A Roth IRA for my Daughter

Ahhhh. A poignant moment. Miss Em earned about $1100.00 last year, so I urged her to start a Roth IRA. Of course, I had to help her through the complexities, which were exacerbated by computer glitches and other stuff. So a 15 minute on-line process ended up taking a lot of time.

Miss Em doesn't quite understand WHY I am so insistent on her Roth. I said, "In 40 years, when Mr. FS and I are gone, you will see this account and be happy you did it."

In case you are wondering, she got Vanguard STAR, a balanced fund, which is the only one with a $1000.00 minimum. We are putting it under our family account umbrella, so she is exempt from the low balance fee.

My college-age children earn very little money. They chose fully-paid-for scholarships, so we are happy to provide spending money and support summer programs. Both also volunteer in the summer. Their scholarships allow them the luxury of participating in service activities.

But when they earn some money, it goes into the IRA. Now our family has funded its Roths for 2010 and Mr. FS and I have funded for 2011. You have till April 18 to fund your 2010 Roth. JUST DO IT.

If you are lower-income, you may be eligible for a Saver's Tax Credit.

Do you love the Roth IRA as I do?

What Do You Think of Defaulting to Reduce Debt

So...an encouraging headline from the Wall Street Journal: Debt Levels Lowest in Years! Then I read the accompanying article, whose first sentence attributes the happy news to a combination of defaulting on debt and saving more. Strange bedfellows? Or am I missing something?

Here's the vignette that most caught my eye:

Morari Shah, a 59-year-old Miami entrepreneur and real-estate investor, is among those taking a radical approach to reducing debts.


Since late 2008, he and his wife have slashed their total debt from nearly $1 million to zero by walking away from the mortgages on four rental properties and paying off two others, all of which lost about half their value in the housing bust. He's no longer taking up to $4,000 from his monthly income to pay mortgage interest that the rental income didn't cover.

Instead, he and his wife are fulfilling their goal of building a new $350,000, four-bedroom home in the Dallas suburb of Lewisville, where they plan to retire. "It's a big relief," said Mr. Shah. "We went through some rough times, but now I'm comfortable and don't have to worry about my retirement."



What a role model! I still worry about my retirement, so I seem to be doing something wrong.

Am I being too puritanical in my response?

Financial Independence= X times 25

Once again, Jacob of Early Retirement Extreme gets me thinking. Assuming that the oft-touted 4% withdrawal rate from your savings/investments will likely last forever(?) and will accommodate inflation, Jacob points out that you can take an expense, multiply it by 25, and see what you need to amass in order to support your lifestyle.

Here is what he says on food, obviously a need.

What about food expenses? These can range from less than $50/month per person to more than $500/month per person.

Required savings for $50/month:

$50/month = $600/year food expenses. This needs $600/0.04 = $15000 in savings. Whereas $500/month = $6000/year needs $150000 in savings. That’s a lot!

Aiming for the lower figure of $15000 is doable in a foreseeable number of years. After saving $15000 one NEVER needs to worry about food again. One is financially independent of the food expenses.

I like this model, because it tells me that I can save for retirement bit by bit, accommodating first NEEDS (shelter, food, utilities, transportation, healthcare) and then wants (too many to mention here, mostly revolving around TRAVEL).

It also might make me think twice about the many small purchases to which I succumb. Recently, for instance, I have NOT bought a Greek wool hat (for Mr. FS), a Chico's linen shirt, a really nice comforter, and STOP...this is getting embarrassing.

Even though each of these things is ONLY around $3.00, if I forgo, say, 5 a month, I will have eliminated $4500.00 from my retirement needs. Not to mention, the clutter that comes from bringing in 36 new items per year.

Do you think it helps to "multiply expenses by 25" to see what a retirement plan amounts to, or do you think it a silly gimmick?

I love it, myself.

Can middle-income people retire in high-cost cities?

Poor Funny About Money. She wrote about her dream of moving to San Francisco, only to have her dream dashed when she realized that she had miscalculated her income.

But is this really true? A time-honored retirement strategy has been to sell the house in San Francisco or Boston and move to a lower-cost area. Can it go the other way? Are those of us who live in lower-cost areas doomed to never see the big city?

I mentioned to Funny that people rented garage apartments in Houston. I wondered if such were available in San Francisco. She was horrified. That's because she pictured living IN a garage. But the garage apartments I visited in Houston were ABOVE garages, behind very tony houses in good neighborhoods. The apartments were NICE. And very inexpensive.

So, readers: any ideas? San Francisco? Chicago? Philadelphia? Boston? Montreal? Toronto? Vancouver BC? Any way to live on a modest income?

Costs of Living Overseas Redux

I mentioned a few days ago that--should the worst case scenario play out and we find ourselves unemployed*--we would light out, not for the territory, but to Languedoc. I had been reading How to Retire Overseas, and was thrilled to see that the author gave actual numbers.

As usual, I didn't explain myself fully. Funny responded that no way could she afford it. Shelley said the numbers seemed too high. I think both readers assumed that the numbers were EXCLUSIVE of housing.

Au contraire, my friends. The Languedoc number of $1495/month includes $650 for an apartment rental. The almost $3000 for Paris assumes you will spend $1500 on rent. Morelia (in Mexico) comes in at $899, which includes $300 for rent. The numbers also include household help (!), food, entertainment, transportation, utilities, and the like.

Not included: health care and transportation to and fro.

Now I don't really want to retire abroad. I would, however, like to live in all the above spots for, say, 6 months each. Not to mention the other enticing places discussed in the book.

It is a thrill to know that I could live in Morelia for less than I could rent my house for. In fact, I could save a bit to splurge on a few months in Paris. I love having the numbers right there, because they show me that extended stays in wonderful places are totally within reach for a middle-class girl like me. Isn't that wonderful to know?

Panic Once More: Let's Move to Languedoc

My father used to point out that teachers were involved in a trade-off: you traded high salaries for tenure, lifetime employment. So at the beginning of the economic downturn, I watched with lurching stomach the downturn in my retirement accounts. I solved that problem by not opening any statements EVER.

But then the scary statements about program reductions starting wending my way. Maybe my job IS in danger. OK: worst case scenario: unemployment in your 50s.

I wrote about this before, declaring that I'd rent out my house and move to Costa Rica. Now I have a longer list of places to go. I asked the library to order How to Retire Overseas by Kathleen Peddicord>

And the LOVELY bookbuyer did order it. And I'm reading it now. Predictably, the author of the book has lived overseas--and still does--and makes her money by running a website on retiring abroad.

What is useful about this book is that it contains numbers: how much it costs per month to live in various places. Buenos Aires: $2590; Paris: $2960; Morella (Mexico): $899; Abruzzo: $1405; and so on through other places. My current fantasy is Languedoc, coming in at $1495, which includes $300 for household help, which I am pretty sure I wouldn't avail myself of.

Isn't it nice--or nicer--to mix panic with wonderful--and apparently do-able--fantasy?

Where would you like to live?

Could We Stop Working RIGHT NOW?: Financial Independence

Those of you looking for facts and figures for the goal of EARLY RETIREMENT: this is not the right place. That's never been my goal. But I've always been attracted to the idea of FINANCIAL INDEPENDENCE, a la Your Money or Your Life, not so I could quit my job, but so I could say every morning: I'm going to work because I WANT to, not because I HAVE to.

Now I don't actually know how much is in our retirement accounts, because I only glanced at a statement once over the past year. (Surely, I'm not alone in this possibly self-destructive behavior). Following the laws of averages, I know I was WAY down, and now am part-way up.

Yesterday, while taking a stroll through the neighborhood, I saw a yard sale sign by a pretty house with a FOR RENT sign out front. I wandered in and overheard the discussion: tenant is not owner, but renter. She's moving to Baton Rouge because she lost her job here and just got one in Baton Rouge. The reason she's renting is that she and her husband still own a house in Arkansas that they cannot sell. She and her husband live separately because of jobs.

Obviously, this is a snapshot of the upper middle-class version of the financial meltdown.

But here's the part of interest to ME. The house is owned by the Poole family, an old money family that owns a lot of the prettiest houses in the neighborhood. So it will NEVER be for sale. At least not for many years. If then.

The rent is $1800.00/month! Sorry New Yorkers: that sounds like a lot. The house is about 2/3 the size of mine, with a smaller yard, though with updated bathrooms.

Let's say we could rent our house for around that much. We OWN it free and clear. Hey! We could live in Costa Rica, where many Americans are now retiring, for between $1500.00 and $2500.00 a month. We would barely need to touch our emergency fund, though we would use it for family visits to and fro.

Then in 10 years or so, we could start tapping our retirement accounts, which surely would have recovered somewhat.

Mr. FS thought for a minute after my report. He queried, "What would we do in Costa Rica?" Well, take walks, appreciate beauty, cook. Sounds good.

But what would we do ALL DAY? Read. Walk. Talk to people.

That's kind of what we do now, though not in such beautiful surroundings. Plus, who would listen as I hold forth on this or that literary work? Could I find someone in Costa Rica who would want to know how beautifully constructed is a poem by George Herbert?

Isn't it nice to know we COULD do it? That, even now, we are going to work because we WANT to, not because we HAVE to.