement income- enter income from a job you will WORK at once retired. Leave at 0 for example.

Retirement income starts at age what? List age for new job. does not matter if income is blank for the example.

Annual retirement spending. Enter your annual expenses you will need in retirement. Enter 60k for the example.

In upper right corner there is an "additional inputs", click that button.

set 3 different portfolio return criteria:

1) start of plan to end at age 45; rate ot 10.5%, std deviation of 15.8 (this is the aggressive choice). Click add.

**this is because I plan to be aggressive in investing style until age 45. 8 years from retirement the plan is to tone this down some.**

2) age 46 to retirement year, use a rate of 8.5 and a std deviation of 9.9. Click add.
**this is a move to a 60-40 type portfolio while working but before retirement**

3) retirement year to end of plan, use a rate of 7.5% with a std deviation of 7.1%. Click add.
**This is a 40-60 portfolio which is quite moderate (and should yield more than 4%).**

At bottom of this same window, add SS.

cashflow type: SS
start year age 62
end year (end of plan)
annual amount: $12000 (this is less than one half my projected benefit- I plan to take SS early at age 62).
Taxable percent: 85 (this is because if gross income+ 1/2 of SS is over 44k, SS gets taxed).

click add

add in SS for spouse. I want my wife to get her full benefit. She'll probably live longer, so this is "worst case".

start:Age 71
end: end of plan
annual amount: 24000 (full benefit in todays dollars)
taxable percent: 85

click add
click done

at top of screen there is a "run simulation" button.

Click run simulation.
You see a probability of success of 84.7%. That works for me. I make note a few numbers:
Starting withdraw rate is 4.2% (goal is for 4%).
Portfolio value at retirement $1.4 M (goal is $1.5 M).

Now tweak some settings- note how the Roth account is depleted (green bars).

There is a spending config button in lower right of inputs.
Click config.

At bottom of form click the following
"take withdraws from taxable, then tax deferred, then tax free"
**this means tap the Roth accounts last (let them grow for as long as possible)**

click run simulation again.

Note the roth account has a higher balance in 2069 (age 96 for me).

There are some finanical planning things this calculator does not take into account, care to discuss?

I put a date on my retirement in 2008 (2026) and had not ran thru retirement calculators with it.

T Rowe Price would not let me retire that early on their calculator.

Firecalc suggested I have 100 percent success with 27k of annual contributions (need to find a way to keep that up).

There is another calculator I am linked to on a bookmark which suggests I have a 90+ percent chance of retiring in 2026.

There was a thread in forums which discussed 529 plans and I want to detail my stance here.

My plan includes the following (done in order listed):

1) Have a budget which is 15/5.
Meaning 15 percent to retirement plans
Meaning 5 percent to short term financial goals (pay down mortgage, vacations, new cars, house improvements or other).

2) Making sure retirement accounts (401k and Roth) are maxed for each spouse. This is important early in process.

3) Having mortgage paid off.

4) considering 529 plans once mortgage is paid off. Logic being that if a person earns around 80k or less per year, the above objectives make more sense than 529 plans.
This plan has a lower federal tax bill than reversing the order.
This plan makes sure the parents are stable financially (now and in future).

--
Some people with 13 year old see this and think "I cannot pay off my mortgage in 4-9 years before my child goes to college".

That is my point... if a person cannot aggressively find the money for making a higher mortgage payment now (to pay it off early), what makes them think they can afford the price tag of a college which is 14k-40k per YEAR for 4 years?

Pay 40k per year on your mortgage now and that proves you can foot the bill on a 40k education price tag.
--
To accomplish the mortgage payoff over a 4-6 year timeframe, a person or family should look at my doubles table.

For example, want to retire at 63, current age of 48.

assume 8 percent annual returns
Age 63 need 25X expenses
age 54 need 12X expenses
age 45 need 6X expenses

This tells me if person did not have 6X already, paying for college and retiring at 63 are out of the question. One of the goals has to give (retirement at 72, pay for college or no college and MAYBE retire at 63).

If the person/family already had 12X expenses, they are ahead (remember current age is 48, they don't need 12X until 54.

I would then take 401k down to point of match, then either fund a 529 or pay down the mortgage (for college). Some of this deals with taxes, some with other considerations.

The main point is to get ahead of retirement checkpoints before starting college funds. Saves on taxes early in life, which puts more money to work early in life.

I've added some milestones to the author bio. The top money numbers have been there for a while, the bottom are the details I need to fulfil to make that happen.

Here are some details:

If I get a 3 percent raise, I can increase my 401k by 2 percent and not see take home pay drop. In 3-6 years that will have the 401k maxed (the plan is to save 1 percent less than the raise percent- this means take home never decreases). Get a 4 percent raise, add 3 percent to 401k type method.

For wife it will take about 7-10 years to max on the same plan. Once my 401k is maxed, I have a spreadsheet which shows us how to take my raise and save it to her 401k (3 percent raise for me is 6 percent increase in her 401k for example).

Our EF was depleted in 2008. We have 1 months expenses now spread out in 6 cds maturing every 16 days. We will be adding $340/month to those starting Jan 31, and $600/mo by years end as some loans get paid off.

The taxable account gets the $600/mo once the EF has 3 months and will take 3-6 years to reach that goal.

College accounts will not be opened until 401ks are maxed.

The dividend income goal is probably not reached until the year I retire or close to it (need some good investment performance to reach that).

Other goals:
1) finance wife's next car for 3 years or less (2009). Once car is paid off we bank the payment for a car fund.
2) pay off 2nd mortgage within 6 years. We currently "round up" a $39x.yz payment to $400. Our cc rebate also pays 1 percent of all purchases to the 2nd mortgage, and when my truck is paid off in 2010 we will pay $700/mo extra. We owe about 49k at 7.6 percent.
3) pay off 1st mortgage before kids start college. Some of the $1100 for 2nd mortgage can be used to pay down the first. Some of this pay down money might actually get invested. 280k is what we owe now.
4) Get $375k invested by age 37 (2010). We are $170k short right now. This gets retirement plan on track.

We added a new investment to our mix over last several months. Wife's Roth IRA was completely revamped with many new holdings, which included one mutual fund only a few months old.

Here are the new holdings (starting from Sep 2008):

T.ROWE PRICE GLOBAL TECHNOLOGY PRGTX
T.ROWE PRICE AFRICA & MIDDLE EAST TRAMX
T. ROWE PRICE EMERGING MARKETS PRMSX
T. ROWE PRICE FINANCIAL SERVICE PRISX
T.ROWE PRICE GLOBAL REAL ESTATE TRGRX
T. ROWE PRICE GROWTH STOCK FD PRGFX
T. ROWE PRICE HEALTH SCIENCES F PRHSX
T. ROWE PRICE NEW ERA FD PRNEX
T. ROWE PRICE SCIENCE AND TECHN PRSCX
T. ROWE PRICE VALUE FUND, INC. TRVLX

These investments are about 5-10% of our total portfolio (10k value of a portfolio valued at 120k). The porfolio gets 25% of our contributions (we contribute about 20k per year to retirement accounts, this account gets 5k).

The Global tech fund is her rollover. The rest are in her Roth (about 3k). The Africa and Middle East fund had the 2007 Roth and pre-September contribtions (about 1.3k).

We contribute $500/month to the Roth. The 8 funds get $50 each month. We then apply the other $100/mo to whichever we think outperform over next 3-5 years. For example we are contributing an extra $100 to both financial services and to the Global Real estate fund- expecting both funds to outperform soon. Once a fund appears to be appreciating we shift the overweight to a new fund.

The Global Real Estate fund is where most money gets rebalanced too. If any fund here returns in excess of 9%, the excess % gets sold into shares of Global Real Estate.

By my calculations all of these funds should have around 2k in them within 3 years ($600/year*3 years=$1800). At that point the overweight will be much more substantial (one fund might get all 5k for that year).

Based on my past investing experience, I can see when things are appreciating... so I know to buy something else when that happens (I remember seeing tech bubble in 1999 and wanting a health care fund for when tech "popped").

I am limited to the sectors T Rowe has funds in, but I am happy with every holding and would only look to add a transportation fund, a small cap/concentrated fund or a leisure fund.

Goal is to amplify returns by buying only what is low. Financials right now, real estate right now.

Ultimately the goal is 1/3 of income coming from my Roth through dividends, 1/3 of income from wife's Roth coming from real estate fund, and other 1/3 of income coming from cash and bonds in traditional IRAs and taxable accounts.

I went to my first HR block employee orientation on Saturday.

Interesting...

Part of the claim HR block makes is the following (paraphrased- I do not have the article in front of me)-

"We are in a unique position to offer lower and middle-class people financial advice".

I agree the ability to get objective financial advice at any income level is tough to come by, and tougher for poor and middle-class people.

My issue is HR block is presenting people with products which might charge a 100% interest rate (annualized) to get this advice. Not really objective, huh?

For example if a family making 30k comes to get a tax return of 3k-5k because of EIC and child credits, it probably cost them around $180 to get the return prepared.

If they choose to get a refund anticipation loan, a co-worker and I calculated the loan to rival that of a payday check cashing place (interest might be more than the amount borrowed) on an annualized basis.

I have decided to start my own financial planning business.

For now I am going to concentrate on 4 areas:
1) Taxes
2) Retirement saving
3) college planning
4) budget/spending

I am going to work on obtaining an enrolled agent status with IRS. I am also planning on taking my series 6 this summer (to provide advice picking specific securities, I need a series 6).

Others have advised getting an LAH to sell insurance as well- anyone here have that?

I am about to start moonlighting as a tax preparer. Curious how much everyone out there pays for preparing their tax return?

I took my first 6 hour tax course today at a popular tax preperation company.

The instructor knew his tax return. I must say his investment advice went against the pet peeves I see all the time on the internet.

The advice was a person in the 33 or 28% bracket to contribute to a Roth and the person in the 15% bracket to not contribute to an IRA at all.

I got both federal returns correct in the workbook and screwed up the same line on both Ohio state returns.

Course also shed some light on saving some money on Ohio return. Anxious to see if that tip helps us. Stay tuned.

I signed up for a HR Block tax course today. Cost me $130 for the books and provided I pass the course with a 70 and final with an 80 I will be preparing tax returns for some extra money come tax time.

A few weeks ago there were 2-4 threads about college savings.

My general advice is that it is better to pay off mortgage before kids get to college, then use the old mortgage payment to fund their education.

I also think it is important to finance some of the education cost and have the kids pay that portion off after graduation. Gives them a chance to learn about debt and learn to not like debt in particular.

This is an attempt to summarize the last several retirement related posts I have had.

First- When executing all of this, it is important to sum the balanced of all accounts and make sure a person is withdrawing 4% of the overall balance or less.

The 4% is before taxes. The 4% can come from any combination of accounts.

The end goal of all withdraws is to be in the 15% tax bracket.

If there is a taxable account, I would use the dividends from this account as the first source of income.

If there is interest in a taxable account, I would use the interest as the second source of income.

In any more income is needed, it should come from either a tax deferred or tax free account.

It's possible if there is interest or dividends paid inside the Roth account, to use that as the next source (to keep taxes low).

Then draw down the tax deferred accounts for income. Make sure this withdraw is less than the 15% tax bracket threshold, and remember the interest from a taxable account (already mentioned) will be added to same taxable income.

If there is room left in the 15% tax bracket, convert that difference into the Roth.

The asset allocation thread had me thinking there is not much discussion on these boards about asset allocations and rates of return/withdraw rates.

For example-

With a 100% equity portfolio I think the expected return should be 10-11%. If I had to withdraw in retirement from a portfolio like this, It would be around 2.5% (which should be the dividend yield).

With an 80-20 portfolio (80% equity, 20% bonds), I would expect an 8-9% return and I could expect to withdraw about 3.5% from this portfolio. Most (all) of the withdraws would come from either interest on the bonds portion or dividends on the equity portion.

With a 60-40 portfolio, I would expect a 6-7% annual return and would plan on withdrawing 4% of this portfolio. The 4% withdraw would involve selling shares.

With a 40-60 portfolio, I would expect a 4-5% annual return. I would expect to withdraw 4% of portfolio and I would expect the entire withdraw could be from interest and dividends.

There is a general withdraw convention which is assumed by most withdraw calculators which affects withdraw rates, investment strategy and taxes paid.

The convention is to withdraw from taxable accounts first, tax deferred accounts second, and tax free accounts third.

The convention has some good logic and tax advice built in.

1) Withdraw from taxable accounts first allows tax deferred and tax free accounts to compound longer, allowing each to increase in value.

2)Withdraw from tax deferred acounts second. This allows tax free accounts to compound longer.

3) Withdraw from tax free accounts last. This maximizes the compounding on withdraws you will never pay taxes on.

A slightly more flerible take on this is to attempt to maximize the tax free account value.

This requires some tax planning assumptions:

1) A person needs to assume their withdraws are relatively consistent (increased only for inflation).
2) A person needs to assume the US will maintain a tiered tax structure. Teired tax structure means there will be a poor 10% tax bracket, middle 15% tax bracket, upper middle 25% tax bracket and a rich 28%-33%-35% tax bracket.
3) A person needs to assume these brackets will have income caps close to the level of spending/withdraws desired.

Example- a person needs 100k of spending per year. This required an investment portfolio of $2.5 M.

Assume there is $750k in taxable accounts, $750k in tax free accounts, and $1 M in tax deferred accounts.

100k for a married couple is in middle of 25% tax bracket. With creative withdraw strategies (which defy traditional convention) a person can save themselves 10% on taxes.

I will assume the 750k in taxable accounts is primarily invested in dividend paying stocks yielding 3% ($22500 in income taxed at 15% is a net of $19125 in income).

I will assume the 750k in tax free accounts are growth oriented with some bonds.

I will assume the $1 M in tax deferred accounts are income oriented with some growth.

Overall portfolio is 60% stocks and 40% bonds.

The basic withdraw strategy is:

1) withdraw cap to 15% tax bracket. I will use $66100 in this example. Because of exemptions and similar tax deductions, it''s probable a person could withdraw $82k and still have only $66100 of taxable income.

2) Use the dividends for income from the taxable account. This adds $19k of income to the $66100.

3) Either sell some of the taxable account, or withdraw some from the Roth account to keep marginal tax bracket at 15%.

$100k-$66.1k-$19k=$15k needed.

The basic premise here is to keep the tax rate low over an extended period of time. The extra 15k would probably be withdrawn from the taxable accounts first to allow Roth accounts to compound longer.

There is another "bucket" approach worth mentioning:

Tax deferred
Tax free
Taxable

As in 3 buckets which are each taxed differently.

Tax deferred implies you have not paid taxes on that money.

Tax free means you have paid taxes on the money and will not pay taxes again.

Taxable means you have paid taxes on the money and you only pay taxes on the interest, capital gains, or dividends generated (each year).

Tax deferred accounts pay taxes at marginal rates based on the federal and state tax brackets.

Taxable accounts pay taxes at capital gains rates.

A follow up post will discuss how to use the part I buckets with the part II buckets.

There was an asset allocation thread on the forums and I suggested the bucket approach to retirement spending would take on less risk than the aggressive equity portfolio mentioned.

Here is the bucket approach:

You create different pools of money. The most common I have heard is three.

There is a cash bucket. This is where "next years expenses" are and more than likely is 2-3 years expenses, and this is a cash account/taxable account.

There is an income bucket. The goal of this bucket is to replenish the cash bucket. The general goal is to have the interest and dividends from this bucket replenish bucket #1, and have bucket #2 grow in value at a moderate amount (maybe 4% paid in interest and appreciation of 2-3% per year). This bucket is probably allocated around 20-80 to 40-60 (stocks-bonds).

The third bucket is a growth bucket. The goal is to assign any volatile assets to this bucket, and only withdraw from this bucket in two cases:
1) must be an UP year in the market
and
2) bucket 2 needs more money to allow the income generation to keep up with inflation. It's possible this allocation is 100% equities, or it could be a stable value portfolio with stocks, bonds and commodities.

A person would assign 2-3 years expenses to the cash bucket
A person would assign enough money to second bucket to generate the income needed.
The remaining money is allocated to bucket 3.

Bucket 3 is kept in tax defferred or tax free accounts as long as possible.

Bucket 2 is tax defferred and taxable. RMDs would be taken from bucket 2.

There are 3 important numbers when doing tax planning. Gross Income, Adjusted Gross Income and Taxable income. If you use turbo tax, the software regurgitates these numbers to you in a summary at the end of the return when you file.

Here is the definition of all 3.

Gross Income- sum of all the wages you earned. If you have two jobs both salaries are summed, if two spouses work, the two salaries are added up.

Gross income determines a few things. Medicare and SS liability is the biggest. Gross income is also the guideline used for saving (for example save 20% means save 20% of the GROSS income calculated by adding all salaries together).

Adjusted Gross Income- Gross income minus pre-tax contributions or payments.

To calculate AGI, 401k contributions are substracted from gross income. So are health care premiums paid by employer, HSA/FSA contributions, child care account contributions, traditional IRA (deductable IRA) contributions and a few other things not mentioned here. Add up the contributions or payments and subtract that sum from the gross income above.

It should be noted that AGI is used to determine whether you are eligible for some of the deductions which reduce AGI (like deductable IRAs). AGI is also used to determine if you eligible for a Roth IRA (even though the Roth contribution does not modify AGI).

The third number is taxable income. Taxable income is calculated by adding up deductions and substracting the deductions from AGI.

Popular deductions include mortgage interest paid, property taxes paid, federal, state and local taxes paid, business expenses paid, education expenses and student loan interest paid, and many many others.

Some deductions are phased out based on AGI. If your AGI is high enough, you cannot deduct student loan interest for example.

It is also good to know the tax tables. The reference I use is http://fairmark.com/refrence/index.htm.

Why is this important?
Take my 2007 tax return. Married filing jointly.

Gross income of 120k+
AGI was around 103k. 401k contributions are the key reducer for me in this regard.
Taxable income was 62k. I had deductions which added up to more than 40k. Mortgage interest and taxes were the keys here.

Now look at the tax tables from fairmark:
Married filing jointly.

Income between 0 and $16050 is taxed at 10% (tax from prior bracket is zero).
Income between $16051 and and $65100 is taxed at 15% (so add $1605 from 10% bracket to any income less than $65100).
Income between $65101 and $131450 is taxed at 25% (plus the $8962.50 which is the $1605 from 10% bracket and the $7357.50 from the 15% bracket).

If you looked at my gross income, you would think I was square in middle of 25% tax bracket. If you looked at AGI, same issue. But after deductions are factored in, my taxable income is at top end of 15% bracket.

15% bracket caps at $65100
My taxable income was 62k and change. I can get 3k of raises and still be in 15% bracket- this makes the Roth IRA a real good deal for me- I am contributing to it while paying 15% taxes and will probably withdraw when I am in 25% tax bracket based on my income need.

A few points-
Taxes change each year. The percentages (10%-15%-25%...) change around every 8-10. The caps ($16050, $65100, $131450) change each year.

I am not a tax accountant or tax preparer. Most of what is above was learned or interpreted from turbo tax.

Someone asked about why choose a taxable account over a traditional IRA (if a person is over limits for a Roth).

The short answer is TAXES.

The long answer:

Withdraws from a traditional IRA are taxed at ordinary income tax rates. Does not matter if you are holding a CD, a bond, interest from the bond, a stock or a dividend from a stock. If you withdraw 100k from the traditional IRA, it will be taxed according to ordinary income tax rates.

For federal these rates are 10%-15%-25%-28%-33%-35%. FYI- 2/3 of the USA files taxes in the 15% rate ($66100 married or $33500 single) or lower. Most people are taxed at a relatively low 15% federal tax rate.

Withdraws from a taxable account are taxed at either 5% or 15%. If you are in the majority of federal tax filers, you will pay 5% on capital gains and dividends in a taxable account.

If you are in 25% federal bracket or higher you will pay 15% tax for capital gains and dividends in a taxable account.

So long term capital gains and dividends actually have favorable tax status- they get a discounted tax rate (relative to ordinary income).

Interest on bonds and from savings accounts will get taxed at marginal bracket levels (meaning 10-15-25-28-33-35% brackets mentioned previously).

This information can lead to conclusions-

1) keep bonds and CDs in IRAs if possible- they do not get any special tax treatment one way or other, so may as well shelter the interest from taxes until withdraw.

2) if you can put dividend paying stocks in taxable accounts, you get a favorable tax on them each year a dividend is paid.

3) a traditional IRA (and 401k for that matter) converts a small tax item (capital gains and dividends) into a high tax item if inside the IRA tax shelter.

I just finished reading another poster's blog and that poster had BAD information.

He suggested a Roth IRA is the first place retirement contributions go. No mention of tax deductions, company matches, tax rates or other.

He suggested that a $5000 Roth contribution is really $7500 (because of taxes paid). I know of no 50% tax bracket which is federal+state.

If anyone is following other blogs, please read and post questions. There is not one simple formula, and choosing something like a Roth IRA is investment advice and TAX advice. Looking at one without calculating the other properly will lead to bad decisions.

Anyone in 28% tax bracket which is still eligible for a Roth would best consider other options from a tax standpoint.

Anyone in 25% tax bracket which contributes to a Roth should do a tax analysis and see if they can into 15% tax bracket and make some contributions, or see if withdraws will be in 15% tax bracket which would make Roth a less than effective option.

Anyone in 15% tax bracket should strongly consider a Roth. The probability taxes go up when in 15% tax bracket is high, making the Roth a good bet to save you money in the long run.

It bothers me when I see people suggest to others that invest the 401k up to the match, then do Roth, then either do a taxable account or increase the 401k amounts.

Depending on the income of the family or individual, this advice will cost a person a considerable amount of money.

If a person in 25% tax bracket contributes to a Roth IRA, that investment cost the person $1250.

If I had to choose:

$5000 in a roth
or
$6250 in a 401k

I am choosing the 401k hands down. The tax savings now (while in the 25% tax bracket) are too much to pass up.

If that person can get their income down to the 15% tax bracket, that same $5000 Roth contribution cost them only $750. In this case the Roth is a GREAT investment.

The Roth works best when tax rates are low. Most people refer to the government changing (raising) tax rates. I think "personal" tax rates are much more beneficial to make the decision by.

Here is the strategy I would recomend:

Review tax tables
(I use http://fairmark.com/refrence/index.htm )

Check the 15% federal bracket cut off:
Single $32550, Married $66100

If you are under this (this is TAXABLE income, not gross income), the Roth is an excellent deal.

If you are over this, use the 401k as much as possible. It's possible the 401k puts you back UNDER the cap. In that case, you have from January-April to either recharactorize IRA contributions or make prior year contributions to a Roth.

I would not blindly put money into a Roth until you have done some tax planning.

Example:
I have a gross income of over 110k (married filing jointly). Between 401k contributions and deductions, our taxable income for 2007 was $62k. 15% tax bracket.

For 2007 we maxed one Roth (mine) and contributed 11% to my 401k and 6% to wife's 401k. If I dropped my 401k down to 6% (match cap) to start wife's Roth, the two Roths would have been in 25% tax bracket ($4000 would put us in 25% tax bracket).

When I first started investing, most recomendations were to save 10% of gross income and have 3-6 months expenses set aside for emergencies.

I have come to the conclusion this general advice is not good enough.

My new paradigm is save 15% for retirement- before the match, and have an additional 5% saved in taxable accounts (each month) for emergencies in addition to having 3 months expenses in the bank.

Too many bills come up each month and year which cannot be reliably budgeted for. Car repairs, child hospital bills and perscriptions also come to mind.

Currently more than 16% of our gross income is going to Roth or 401k accounts (with the raise I have not calculated the new annual saving %- I will do that at tax time).

Curious if anyone out there does anything similar?

I received a more than 3% raise in July. That money is going to wife's Roth IRA, which is now $400/month.

I now contribute $625/month to my Roth
wife now contributes $400/month to hers.

I allocated my wife's Roth across 7 funds from T Rowe Price. I decided on a 3 dimensional asset allocation approach.

Normal "1 dimensional" asset allocation is large cap-mid cap-small cap-foreign. My Roth, my rollover, wife's 401k and my 401k follow that plan.

Wife's Roth has a growth and value fund in it- meaning the funds own large-mid-small but are vertically allocated according to traditional style boxes.

Wife's Roth also has some sector funds. Global tech, developing tech, health care, natural resources, financial services and emerging markets.

The plan is to use growth and value as core holdings, then overweight a sector or two (right now overweighting global tech and financial services) in an effort to be more aggressive than the market as a whole.

Twins turned 4 months old on July 27. WOW what a difference 4 months makes.



Both eat like it is going out of style. I survive on about 5 hours of sleep on a good night.

I have modified my work schedule to be 1pm-10 pm so I can be with kids in morning. Most afternoons my wife works from home and watches them.

The savings of us modifying the work schedules is close to $13k per year.

That is 13k which is still getting invested.

I am opening an account with Permanent funds for a mutual fund called Permanent Portfolio (PRPFX).

The fund owns gold, silver, US bonds, swiss francs, and US growth stocks.

The purpose of this fund is to pay down our mortgage. Each year we hope to put in $1000-$3000 in this fund, then somewhere around year 20 of our mortgage, we should be able to cash in the fund and pay off the mortgage.

The fund was chosen because it diversifies what we have now (we do not own 3 of the asset classes the fund holds), it should also have low taxable distribitions (gold and silver do not pay dividends and account for close to 50% of holdings). The fund needs to beat the 5.75% rate on our first mortgage and 7.25% rate we have on our second mortgage. I am anticipating a return of close to 8% per year from this fund.

I have decided to use the self directed brokerage option in my 401k. It costs $20/quarter to maintain, plus transaction costs.

My plan is to put 10k into the self directed brokerage 2X each year. In the 6 months between the brokerage deposits, the money will be invested in my companies normal 401k offerings.

I will track my IRR of both and make sure my choices beat my companies choices.

Company's choices are nameless funds.
43% to domestic large caps
25% to domestic small caps
5% to company stock
15% to foreign developed markets
10% to foreign emerging markets
1% to high yield bond fund
1% to core bond fund

(no mid cap offering)

Brokerage choices will let me do 1/3 aggressive and 2/3 diversified positions.

14% PRPFX (growth)
7% ULPIX (aggressive growth-2X S&P 500)
14% PRFDX (large value diversified)
7% ADVDX (large value dividend accelerator)
10% PRDMX (diversified mid cap)
5% CGMFX (aggressive growth)
10% PRDSX (diversified small cap)
5% xxxxX (aggressive small cap- looking for this now)
20% PSLIX (diversified international)
5% xxxxX (aggressive foreign or global)
3% RPSIX (diversified bond fund)

The bond position will grow 1% from sales of all holdings every 6 months.
I will rebalance 2X per year. In June I will make sure 2/3-1/3 allocation is true. In December I will balance the whole portfolio.

Wife asked earlier in the month about making an extra mortgage payment each year, to pay it off sooner.

I suggested we take the money and invest it as a compromise. In a taxable account which could be used to pay down mortgage if one of us lost a job, or used to payoff mortgage if the money was invested properly.

She agreed to let me invest the $500-$2000 we would pay extra each year. Because the mortgage rate is 5.75%, I think I can pick just about any mutual fund and beat that. My choice is PRPFX- holds some gold, some silver, some bonds, some swiss francs and some stocks. Expecting 7-10% annual returns from Permanent Portfolio.

This was first year I tracked each account, it's value, it's contributions and performance. My 2007 year return was 6.96%.

Ending values for 2007.

Roth IRA me 7.7% return; value $29,133
Rollover IRA-me -2%, value $70,333
401k me 6.7% return; value $41,202
Roth IRA-wife -.88%, value $1,982
Rollover IRA-wife 9.50% return; value $6,870
401k-wife 24.66% return; value $14,165
savings account-both $4000

deposits for 2007:
$4000 savings (this started the EF for us)
my 401k $8575
my Roth $4000
wife's 401k $4338
wife's Roth $2000

We have already added $2400 to savings for 2008. We have already contributed to my Roth for 2008, wife is contributiing prior year to her Roth for Jan-Feb-Mar-April.

Siemens bought out UGS (my employer) in march. Prior to that UGS was owned by EDS. Prior to that SDRC was my employer until that dark day when the CEO sold out and merged us into EDS.

The 401k money prior to UGS has the option of being rolled into Siemens 401k plan, or rolled into an IRA. All UGS 401k money must be merged into Siemens plan. If you ever wondered why the 401k divides money up by "rollover contributions", "employee contributions" and "employer contributions", it because at times like this, you need to know who contributed what.

I chose to rollover the 69k from SDRC/EDS into an IRA with T Rowe Price.

Funds selected:
PRFDX (T Rowe Equity Income) 42%
PRDMX (T Rowe Diversified Mid Cap Growth) 14%
PRDSX ( T Rowe Diversified Small Cap Growth)14%
TRIGX (T Rowe International Growth and Income)14%
PRIDX (T Rowe International Discovery)8%
RPSIX (T Rowe Spectrum Income) 8%

The Siemens plan looks OK... it has one fund for domestic large cap, one fund for domestic small cap, one fund for international large cap, another for international small cap...

but no ticker symbols for any of above... no expense information for any of above... no return history for any of above.

I have a self directed brokerage option for the 401k which I might be considering.

**edit**- chose T Rowe Spectrum Income over New Income. Spectrum income is a fund of funds, which is 75-80% in bonds and cash (other 25% is in PRFDX). Because spectrum income has exposure to high yield and foreign bonds, it's return is higher than most bond funds (8-9% type returns). New Income is one of many bond funds in Spectrum Income.

On June 1 I adjust my contribution percentages to keep 401k in line for next 6 months.

Increased allocation of RYTFX to 11% (was 10%).

Increased allocation of VFINX to 24% (was 23%).

Increased allocation of VEXPX to 11% (was 10%).

Increased allocation of VEXMX to 11% (was 10%).

Decreased allocation of VTRIX to 23% (was 25%)

Decreased allocation of VWNFX to 20% (was 22%).

I also liquidated 1% of each position to bonds. This is the first time I have held bonds in nearly 3 years.

The goal is to maintain the 75/25, 45-15-15-15-10 allocation. The bond position was added, and I rebalance again on Dec 1. Dec 1 I will reset contributions to "normal" levelas and buy/sell to rellocate. If markets trend upward the next 6 months, I will liquidate another 1% to bonds. If markets drop, I will go back to 100% equity.

Looking to get a tally on issues to take care of ro retire early.

1) Health care costs
2) 0 debt
3) saved enough for a 3% initial withdraw rate

other thoughts?