Another One Bites the Dust

In December, 2008, a wine bar business, which a friend helped start up, went out of business, a victim of the great recession. The owner could no longer get the funding needed to sustain the business during the downturn. Rather than continuing to lose money every month, the owner closed the business.

Just last week, another business started by someone I know closed it doors for a final time. It was a franchise business that was opened in early 2009. I had met the owner in 2007, at a networking event, not long after I took early retirement. I promised that I would visit his restaurant when it opened. Unfortunately, it took nearly 18 month for him to get the permits needed to start the business and by then, the great recession was underway. Thus, he was never able to build up the clientele to make his business a success. By the time I got around to visiting, it was the restaurant's last day, after only being open for 9 months.

To me, it appears that small companies with lower financial backing and inability to easily tap financial resources are choosing to go out of business, versus continuing to lose money. 2010 will likely be a critical year of survival for many small businesses. It is unlikely that stimulus programs, such as tax credits for new hires, will be enough help these companies. Hopefully, the economy will recover sufficiently to give these businesses a fighting chance.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or business advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

My Impressions of the State of the Union Address

Although I only listened to a few minutes of President Obama's State of the Union address, I still came away with several impressions that are listed below.

He's is still campaigning rather than governing. President Obama is a great campaigner and it is understandable that he would want to rely on his strengths. To me, his State of the Union address sounded like a campaign speech, as he pointed out the reasons government wasn't working. Interestingly, Mr. Obama doesn't seem to realize that as the incumbent, he is part of the reason government isn't working. To him, it's the rest of government that is the problem.

He's right about the deficit of trust. Although Mr. Obama is an eloquent speaker. I was skeptical of his campaign speeches when he was was running for office. I felt that his history of accomplishments did not have enough substance to support his positions. After watching him ignore promises of bipartisanship, elimination of earmarks, reducing the power of special interests, I no longer trust any promises made by President Obama. He has mislead me too many times already.

He doesn't have a clue about business and the economy. From the stimulus package to the tax credit for new jobs, government has put funds against short term crutch solutions instead of sustainable high impact solutions. What was needed was an economic environment that offered stability and allowed businesses to confidently invest in the future.

For now, President Obama's performance has as been poor relative to my expectations of hope and change, with which he inspired voters. Hopefully, in his second year, Mr. Obama will change my impressions by working on substantive bipartisan solutions to put our economy back on track.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or policy advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

A Personal Finance Perspective on the U.S. Budget

It's challenging for me to get a good feel of what changes to the U.S budget means, because I don't normally work in billions and trillions of dollars. To get a better understanding, I decided to loosely translate the 2010 U.S. Budget, deficit and proposed spending freeze by President Obama into a hypothetical person Ima Spending. Scaling to U.S. budget to an individual level, here is my estimate of Ima's financial position:

Annual Income: $23,000

Annual Spending: $35,000

Annual increase in Debt: $12,000

Annual savings from Spending Freeze: $250

From my perspective, Ima needs more revenue, less spending or both. Since increased revenue is not easy in today's economy, I would work on reducing spending. Unfortunately, a spending freeze does not offer a noticeable reduction.

I'm glad I did the calculations to reduce the numbers to an individual level. Thinking in terms of thousands, instead of billions and trillions, have helped me understand the U.S. budget issues a little better ;-)

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or policy advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Links To Carnivals From January 18 - 25, 2010

Here are the links to the Carnivals in which My Wealth Builder participated from January 19 to January 25, 2010:

Money Hacks Carnival #100

Money Management #2

How to Invest #2

Baby Boomers Blog Carnival #23

Carnival of Financial Planning #125

The BoBo Carnival of Politics

Carnival of Money Stories

For some interesting articles from the blogosphere, check out these Carnivals and give the hosts some recognition for their hard work.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial, investment, retirement or political advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Remembering my Time is Precious

Recent events have caused me to reflect on how precious is the time that I have. First, time is a resource that we can't get back. Once it passes, I cannot get it is forever gone. Second, I will never know how much time I have left, although I plan to be around for a while. Therefore, I want to make sure that I get the most out of the time that I have. Here are some of my thoughts:

Spend time with those important to me. Most of my 20s through 40s was spent with people in my outer circle, e.g. colleagues, service providers, and acquaintances. I spent a relatively small fraction of time with family, since I was single until my late 30s and lived away from my hometown. Even after getting married, I initially still spent a significant amount of time devoted to my career.

Then in 2006, my father passed away. Until my dad became ill, I never consciously considered that my parents would be gone someday. And then he was no longer there. It's been four years and I still miss him very much. I wish I had spent more of my 20s through 40s being with him.

I decided to consciously spend more time with my inner circle, e.g. family and close friends. In 2007, I took early retirement. I now spend the majority of time with my inner circle, and a relative small fraction with my outer circle.

Make the moments count. It's not enough to spend time together. I want the activities to be exciting and fun. I want everyone to be present and engaged. Just having a family in front of a TV doesn't count.

We've started to develop a set of engaging family activities, including annual vacations, game time, reading time, learning activities, and outdoor entertainment (e.g. fire pits, sports, and riding bikes).

Have no regrets. When I look back, I don't want to regret the time I spent or the time I missed. On my deathbed, I know I won't say, "I wish I had spent more time working." Also, I don't want to say, "I wish I had done more of _______." Of course, this requires planning which isn't one of my strengths. I probably should start with a list of 20 things I'd like to do :-)

Although I will make a little less, I have cut back on my hours for my main seasonal part-time job. I am working 33% less hours than last year, and about 50% less hours than my first year after early retirement. As a result, I will have more time with family, doing fun activities and with no regrets.

For more on Strategies and Plans, check back every Monday for a new segment.
Photo Credit: morgueFile.com, Michael Connors

This is not financial or personal development advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

It's the People's Government, Stupid

"...and that government of the people, by the people and for the people shall not perish from the earth." ~ Abraham Lincoln

In hindsight, I think President Obama's election win was all about the hope of giving government back to the people. Many Independent voters were disillusioned with President Bush and the Republicans. They believed in Mr. Obama's promise of bipartisanship, elimination of earmarks and reducing the power of special interests. Instead, I've seen hyperpartisanship, proliferation of earmarks, and significant catering to special interests be the standard of President Obama's first year. To paraphrase Rahm Emanuel, the Obama administration let a good crisis go to waste.

Hopefully, a new class of candidates will arise for the 2010 midterm elections, candidates that realize the people want ethical, holistic and principle based government. Here are a couple elements I'd like these candidates to support:

Bipartisan solutions. I believe all sides have valid points that need to be incorporated into a solution. For example, I agree with health care for everyone, but not at any cost. For me, a successful program needs to be fiscally sound and require personal responsibility from individuals also.

Elimination of earmarks. This form pork has become the norm in our legislative process, essentially buying votes instead of investing effort to create a better solution. Eliminating earmarks with cause legislators to focus on the real issue instead negotiating more benefits for their constituents.

There are many problems that will need to solved in the next few years, including the decreasing deficit, reducing entitlements, broadening health care, and saving social security. I want politicians who will serve all the people when developing solutions, versus serving special interests through backroom deals.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or political advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

My Incentives to Work in Retirement

Prior to taking early retirement, my primary reason for working was to earn money for everyday expenses and savings. First, I majored in a degree (engineering) that would lead to a good paying job. Then, after a mediocre first 10 years, I refocused my career, began taking assignments and positions of greater responsibility, and advanced in level and compensation.

Since taken early retirement in 2007, I have worked several part time jobs, which are seasonal. While I still work for pay, the incentives for choosing the job are often other than money. Here are some of the non-money reasons for the jobs I have taken.

Personal interest. I've always had an interest in personal finance. The first part time job I did was a seasonal position in a financial service company. Since I'm good with numbers and the relevant financial concepts, I enjoyed doing the work, even though the pay was little more than minimum wage.

In addition, the company provides continuing education training for a small cost, saving me hundreds, perhaps thousands, of dollars each year.

Personal development. I may be retired, but I still enjoy intellectual challenges. A job that that enables me to learn new skills and use them is appealing to me. One of my part time jobs is with a small business that is a franchise. In addition to learning the skills to do the work, I've been learning about how a franchise business operates.

Intellectual stimulation and emotional satisfaction. I enjoy the variety of doing three or four different jobs during the year, which require different skills, customer interactions, in different industries. The jobs I do last between a couple weeks to four months. In most cases, I'm ready for the job to be over when the season is finished.

Jobs that leverage my personal strengths are very energizing. In addition, I like the satisfaction of completing a project, which happens frequently in a seasonal job.

Of course, the pay is still important to me, since I am trying to earn 20% of our retirement expenses through part time jobs to avoid outliving our savings. However, nowadays, pay is no longer the primary reason that I accept a job.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial, career or job advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

On Saving Children from Financial Mistakes

To me, financial expectations of young adults seemed to have changed significantly from the time I was in my twenties. From my freshmen year in college onward, I didn't expect my parents to take care of any non-education financial issues that I had incurred. Nor would my parents have taken care of them without my asking. In fact, I looked forward to showing financial independence as soon as I could, to the point of paying for almost all of my college costs in my senior year.

Nowadays, many parents take pride in saving their children from their financial mistakes. For example, I recently listened to a mother proudly tell how she reduced the several hundred dollars of overdraft fees that her son had incurred. In the next breath, she complained about how her son was planning to spend a significant amount to take his girlfriend to dinner. "Doesn't he realize he has no money in his account? He can't afford to take his girlfriend out. He better start looking at the free activities that are available."

While I think it was great to negotiate a reduction in fees, I couldn't help joking, " You know, he isn't too big to fail :-) Perhaps he would have learned something if he had paid the overdraft fees." Her answer was a brief, "Maybe I should have," and then returned to sharing other ways she has been a financial savior for her son.

In our case, I must plead guilty for saving our five year old daughter from her financial mistakes. Recently, she bought a card and then left it at the store. After telling her she may have lost her card and the money paid, I called the store and they located her card for us to pick up next time. For now, I think its OK to provide our daughter some help with her financial mistakes. She is still too young to grasp some of the basic financial concepts.

However, I have already started on some basics, such as opening a savings account and letting her pay for items with gift cards she has received. My next step is to let her spend some of the money she has saved. I'm not sure how well this step will go, since she is very concerned about how to replace the money she spends :-) Hopefully, our stepwise approach will allow our daughter to handle her own financial mistakes by the time she is in high school.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or parenting advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Links To Carnivals From January 12 - 18, 2010

Here are the links to the Carnivals in which My Wealth Builder participated from January 12 to January 18, 2010:

Boomers and Seniors News You Can Use

Baby Boomers Blog Carnival #22

Everything Home Carnival

Carnival of Financial Planning #124

The BoBo Carnival of Politics

Carnival of Money Stories

Carnival of Personal Finance

Tax Carnival #63

For some interesting articles from the blogosphere, check out these Carnivals and give the hosts some recognition for their hard work.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial, saving, retirement or political advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Want to Retire Early? - They Need an App for That

With the popularity of apps, I think there ought to be some to provide assistance in retiring early. Here are two hypothetical apps I would have found useful on our own early retirement experience:

i-Save - This app would automatically deposit 12% to 20% of net weekly, biweekly, or monthly net pay into a savings account for retirement. For more aggressive savers, it would automatically save 12% to 20% of gross pay. I determined this is how much I needed to save to meet my early retirement goal.

i-LiveBelowMeans - This app would answer Need or Want whenever considering a potential purchase. For us, building wealth required trying to buy only what I needed. As a start, I would err on the side of marking many items as want. For example, I would categorize cable/satellite TV and a personal cell phone as a want, which some might consider strict. On the other hand, I consider health insurance a need.

Of course, having apps would only be a beginning. For us, an enabler for retiring early was making these strategies into everyday financial habits.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial, saving or retirement advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Time is Starting to Pass Faster

Since taking early retirement in 2007, 2008 and 2009 seemed to go by at a leisurely pace. I've been enjoying the transition, spending more time with family and exploring different opportunities for a retirement career. However, 2010 seems to be going by much faster. Even though it's only mid January, I already feel like I need to get ready for spring. Here's why I think time is suddenly speeding up for me:

Over 50. When I retired, I was in my forties. In 2008, I turned 50, which didn't seem to far away from my forties. However, in 2010, I'll be 52 which feels clearly in the fifties, a long way from my forties. Suddenly, it doesn't seem too long before I'll be sixty, and then seventy.

Last year of pre-school. Our daughter is in her final year before kindergarten. Thus, we still have flexibility to take vacations off season, since we don't mind taking her out of school. Once she is in kindergarten, our vacation schedules will be determined by her school holidays.

Retirement work becoming routine. Over the past two years, I've taken on a seasonal and two part time jobs. This will be the third year for the seasonal job and the second year for the part time jobs. My retirement jobs have become the norm. Having regular jobs seems to make time go by faster.

The feeling of time passing faster is causing a sense of urgency. There is so much I'd still like to do. Although early retirement created a lot more available time initially, I now realize that my time is still limited and I need to put more focus on the what I want to get done.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Living on a Cash Basis was a Good Experience

When I was in college, students weren't eligible to get major credit cards on their own. We typically lived on a cash basis, paying cash or checks for our purchases. Looking back, living on a cash basis quickly taught me financial responsibility, since the lack of cash had consequences. Here's what I learned:

Know my account balances. I quickly learned if I didn't have cash, I couldn't buy anything. Therefore, I balanced my checkbook and tracked my spending. Otherwise, I wouldn't have funds when I needed them.

Save for future purchases. The only way I could make a large purchase was to have the entire amount when buying it. Therefore, I saved to buy what I wanted.

Earn more when needed. If I didn't have enough funds to cover required expenses, I earned more, since nobody was lending me the money. Therefore, I found jobs that enabled me to earn more.

For our daughter, I think cash basis money management will help her develop skills and create a good financial foundation. No need to have credit and debit cards before having a basic understanding of finances. I believe once good financial capabilities are developed, a transition to using credit responsibly can be done.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or parenting advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Taxes - DIY or Hire a Preparer?

Should you do your own taxes? by Jeff Schnepper of MSN Money offers his perspective on how to think about this question. He writes that taxpayers should consider three points when deciding:

1. Do you want to invest the time?


2. Do you want to pay a preparer?


3. Do you want to learn the the tax code?

The answers to these questions can help determine whether doing it yourself (DIY) or paying a preparer is the better option.

As a tax preparer (which is disclosed in the article), Mr. Schnepper is biased towards paying a preparer. However, he does make what I consider an excellent point if one decides to hire a tax preparer: choose someone who provides advice. I agree that a preparer who gives advice on how to minimize tax liability in current and future years, provides higher value than a preparer who just fills out the numbers on the forms.

I still do my own tax returns. However, I were to ever hire a preparer, I would meet with and interview several candidates, to make sure I choose someone who is interested in providing advice as well as doing the return.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Links To Carnivals From January 5 - 11, 2010

Here are the links to the Carnivals in which My Wealth Builder participated from January 5 to January 11, 2010:

Festival of Frugality #211

Money Hacks Carnival #99

Baby Boomer's Blog Carnival #21

Carnival of Financial Planning #123

For some interesting articles from the blogosphere, check out these Carnivals and give the hosts some recognition for their hard work.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial, saving or retirment advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Schwab ETFs - Commission Free for Schwab Clients

With ETFs becoming more popular, Charles Schwab has introduced Schwab branded ETFs that are commission free to Schwab account holders. In addition, a comparison to other ETFs show that Schwab branded ETFs have the lowest expense ratio for 7 out of 8 ETF categories.

While I prefer ETFs to mutual funds for tax efficiency, it has not been cost effective to make numerous small purchases of ETFs due to a commission charge for each transaction, since ETFs traded like stocks,. However, with Schwab's new ETF offerings, it's cost effective to purchase as little as one share, since there is no commission charge .

Although I had begun to move funds out of Schwab accounts in 2008, I haven't completed the transfer, since there are CDs and bonds that won't mature until 2012, and I wanted to avoid the fee for moving securities. Now, with the new Schwab commission free ETFs, I will likely maintain a couple accounts at Schwab to take advantage of this cost effective way to invest in market indices.

Disclosures: Other than having brokerage accounts at Charles Schwab, I have no financial relationship with the company. No compensation was received for writing this article. No compensation is received for readers clicking on links within this article nor is compensation received for readers who open an account with Schwab.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

How I'm Investing in China

As I refine our investment strategies and plans for 2010, I am consciously excluding direct investments (e.g. China ETF, Chinese company stocks) and looking more at companies with a growing business in the China. The product issues from the recent past, which include melamine in food products and lead paint on children's toys, have led me to believe that the safety standards of Chinese companies need to be improved before I directly invest in Chinese companies. At this time, the safety issues with Chinese products still seem to surface too frequently. Over the weekend, the Associated Press reported another product safety concern with children's jewelry containing too much Cadmium, a toxic metal.

For now, I will invest indirectly in China by focusing on global companies expanding their presence in China, since they will benefit from China's growing income per capita. For example, CNBC.com reports that china car sales surpassed the U.S. in 2009. I would also expect demand for other consumer discretionary products and consumer nondiscretionary items to also be growing similarly.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Higher Taxes Likely, even for Those Making Less than $250,000

In his first address to Congress in February, 2009, President Obama famously said, "If your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not a single dime."

Recent articles show that reality may be otherwise. The Health Care Tax Pledge in The Wall Street Journal reports that "the health care bills are loaded with taxes on families earning less than $250,000 per year." Tax Alert-Plan to Take Advantage of 2010 , by Bill Losey at CNBC.com highlights tax breaks that will expire for high income taxpayers, and reports that if the Bush tax cuts are allowed to expire, people making under $250,000 will be in higher tax brackets and also paying higher taxes on long term capital gains.

I interpreted President Obama's statement to mean taxes would not be increased for the middle class. However, based on recent legislation and expected expiration of tax cuts, it appears Mr. Obama just meant the increase would not be a single dime, but apparently an increase of hundreds or thousands of dimes has not been ruled out. My preliminary projection of our federal income tax for 2011, show our payments will likely higher than previous years for the same income, and our family makes way less than $250,000 per year.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Holding Congressional Leaders Accountable

Throughout the financial crisis of 2008 -2009, top executives have been fired, or encouraged to resign, from their jobs, and rightly so. The CEOs of Citicorp, GM, Fannie Mae, and AIG all resigned or were fired in 2009, just to name a few. Most recently, the CEO of Bank of America stepped down at the end of 2009. In my opinion, it was appropriate for these chief executives bear the responsibility by losing their jobs, since the issues with their companies occurred on their shifts. As it should, private industry quickly deals with leaders who are responsible for corporate catastrophes.

To me, principle of holding the leadership accountable should also apply to our politicians. For example, Rep. Barney Frank (D-MA), Chairman of the House Financial Service Committee, Sen. Christopher Dodd (D-CT), Chairman of the Senate Banking Committee. They were at the head of the two committees regulating financial practices, and prior to that they were the ranking minority members of the committees. However, throughout the financial crisis, these two have kept their positions as chairmen of these committees and seemed to reject calls for their accountability in the financial crisis.

To me, Congressional leaders should be held to the same standards as business leaders. If a major issue occurs during their time as committee chair, I would want them to resign or be fired from their leadership position.

Now that would be change I can believe in :-)

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.
Copyright © 2009 Achievement Catalyst, LLC

A Medicare Enrollment Watchout

Retirees Snared by Medicare by Anne Tergesen of The Wall Street Journal reports how complex Medicare rules may cause some people to have a gap in insurance coverage or to pay a permanent 10% premium penalty per year of enrollment delay. If not employed, people are required to enroll within three months before or after the month of their 65th birthday. If employed after age 65, people are required to enroll within 8 months after ending employment.

There isn't a problem for people who take Social Security payments by age 65. They are automatically enrolled in Medicare. However, when people are over 65 and covered by employee health insurance, they sometimes don't realize that initial Medicare enrollment must be completed within 8 months after employment, to avoid the issues with late enrollment. With more people working past 65, the issue with delayed enrollment are happening more frequently.

Although my spouse and I are not eligible for Medicare for many years, I will need to consciously take action to enroll in Medicare before 65, since I am currently covered by my employer's retiree health insurance and plan to wait until 70 before claiming Social Security benefits. I definitely don't want to have a gap in health insurance coverage, or a permanent increase in my premium.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or health insurance advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

College 529 Plan Accounts Are Now Breakeven

In preparation for making 2010 contributions, I reviewed the current status of our college 529 savings accounts. We originally opened the accounts in December, 2005 and have made the maximum state tax deductible contribution for each year. Through 2008, we invested the contributions evenly in the Aggressive Growth, 500 Index, Extended Market, and International funds with Vanguard. In 2009, we changed our contribution mix and added to the Aggressive Growth, Extended Market and Morgan Growth (new for 2009) funds.

The first column shows how the bear market of 2008 significantly reduced our college savings accounts. Not only were all the gains from 2006 and 2007 eliminated, the losses also reduced the principal from the contributions. However, the recovery since March 9, 2009 has enabled the accounts to break even. Most of the improvement in the 529 accounts had occurred by 10/14/09, the date of the previous update. Here are the results as of 1/6/10:

	Returns
Fund	Total Return 11/5/08	Total Return 10/14/09	Total Return 1/6/10
Vanguard Aggressive Growth Index Portfolio	-25.08%	-0.51%	3.39%
Vanguard 500 Index	-27.74%	-15.15%	-11.24%
Vanguard Extended Market Index	-29.89%	-1.63%	5.98%
Vanguard Developed Markets International Stock Index	-31.25%	-11.09%	-9.91%
Vanguard Morgan Growth	-	27.22%	34.50%
Total	- 28.74	-3.61%	0.04%

Previously, this analysis had shown me the high volatility of equity investments in our 529 plans. When it gets closer to needing the funds, I will definitely want to avoid this level of fluctuation. Thus, I plan to move a significant portion to interest bearing accounts within 2-4 years of needing the money for college.

In addition, this analysis shows the benefit of continuing to make contributions as the market declines, i.e. dollar cost averaging downward. The 2009 contributions were distributed among the Aggressive Growth Index, Extended Market Index and Morgan Growth Index funds. Those funds are now above the amount principal contributed. The other two funds, which did not receive any contributions in 2009, are still below the original principal, being down 11.24% and 9.91%

We will continue to make the maximum state tax deductible contribution for 2010.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, saving or investment advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Roth IRA: To Convert or Not to Convert

In 2010, anybody will be able to convert funds from a traditional IRA to a Roth IRA, since the $100,000 MAGI (modified adjusted gross income) restriction is eliminated. Given the opportunity, the question is whether is it makes financial sense to do a conversion or not. In most cases, I don't believe there is a standard answer that works for everybody. Each case needs to be considered individually. Here are the criteria we used, when we became eligible to do Roth conversions.

Current tax rate lower than future tax rate. A key question is whether the tax rate on the conversion or the tax rate on the future IRA withdrawal will be higher. If the future tax rate is projected to be higher, a conversion made sense to us. If the future tax rate is projected to be lower, then not doing a conversion would make sense.

Of course, we are not able to estimate future tax rates with 100% certainty. However, I believe, with 100% conviction, that our marginal tax rate will be higher than 15%. If we are able to make Roth conversions at a 15% tax rate, I believe we will be better off financially than leaving the funds in a traditional IRA. Therefore, we have been doing Roth conversions only if our taxable income is at a 15% marginal tax rate.

To me, it is a tougher decision at a 25% marginal tax rate. However, I still believe that my future marginal tax rate will likely be at 25% or higher.

Amount of funds subject to the required minimum distribution (RMD). The RMD is the amount of funds an IRA owner is required to withdrawal each year after reaching the age of 70 1/2. An RMD must be taken, even if the recipient does not need the funds. Thus, RMD reduce the capability of the IRA owner to manage his income for tax purposes. The larger the amount of funds in traditional IRAs, the more it may make sense to do a Roth conversion.

Since my company's retirement funds were in a profit sharing plan (i.e. similar to a 401(k)), we will eventually have a large amount of savings in traditional IRAs as funds are rolled over with time.

Having funds outside the IRA to pay the tax. If all of the IRA funds are converted to a Roth IRA, the taxpayer will only owe taxes on the amount converted. If part of the IRA funds are used to pay the taxes, a 10% early withdrawal penalty will be assessed on the amount if one is under the age of 59 1/2.

We were able to pay all the taxes with funds from our taxable accounts.

Since the answer to each criteria was a "yes" for us, we proceeded with doing Roth conversions in 2008 and 2009. For our Roth conversion decision in 2010, we will apply the same criteria again.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial, IRA, or tax advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Links to Carnivals from December 29, 2009 to January 4, 2010

Here are the links to the Carnivals in which My Wealth Builder participated from December 29, 2009 to January 4, 2010:

Festival of Frugality #210

Tax Carnival #62

For some interesting articles from the blogosphere, check out these Carnivals and give the hosts some recognition for their hard work.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial, saving or tax advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Wealth Builder Ratios - Q4 2009 Update

Here is our Q4 2009 Wealth Builder Ratio update. During the third quarter of 2009, the Dow, Nasdaq and S&P500 indices advanced 5.4%, 6.7% and 7.3% respectively. Through December 31, 2009, the Dow was up 22.7%. The Nasdaq rose 43.9% and the S&P 500 was up 26.5%. Although my company stock gained 5.5% during Q3, it is still down 1% for the year. Due to the leverage of company stock options, paying off our mortgage in May, 2009, and living expenses our retirement savings are down 8.3% this year.

For more details on the relevance of these ratios, please see this How Much Is Needed To Be Wealthy - The NUMBER.

Ratio and Target	Q3 2009	Q4 2009	Comments
Investment Income to Salary Target=0.8 2007=3.41 2008=-5.47	-2.06	-1.38	The stock market performance for the third quarter of 2009 improved our returns by a ratio of 0.68, but still not enough to completely eliminate the loss of -3.78 for the first half of 2009. At this point, we continue to stay invested in the market for our tax advantage accounts, and still taking the opportunity to increase our cash position during rallies.
Savings to Salary Target>20 2007=23 2008=16.7	14.6	15.3	During Q4, my company stock advanced 5.5% and the Dow, Nasdaq and S&P 500 advanced 5-7% which helped increase our investment returns. Our total savings are still down 8.3% for 2009, primarily due to my company stock still be down 1% for the year and paying off our mortgage.
Debt to Salary Target=0 2007=1.51 2008=1.46	0	0	We said bye-bye to our mortgage on May 20, 2009. Eliminating a mortgage payment has reduced our expenses by 24%.

My financial goals for 2009 were:

1. Continue to maintain an Investment Income to Salary ratio > 0.8. (off track)

2. Maintain a Savings to Salary ratio of 20. (off track)

3. Maintain Debt to Salary Ratio at 0. (met final goal of 0)

(For reference, Salary refers to gross salary just prior to early retirement in October, 2007.)

Both #1 and #2 were directly correlated with how well our stock, bond, and CD investments returns. With the continued rebound of the market in Q4, our investments have also shown a good gain.

It has been very challenging retiring at the beginning of a bear market. Our short term expenses (next 3-5 years) are invested in CDs, bonds and money markets. So we can wait for the stock market to resume an upward trend, hopefully in the next 1 to 2 years. At this point, I continue to be concerned about reducing our withdrawal rate, and have taken on three part time jobs.

I continue to have the same financial goals for 2010. Hopefully, the markets will continue to rebound in 2010, and allow our retirement investments to further recover. Otherwise, it's back to full time work I go :-)

For more on Strategies and Plans , check back every Monday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

No New Resolutions for 2010

After realizing that I haven't fully met my 2008 New Year's resolutions, I decided not to make any new resolutions for 2010. Instead I am going to continue working on the 2008 resolutions until they become habit, making the process a three year plan. Here's my latest report card on how I'm doing on the 2008 resolutions.

	2008 New Year's Resolutions and Status
Category	Category Activities	Status	Grade
Healthier Lifestyle	Lose 10% of weight	Briefly achieved 10% in September, 2009, but have only been able to consistently maintain a 7.5% loss.	B+
	Better diet	Achieved a target of 5 servings of vegetables/fruit per day in July, 2009, but have regressed back to 2-3 per day.	C-
	More exercise	In July, 2009, I had exceeded my target of 3 times per week by regularly exercising 6 times per week. Have fallen back to 1 time per week.	C-
Tax Strategies	Identify five strategies to minimize taxes	Used Roth IRA contribution, Child tax credit, Roth IRA conversion , and 0% long term capital gains in 2008. Continued to benefit from these four tax strategies in 2009, and added a fifth of using accelerated itemized deductions and standard deductions in alternating tax years.	A
Contingency income	Earn 20-40% of retirement income needs in first 3 years	Achieved 27% in 2008 due to deferred compensation. In 2009, 16% was achieved because our monthly expenses declined when we paid off our mortgage. It isn't clear yet whether I can achieve 20% in 2010.	B
Have Fun	Family activities and vacations	Have attended 100% of our daughter's pre-school activities for parents. We do an annual vacation with in-laws, and an annual family camping trip. We are planning a trip to either Yellowstone or the Grand Canyon	B+
	Hobbies	Playing tennis, rediscovered stamp collecting, and playing some golf.	A-

I won't consider my 2008 resolutions successful, until I give myself an A in every category. As a start, I will be returning to a schedule of visiting the company gym at least three times a week, starting tomorrow.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or personal development advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Reasons to Retire

Despite all the gloom and doom about the economy, it may still be worth thinking about retiring. Ten reasons to retire posted at A Private Portfolio presents a good case for when to consider retiring. I wanted to share the author's reasons and how they have applied to my own case of retiring early.

1. Can afford it. Once we saved enough, we were open to the option of retiring. In addition, getting good affordable health insurance was an important factor for us.



2. Time is a precious resource. I'm very glad I had an opportunity to be present during our daughter's infant, toddler and pre-school years. I would have missed a lot if I had been working full time.



3. Don't need more. We have avoided extravagance and live a moderate lifestyle, which is sufficient for us.



4. Getting older. My mental and physical capabilities aren't as good as in my 20s and 30s. Unlike good wines, these capabilities don't improve with age.



5. Changing priorities. Adopting our daughter made me quickly realized there is much more to life than a career. Career and career advancement is a lot less important to me nowadays.



6. Personal interests. I've been rediscovering my childhood interests since taking early retirement, including playing sports, stamp collecting and volunteering.
   
   
7. Physical health. Since retiring, I'm more fit, eating better and sleeping more.



8. Less stress. To me, retirement has definitely been less stress and more fun.



9. Mental health. I've enjoyed expanding my mental capabilities outside of my career.



10. Giving back. For me, this means making a difference. In addition to spending more time with our daughter, I've started teaching science to first graders.

Although I wasn't able to articulate them this well, every one of the reasons were a factor in my decision to retire early in October, 2007. Even after the Great Recession, I still consider the choice to retire early a good decision.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC