New Retirement Planning Calculator By Personal Capital

Retirement Life Infinity Pool, Bali Indonesia

Hanging Gardens Resort Ubud, Bali

Do you really know how much you need to retire? A lot of people like to throw out random numbers without really doing the math. One million dollars is a nice round number that often gets brought up for retirement. Unfortunately, $3 million is the new $1 million thanks to inflation in rent, property prices, tuition, automobiles, and food.

Even if you come up with a retirement number, chances are high that your number will change due to unanticipated life events. Maybe you’ll become unemployed for a year and draw down most of your savings. Or maybe you’ll find an amazing new job with a 50% pay raise. Maybe you’ll end up having triplets due to the latest $20,000 IVF procedure when you were hoping for just one baby. Who knows? Life has a great way of keeping us on our toes.

What we need is an interactive retirement calculator that is dynamic, has multiple adjustable variables, and also incorporates real data. Let’s first have a look at some current retirement concerns by the public at large. 

Should I Contribute To My 401K Or Invest In An After-Tax Brokerage Account?

foragingThe great thing about a 401k is that you are contributing with pre-tax money. The higher the tax bracket you are in, the more tax savings you will have. If you can start withdrawing from your 401k when you’re in a lower income tax bracket, then you’ve successfully conducted some tax engineering to boost your wealth.

The problem with the 401k is the 10% early withdrawal penalty before age 59.5. If the government gets desperate, they can raise the early withdrawal penalty percentage or increase the age limit. I ascribe a 75% chance one of these two things will occur over the next 30 years.

It’s easy to understand why saving for retirement is difficult. The value proposition is that you put your money away in an institution like Fidelity, which operates under the confines of the omnipotent government, who punishes you if you err from their rules, all for the chance that your money will grow decades down the road.

With no assurances from your money manager or the government that your money will be there in retirement, spending money now on instant gratification makes perfect sense. Give me the latest iPhone vs. the potential to have $25,000 more in retirement! Therein lies the dilemma of the 401k contributor who can’t max out his or her account every year, and who therefore doesn’t have excessive after tax savings for liquidity and other purchases.

How Much Should People Have Saved In Their 401Ks At Different Ages

Saving Jar Colleen Kong

Art by Colleen Kong at KongSavage.com

The 401k is one of the most woefully light retirement instruments ever invented. The worst is the IRA which limits you to contributing only $5,500 only for individuals making under $60,000 a year and married couples making under $116,000 a year. Meanwhile, you have to make less than $114,000 a year as a single or $181,000 as a married couple for the privilege of contributing after tax dollars to a Roth IRA, which I do not recommend before maxing out your 401k.

Give me a pension that pays 70% of my last year’s salary for the rest of my life over a 401(k) any time! With the government only allowing individuals to contribute $18,000 a year in pre-tax income into their 401ks in 2015, once again, our politicians fail us with their regulations.

The average 401k balance as of May 2015 is around $92,800 according to Fidelity’s 12 million accounts, thanks to an incredible 30% rise in the S&P 500 in 2013, followed by another 13% increase in the S&P 500 in 2014. We’re at new record highs in 2015, and balances have basically doubled since the depths of the financial crisis.

Even so, $92,800 is an incredibly low amount given the median age of an American is 36.5. As an educated reader who is logical and believes saving for retirement is a must, I’ve proposed a table that shows how much each person should have saved in their 401ks at age 25, 30, 35, 40, 45, 50, 55, 60, and 65.

We stop at 65 because you are allowed to start withdrawing penalty free from your 401k at age 59 1/2. Meanwhile, I pray to goodness you don’t have to work much past 65 because you’ve had 40 years to save and investment already!

Accumulate More Wealth With An Investing Game Plan

Investing Game PlanA 15% stock market drop in a week should have shaken everybody into developing a financial game plan. Doing nothing is considered one game plan. But doing nothing because you couldn’t be bothered to think about how scenarios might play out is really lazy. It’s better to be lucky, than good. However, what if you’re neither?

Since writing the post, Stock Market Meltdown Implications For Everyone, many of you have asked for specific advice on how to deploy your capital into the markets. Given everybody’s financial situation is different, I’m just going to suggest a five step framework, and use myself as an example. 

I’ve lost a ton of money in the markets before, having invested during the Asian financial crisis of 1997, the dotcom bubble of 2000, and the economic collapse of 2008-2009. What has helped me get through difficult investing periods is simply coming up with an investing game plan to account for different scenarios. The fear of investing gets minimized, and rational action takes over.

How To Become A Rockstar Independent Contractor

rockstar contractorThe government estimates that roughly 31% of the American workforce are independent contractors. Meanwhile, Intuit did a study saying that 40% of the American workforce, or ~60 million people will be freelancers, contractors and temp works by 2020. Finally, six million Americans are choosing to work part time, according to the U.S. Bureau of Labor Statistics this year.

It’s clear the trend towards freelancing is on the rise thanks to technology, the Internet, declining company benefits like pensions and 401k matches, Universal Healthcare and the general desire for all mankind to be more free. 79% of independent workers say they are happier working on their own, according to the 2015 edition of the State of Independence report from MBO Partners, a business services company focussing on the self-employed.

As someone who unexpectedly decided to consult for the financial technology industry over the past two years, I strongly believe independent contractors will overtake full-time employment in the near future. Furthermore, you can actually make a lot more money as a freelancer than a full-time employee if you pack your schedule.

Let me share with you some of the benefits of being an independent contractor as well as some tips for how to thrive in this growing work style. With the latest market meltdown, you may very well find yourself side-hustling to make up for any lost ground!

Stock Market Meltdown Implications For Everyone

Stock Market Meltdown1, 2, 3 panic! The US markets is experiencing one of its nastiest three-day falls in years with the Dow Jones Industrial Average dropping ~15% as global growth fears take hold. It doesn’t help matters that the Fed seems pretty adamant on raising the Fed Funds rate by the start of 2016 either.

It’s a good thing that most of us are super savers, have a diversified net worth, actively rebalance our portfolios, and haven’t confused brains for a bull market!

We’ve also been preparing for downturns all year with posts such as: “Are We In Another Financial Bubble,” and “Creating A More Defensive Portfolio With Bonds,” so I suspect most of us are doing just fine. But what about other people who might feel like jumping out the window because they went on margin? Or how about that starry-eyed person who thought the grass was greener at a startup?

In this post, I’d like to go through the implications for various types of people if there is a sustained market correction. It’s nice to say that all of this is really just noise since we’re investing for the long run. But over the next one-to-three years, a lot of things could change if the pummeling continues.

Besides, it’s always good to have plans for various scenarios, whether they come true or not. Let’s imagine a current scenario of a 20% correction in the stock market. 

Spray And Pray: The Cheapest Way To Invest In Real Estate

Spray And Pray InvestingIn early 2014 I got blown out of the water by an all cash buyer for one sweet property in the Sunset District. The asking price was $1.2 million, the median home price in San Francisco, and I offered $1.38 million. Given the agent representing me was the son of the listing agent (!), he gave me the inside scoop that $1.38 million wouldn’t cut it because the pole position offer was at $1.8 million! Although part of me thought he was just talking bullshit, I raised my offer to $1.5 million, hoping that the first place offer would drop out.

At the time, I thought to myself, what kind of crazy idiot would offer 50% over asking on a block where the next highest priced home was $1.4 million max? It turns out that his $1.8 million offer went through. Not only that, he proceeded to gut the house and spend another $250,000+ remodeling!

For a month I was feeling a little melancholy because I envisioned myself spending the next 5-10 years of my life in the home. You start thinking about what type of art you’ll put up on the walls, and which room is for whom. The house was in great condition as is. Buying property can get pretty emotional.

Still getting over my loss, I stumbled across another sweet property in Golden Gate Heights, a nicer neighborhood with more expansive ocean views. The asking price was $1.35 million for this 3 bedroom, 3 bathroom, 2,300 sqft house. It had two great decks, but the views were partially blocked by a massive pine tree out back.

The property was swarming with perspective buyers when I visited. Figuring I had no chance in hell to win, I didn’t even bother putting in an offer this time. I guessed it would easily go for at least $1.7 million if the other house went for $1.8 million. And I hadn’t sold enough books to have $1.7 million lying around.

The house went into contract in two weeks, and after a month of waiting, I found out the selling price was only $1.48 million! Holy crap! It went for $220,000 under what I thought it would sell for. Now I was even more dejected.

Having Trouble Maintaining Your Income Streams? Tether Your Income To Specific Needs And Desires

Tether your income to specific desires

Tether your income!

Anybody who is currently trying to build multiple income streams knows that it’s hard work to maintain them all. Whether the reason is due to a low interest rate environment, mental fatigue, or a tremendous amount of extra hustle during undesirable hours, when it comes to creating your own safety net, patience is a virtue .

One thing I’ve realized over the past 25 years of trying to build wealth is that if you can give your income a purpose, then you tremendously raise your chances of holding on and growing that particular income stream.

For example, at age 25, I wanted to quit finance and become a mango farmer / beach bum in Hawaii. I was sick of work after only three years. However, at age 26, I bought a condominium and because of the mortgage, making money suddenly became more meaningful. For the next 10 years, I focused full effort on maximizing wealth so I could ironically have the option to be a beach bum!

A List Of Accelerators, Incubators, And Fellowships For Startup Entrepreneurs

Accelerators For StartupsMaybe it’s destiny, but I just read an insightful article in The New York Times about entrepreneurship everyone who feels they are too old to start something should read.

Most tech start-up founders who have successfully raised venture capital have much less unusual résumés, according to data analysis by researchers at the University of California, Berkeley, Haas School of Business. The average founder is 38, with a master’s degree and 16 years of work experience.

Yet if someone like that came to a top venture capitalist’s office, he or she could very well be turned away. Start-up investors often accept pitches only from people they know, and rely heavily on gut feelings, intuition and what’s worked before. “I can be tricked by anyone who looks like Mark Zuckerberg,” Paul Graham, co-founder of the seed investor Y Combinator, once said.

Well shit be damned! I’m 38, have a Master’s degree from Haas School of Business, and have 16 years of work experience. I’ve also built a sustainable lifestyle business for the past six years that continues to grow. Maybe, there’s some credibility in these old bones to start a new VC-backed business after all.

It’s OK To Love Money

I love money said the bunny rabbit

“I love money,” admitted the bunny

Despite my failed attempt to ascertain whether some people are just born with a frugal gene and thereby able to amass much greater wealth than the average person, that’s OK! I’ve found some great takeaways from the post, “The Unfair Competitive Advantage Of The Wealthy: The Frugal Gene,” such as:

* The more people feel guilty about spending money on services they know they can easily do themselves, the more pissed off they will be if you say something. It’s therefore unwise to speak out against how people should spend their money. We all have our own desires, skills, and values. But as a personal finance writer, these are exactly the topics that make for robust discussion.

* DIY can be seen as a side-hustle to make more money. Now there’s zero excuse for folks who are unwilling to moonlight, start a side business, or create a product to generate passive income. You can simply increase the amount of DIY projects, like cleaning, to earn more money by saving money.

* In any business transaction, question everything. Be thorough. Stand your ground, while listening to the other side’s point of view. Folks who let their emotions get the best of them in business usually lose. Get things in writing, make things clear, explain your situation, and go from there.

* If you love money, you will probably be better at accumulating more money. You’ll do a lot more research on how wealthy people got rich, what to invest in the stock market, how to get a raise, and all sorts of money attracting stuff. You might even subscribe to a personal finance blog.

The love of money is something I’d like to discuss in this post because I finally read a comment from a reader who admits that he loves money!

The Unfair Competitive Advantage Of The Wealthy: Being Genetically Frugal

Getting my hands dirty painting and cleaning my own house

After a good morning of painting

Do frugal people have an unfair competitive advantage when it comes to accumulating a prodigious amount of wealth because they were just born that way? I’m beginning to wonder based on two things that happened recently.

1) Homejoy, a three year old housecleaning startup, decided to close its doors after raising about $40 million in funding. They ultimately failed to get sold or raise more money due to poor financials and lawsuits from contractors who wanted to be employees. It’s always a sad day when a company closes because I admire entrepreneurs very much. The founders had the courage to try, which is more than can be said for many others.

I never would have used Homejoy because I always clean my own house. Doesn’t everybody? Apparently not. Or apparently most people do, otherwise Homejoy wouldn’t have gone under. I find cleaning to be both cathartic and rewarding.

2) I got in sort of an e-mail tiff with my new master tenant’s roommate because she demanded an extra set of keys. It wasn’t a nice ask, but an entitled demand as if she owned the place. She first said she needed the keys for convenience purposes when other people stayed over. Then she said she needed a key for her housekeeper. These keys aren’t easily copyable. For security purposes, they have to be sent into a factory to be specially made. Each key has a specific embedded serial #.

My initial response was to ask her to just let the housekeeper in when she’s around or clean more herself if she’s got to wait an extra day or two. She wasn’t too happy with my suggestions! She said she works a lot and it’s none of my business how much she cleans (or doesn’t). Fair enough, even though it’s 100% my business for protecting my property from liability. I did end up spending a couple hours getting her that extra key, and am waiting for her to sign the addendum to take responsibility if the key gets lost or if the cleaner gets in a deadly fight with another condo owner.

Investment Philosophies From Jack Bogle, Founder Of The Vanguard Group

Vanguard Group LogoJack Bogle is one of America’s iconic investors and I’m a fan. He is well known for founding and growing the second largest mutual fund company in the world, The Vanguard Group with over $3 trillion in assets under management.

You may be surprised to know that Bogle was actually fired from his first employer due to approving an “extremely unwise” merger that went south. Looking back, Bogle cites it as his biggest mistake. But sometimes mistakes lead to great opportunities:

When I was 38, I became head of Wellington Management, and I did an extremely unwise merger. I got wrapped up in the excitement of the go-go era, and the go-go era ended. As a result of that stupid decision, I got fired. The great thing about that mistake, which was shameful and inexcusable and a reflection of immaturity and confidence beyond what the facts justified, was that I learned a lot. And if I had not been fired then, there would not have been a Vanguard.” – Jack Bogle

Shoot To Retire By A Certain Age, Not By A Certain Financial Figure

Ta prohm, Cambodia where the old trees take over the temples

Ta Prohm, Cambodia – Bucket list check 2015

Live until 60 and then say good-bye. This has been my mindset ever since I moved to San Francisco in 2001. I know expecting to die by 60 sounds a little depressing, but it’s a rational framework to help prepare for your financial future.

By expecting to die 20 years before the median American male life expectancy, I’ve forced myself to accumulate wealth faster in order to enjoy life sooner. Some of you might be thinking, “why not make money and enjoy life fully at the same time?” I agree, it can be done.

But I’m talking about doing the extremes, like going to business school for three years while working 60 hours a week, instead of taking a two year vacation from work. Or saving 50-75% of your after tax income every year. Or starting a side hustle that takes an extra 20 hours a week that might one day grow large enough to tell your micromanagers to screw off!