Friday, September 25, 2009

Retirement Future-ness

Since its Friday, and a payday, I’m really focused on making wise money choices. I guess every time I get more money, it’s my hope that I’ll be responsible with it. Anyways, as you all know, every year I max out my Roth IRA because I want a balanced portfolio. I know my work pension and mini 401a will be taxable income (and hopefully substantial) so I’m trying to balance those choices with ones that will grow tax free and not count as taxable income.

Once my condo remodel is complete I will begin to try and pay down my mortgage more aggressively since 5.25% is better than any CD rate out there… and since in a few years the itemizing will disappear the instant I get hitched. So I might as well pay it down faster when the majority of the bill goes to interest.

But while I’m aggressively paying down my mortgage, I also need to be thinking about retirement and building wealth. I refuse to put all my eggs in one basket and hope that my pension will sustain me, even when the formula and numbers look good. I may not work for this company till I’m 55… u never know… and I need to prepare for that.

So my original plan needs to change because my service years (which are used in determining how much money I get in my pension) are capped at 38… and at 55 I should have around 36.85… so I can’t buy the 5 years I planned on buying. In fact I can only buy one year because they sell them in one year increments.

The sooner I elect to buy that one year, the cheaper it is because the cost is based on my current salary… and I have to have 5 years of earned service (I have 4 so I have to wait until at least July)…

For the one year, the lump sum cost is $4,810.52.

One idea I had was to save up the entire cost, and then have it deducted out of 5 paychecks so I pay with pre-tax dollars and limit the interest I pay on the balance… They would deduct $970.42 out of each check I received for 5 pay periods and I would take the difference out of savings to “live on.” For 12 payments they deduct $408.41 a check… you get the picture… but I’d plan to have it only for a small number of payments to limit the interest I have to pay on it. I would have it finished off in one year.

The only question, is when to do this. Essentially I’ll be getting to lower my income by $4,800 for one year’s worth of taxes. I was thinking that I should wait to do this until the first year I know I won’t be able to itemize to help with the switch to a higher tax burden. I could slowly save up the money, a little each month, and then wait for the ideal moment when I know I won’t be able to itemize (which could be soon if I get hitched in the next couple of years). The downside is that the longer I wait, the more expensive it becomes IF my income increases…

Any ideas on when I should go for it and buy the year?

ALSO, Any ideas on other investment vehicles that are similar to the Roth IRA? I’m looking for something where I contribute post tax and the earning grow tax free.

3 comments:

  1. I keep seeing you mention not being able to itemize soon... Why is this? From what I can tell I see no forseeable reason why you soon won't be able to itemize?!

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  2. I'm planning on getting married in the next year or two... if that happens, I won't be able to itemize because the standard deduction will double and well have less to write off each year.

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  3. Ok, so you're saying you won't be able to itemize because you won't have enough stuff to qualify you, not because you'll exceed the income limits, correct? That may or may not be true. If you marry the construction worker boyfriend, you may very well have all kinds of tools/work mileage, etc. to write off. I wouldn't let the possibility of not being able to itemized be your leading decision maker. Life is funny like that.

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