Roth vs. Traditional

In the case of maximizing the yearly contribution of a 401k and an IRA, I decided to compare doing Roth vs. doing traditional and then investing the difference outside the retirement accounts.  Given constant 8% returns, no difference in tax rates, etc.  It appears the additional tax protections of the Roth will account for an additional $78k of spending power at retirement (2014 dollars).  This assumes the investments are turned over every 2 years.  Of course, that number would be less if it was 4 years instead of 2, but I didn’t built it in a way where it’s easy to change that variable (derp derp).

That the total tax for the roth is so much lower than the total tax for the traditional simply reflects that at the moment you pay the Roth tax upfront, you’re also paying the opportunity cost of not investing that money.  Whereas w/ the Traditional you get to invest that money… so at the end you end up with a bigger lump (which is then taxed to hell all at once).

Verdict:  If you have the money (e.g. you’re investing enough outside this to have a down payment on a house), do the Roth.  But be aware that your gain is only like 6% and it means having less financial flexibility in those 30 years (since all the money is locked in the retirement fund).



The Range

Recently I’ve been reading some new blogs on early retirement.  They emphasize aggregating money and reducing living expenses.

The extremity makes them more interesting than reading the same boring Dave Ramsey stuff over and over again.  These people are dynamic, gaming Obamacare, people making their own soap, people fixing their own appliances, living out of an RV, etc.  While I can’t say I’m sold on their lifestyle yet, I know from my yearly camping experiences that I’m perfectly happy camping… so I’m not ready to discount them either.  As an experiment, I’ve crunched some numbers to see the range of my net worth in 10 years.

Current Level of Sacrifice (includes paid off condo at the end, ~$400k):

Screen Shot 2015-01-10 at 10.21.37 AM

Ultimate Sacrifice (Sell everything and live in an RV for 10 years):

Screen Shot 2015-01-10 at 10.22.48 AM

so we’re looking at like $1.76M and no condo or yo-yo collection (extreme) or $883k + $400k condo + yo-yo collection.  A swing of about $477k minus a yo-yo collection.  That’s not a small amount of money, but is ~$400k a year worth (beat down a little by inflation) worth the discomfort an RV would cause (what about the freedom an RV would give?)?

I’m not sure yet.  My biggest immediate concern is that I don’t know the nearest place I could park an RV w/ electricity and water to my job.  I should probably write a post detailing my concerns.  Happily though, I’m a millionaire in either case.

Starting a Business

Research Research Research.  You find successful people.  You find old people.  Some of them may be failing… but it’s hard to know.  These people have a head start, that’s clear.  At some point you just have to start running… if you don’t run, it’s impossible to catch up.  But you don’t want to enter a fight where the numbers will just never make sense.  Hard to know sometimes what is calculable vs. flexible.  What’s clear is, I have to start building something.  Even if it isn’t efficient.  Even if I don’t know what the competitive advantage is going to end up being.  It’s like riding a bike.  You have to at least get the motions down even if you know you’re not Tour De France material yet.

Geez.  30% of the business for only $75k?  What a steal…

Maybe I can get something weird going like “Coffee and Financial Planning”

End of 2014 summary

$34,500 outside of retirement accounts ($50k). $36,500 if you count the Dec. 31 paycheck (I don’t, really). My goal was $40k but I missed it. I broke up with my girlfriend and September and then got a bit lazy / sad / retail therapy, missing $1600 in contributions and withdrawing some money for property taxes and a vacation next year (Vietnam flight). Condo worth about $340k with $111k still owed. Not too shabby. Laziness realized, I’ve hopped back on the budget train, and 2015 has a plan… Or at least a spreadsheet showing my options.

I refinanced the condo to a 10 year fixed! I worked an extra job for a while.

My company is doing a 401k in 2015, and I can pick a Roth. So if I max a backdoor Roth IRA at $5500 and the Roth 401k at $18000 then that leaves only about $25k for paying off the condo. At that rate, setting aside $4k a month like in 2014, it would take until Jan. 2018 to pay off the condo… But I’d have a much more balanced financial position than if I shoved all my money into real estate just to be rid of B of A faster.  And the tax free retirement money is better in the long run… and I can’t make up the amount later… An extra $1000 a month would accelerate the whole plan by about a year. That should be doable if I can earn more income.  More on that later.

The $7k from the consulting shows that I should be ableto get some income. I should probably try selling expensive items. Something that requires a little intelligence to describe properly… But I really do like coffee… We will see.

I started this May 17 with $12k. I now have triple that. If all goes according to plan, by this time next year I’ll have more like 5 times that, $60k (after retirement takeouts… and $100k of debt remaining). I should do something at the 1 year mark to celebrate. I should have $55k by then.

Recently I’ve been reading more about Dave Ramsey’s attitude toward the poor… And I think I need to develop an opinion on it.