Determined Californians!

I have mentioned the Retire Early Home Page Discussion Board as being a resource for those interested in early retirement. Topics on this board range from starting to save for retirement to leisure activities after retirement. Some posts seek investment or retirement advice from other readers. One post in particular has stuck in my mind over the years. This post titled "Early Retirement Plan needs investment advice" was written on August 12, 2005:

We have a very serious plan to retire in 3 years (2008) and need advice on investing the lump sum Capital Gains from our properties.

Our plan is to have a total of 10 rentals by the end of this year. So far we have 5 and buying homes very aggressively to achieve this goal by the end of this year. We are breaking even after renting each home. I figure that by the end of 3 years, assuming they all appreciate at the current rate of 30% we will have $2.7M in equity.

After 2008 the Capital Gains tax reverts back to 28%. We want to sell all our properties in 2008 pay the taxes at the 15% capital gains rate and start our retirement. Our thought is that we live off the interest for a long period of time.

I will be 45 and my husband will be 38. This will be a huge accomplishment if this happens and we’re working very hard at it.

I have read many books, articles and logged on to many websites. I still have a long ways to go on educating myself in the investment arena.

What suggestions do you have for rookies like us in putting our money is a safe but of course high interest account to allow us to live off the interest?

We have a combined total of $35,000 in our 401K, both currently work making a combined income of $170,000/yr and have no other investments besides our rental properties. After our planned retirement, our expenses would be $70,000/year to live comfortably, after paying off our main residence.

Determined Californians

This post was written by shelnbud, and is the only post that this author ever posted on the Retire Early forum. Replies to this post from other members of the message board were critical of the lack of diversification in the author's "retirement plan". I don't think I need to add my own commentary since the post itself speaks volumes...

DC

Early Retirement Revisited

I haven't written about early retirement in awhile. So, let me first reiterate what I think are the three common rules among those who have retired early:
1) Living below your means (LBYM).
2) Maintaining a diversified investment portfolio on which to draw from.
3) Using a conservative 4% rule of thumb as a baseline for withdrawing from your retirement savings.

In my previous posts on PFStock, I have mentioned Billy and Akaisha Kaderli. This couple retired in their late 30s, and claim to live off of $24,000 per year. In my communications with the Kaderlis I have determined that they live in what is commonly known as a mobile home. When I asked my readers if they thought that they could live off of $24k a year, or retire to a mobile home, I did not get an overwhelming response. So, one could say that early retirees are often willing to do what most people are not.

I recently came across a blog that purports to be be about early retirement. But, the author is not actually retired, and the blog really focuses on an extreme version of what is known as "voluntary simplicity". Some suggestions mentioned in this blog are turn down the heat to 55F, stop drinking milk, and reuse gift wrap. This got me thinking that practically anyone could claim "retirement" by reducing their consumption to a very small fraction of their net worth. The real question then is "would you be willing to reduce your consumption to this level?"

Along these same lines is the book Your Money or your Life (YMOYL) written by Joe Dominguez and Vicki Robin. I read YMOYL a while back. While there certainly is a lot of good information in this book, some of the suggestions may be equally unappealing to many people.

The authors of YMOYL encourage the reader to thoroughly evaluate the value of each item they have, and track every last penny that comes into or out of your life. This is an activity that I personally frown upon, as I don't think that people should obsess about the minute details of every financial transactions.

YMOYL also advises investing virtually all of your money in US government bonds. I think that a more diversified investment portfolio of both stocks and bonds is a far more prudent choice. A portfolio made up of purely bonds violates rule #2, above. Also, as a historical note, Joe Dominguez died of cancer at age 58. And, this always left me with an uneasy feeling that the lifestyle he advocated in YMOYL may have contributed to his early demise.

In any case, I don't think that early retirement should be solely about depriving oneself to reach these goals. I will not tell you to give up eating meat, drinking milk, or buying your favorite latte drinks at Starbucks. Regardless, I think that everybody can make small steps that will bring an early retirement closer to reality.

Today, I will leave you with a quote from Robert Frost:

Never ask of money spent
Where the spender thinks it went.
Nobody was ever meant
To remember or invent
What he did with every cent.

DC

Digital TV Delay

It looks like Congress has agreed to postpone the switch off date for analog TV from February 17th until June 12th, 2009. Unless you've been living in a cave, you would know that is the date when all regular television stations in the United States will stop broadcasting analog TV signals and switch exclusively to digital broadcasting. Presumably this nearly four month delay is meant to reduce confusion whenever the digital switchover occurs. But the truth is that there will be confusion regardless of when the switch is made.

Just look at the current wording on the FCC website about when exactly the transition to digital-only TV will be:

On Feb. 17, some full-power broadcast television stations in the United States may stop broadcasting on analog airwaves and begin broadcasting only in digital. The remaining stations may stop broadcasting analog sometime between March 14 and June 12.

That sounds pretty wishy-washy to me... If I interpret this correctly, even the folks over at the FCC don't have a clue when the transistion date is going to be.

The switch to digital TV is not as simple as just turning off analog TV broadcasts. Currently, TV broadcasts are received on channels 2-69. After the digital transition is complete channels 52-69 will be reallocated for other uses. In Silicon Valley, where I live, the digital TV station KTEH is on channel 54-1. KTEH is really broadcast on digital channel 50, but shows up as 54-1 through a process known as virtual channel numbering. The analog channel 54 will disappear after the DTV transition.

In the San Francisco Bay Area, KGO broadcasts analog on channel 7, and digital on channel 24. After switching off the analog channel, they will return the digital broadcast to channel 7. More complex is the case of KTVU which broadcasts analog on Channel 2, and digital on channel 56. After the switch off, they will broadcast on channel 44. Channel 44 is currently used by KBCW (the old KBHK). For obvious reasons KBCW needs to shutdown their analog transmitter before KTVU can take over this channel. So, is this confusing enough for you?

If you own a DTV tuner, what this means is that you may need to re-scan for channels after the switchover. I used to tell people that you could do that on February 18th, but now you'll have to wait until June 13th to be safe. I do own a DTV converter box, but I also bought a DVD/VCR recorder with a built-in digital tuner. I guess that I will have to rescan the channels sometime (as according to the FCC) possibly between March 14th and June 12th. But, it seems that the FCC who has the last word on these matters, aren't themselves sure of the exact date.

DC

Microsoft Money 2009

Around this time of year, I start looking for the new version of Microsoft Money. Last year, I bought Microsoft Money Plus (2008) at the same time that bought my tax preparation software. But to tell the truth, I still have not installed MS Money Plus yet because some reviews I've read indicated that there were only minor changes from Money 2007. Anyway after searching a few stores, I came to the following conclusion: There is no Microsoft Money 2009.

How can that be? Doesn't Microsoft release a new version of their Money software each year? After some digging around, I found my answer in one of the Microsoft community discussion groups:

Microsoft Money Plus continues to be a valuable tool for our customers; however the feedback we are hearing is that the incremental updates to the software don't merit a new product every year. Given this, we have decided against releasing a 2009 version of Money Plus.

We are moving off of an annual release cycle for Microsoft Money Plus (no Money 2009 version in the fall), with future release dates TBD. Money Plus continues to be a valuable tool for our customers, however the feedback we are hearing loud and clear is that, after 17 years in the market, the incremental updates to the software don't merit a new product release every year. Given this, we have decided against releasing a 2009 version of Money Plus.

I guess that what I said was true: there are only minor changes in the yearly updates to MS Money. So Microsoft made the decision to not update MS Money for 2009. There is a new version of Quicken 2009, though. I might consider getting that.

See also: Microsoft Money to be Discontinued

DC

Extraordinarily low ratings for TurboTax

Around this time of year, I usually start looking around for new tax software (for the 2008 tax year). I like to get a head start on my income taxes before the end of the year. What a racket tax software publishers have! Each year, they update their existing software programs to match the latest tax laws. Sometimes they will add a few minor enhancements, but the end product largely the same as the previous year's version. Most readers know that each year, I choose to use either TaxCut or TurboTax to do my taxes.

Anyway, I was looking at TurboTax (Deluxe Federal + State + eFile 2008 version) at Amazon, and noticed that this product has already received over 300 reviews. It is unusual for a new product (which has been out for about a month) to have so many reviews, especially something as mundane as a tax preparation software. After all, it is not like people are reviewing a new Apple iPod, or the latest Blu-ray disc player. It is just tax software...

But what I noticed was that the vast majority of the ratings for the latest Turbo Tax were "1 out of 5", which is the lowest rating possible. Something definitely seemed wrong to me! Upon further investigation I found that reviewers were actually mounting a protest of two things:

1) TurboTax significantly increased the price of their software for tax year 2008.
2) TurboTax is now charging people an extra $10 for each additional tax return, if they file more than one.

It sounds like deja vu all over again as this situation reminds me of the year that TurboTax (Intuit) introduced its short-lived product activation scheme. To make a long story short, one was not allowed to install TurboTax on more than one computer, and this caused a lot of discontent among TurboTax users who prepare their taxes using more than one PC. This event became known as the "activation debacle" which Intuit experienced several years ago.

This year, I was thinking of switching from TaxCut (who also significantly increased the price of their software) to TurboTax. But after reading all of these negative reviews, I probably won't.

DC

Net Worth IQ Increasing

In a previous post, I mentioned how readers are innately curious about comparing their net worth to others in a similar income range or age group. I talked about three tools that help people figure out where they stand in relation to others. One of PFStock's readers wondered if personal finance (PF) bloggers had higher than average net worth. Another reader stated that such networth figures are not representative because people with a high net worth would be over-represented due to self-selection.

These are good insights, and in this post I want to talk more about the NetworthIQ website. As I mentioned, this site has compiled a set of Net Worth Statistics based on what its members have reported. To review, for the case of a 40 year olds, the median net worth was $462,658. And for for those making $100,000 a year, the median net worth was $260,828. I mentioned that these data were current as of 1/26/2008.

The latest data that Networth IQ has compiled are current as of 6/3/2008. For 40 year old the median net worth is now $491,100. For those making $100,000 a year, the median net worth is now $267,042. While these number are greater than the previous data point (from January), they do not include the effects of the latest downturn. It would be interesting to know if NetworthIQ's median net worth is still increasing after that.

In addition to age and income, NetworthIQ allows you can compare net worth based on education, occupation, and state of residence. In short, it is a treasure trove for those who are intent on comparing their net worth to others.

See also: Net Worth Update

DC

Update on Money Market Rates

Interest rates are constantly changing these days, and it is hard to keep track of the rates that I've been getting in my various money market accounts. I've decided to compile a list of the annual percentage yields (APYs) for institutions that I have accounts at, or have otherwise mentioned in the blog. These rates are sorted by APY.

4.00% Washington Mutual (WaMu) Online Savings
3.40% Countrywide SavingsLink
3.40% Umbrellabank Pot O'Gold Money Market
3.30% E*TRADE Complete Savings
3.25% HSBCDirect Online Savings
3.00% ING Direct Orange Savings
3.00% Citibank Ultimate Money
2.50% Guaranty Bank Gold Rewards Money Market
2.43% Western FCU Money Market
2.29% PayPal Money Market
1.63% TD Ameritrade Money Market

Rates are believed to be accurate as of 10/1/08. I did not include banks that had special, or introductory rates in the list because these are not ongoing interest rates. I am also not including non-liquid accounts such as CD's in the list.

*Note that the PayPal Money Market and the TD Ameritrade Money Market funds are not FDIC insured.

In times of uncertainty, I can offer two pieces of advice that I think few people would disagree with:
1) Never exceed the FDIC insurance limits.
2) Don't keep all of your money in one place.

DC