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Retirement Envy

November 3, 2008 – 8:03 am

Envy is a tough thing to combat, especially if the thing you envy is not completely tangible. A coworker of mine told me last week that he has decided to retire, at the age of 56. I quickly found myself envying him. After all retiring at 56 is still extremely early by most standards, especially considering that a lot of people may have to work until they pass away. It’s also impressive that he and his wife made this decision even given the economic storm we’re experiencing. The only thing I can assume is that this move has been in progress for a while, and perhaps his investments were insulated from the recent stock market issues.

This coworker wasn’t a close friend, so I couldn’t ask him any of the detailed questions I wanted to. He did offer up three comments though:

“our investments did well and we’re in a position where we can retire”
“well, we didn’t have any kids which helped”
“I’m going to retire while I’m still healthy enough to enjoy it”

My dad used to say that retirement didn’t make much sense. He though that people shouldn’t have to work (much) until age 30, and then they should work until they passed away. I like my coworkers thought that you should retire, if possible, when you’re still healthy enough to enjoy it. This could mean sacrifices and less “luxuries” like fancy vacations or big homes. The flip side is that you’ll be healthy enough to run around, exercise outside, and play with the grand kids in your (smaller) home.

I also realized upon further reflection that kids are definately going to replace my goal fo an early (possible) retirement. I’m a little bitter about that, because I’m very selfish by nature. [begin pity party] I’ve been working hard to save and invest for a decade and now two little (probably crying) humans are going to slow down our plan. [end pity party.] I’m willing to give up this goal, or at a minimum set new more realistic goals now that my family will be doubling. We can’t take it with us anyway, so much like Bob over at ChristianPF.com I’m not sure that “retiring” may be in the plan at all. I will still plan and save for the future, but my future is going to change is ways I can’t comprehend in the next 9 months (read: 15,000 diapers between birth and potty-training for twins), and I doubt I’ll ever come home and think about how I wish I had given up having kids.

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Posted in behavior, family | 3 Comments »

Are DFA Mutual Funds Worth it?

October 30, 2008 – 5:44 am

Dimensional Fund Adviser is a mutual fund company that has been getting quite a bit of press these last few years. My synopsis is that DFA offers institutional index funds and offers a wide variety of them. The downside, however, is that you need to work with a financial adviser to gain access to these funds in most cases (unless you are lucky enough to have access to this funds in your 401k).

I understand the thinking behind DFA’s stance as well. They want long-term investors, and having a financial adviser will help ensure that fund owners (clients) don’t overreact if the market takes a tumble. Lower turnover means lower expenses, which benefit all shareholders. The financial advisers that have access to these funds are not DFA-specific professionals. I would be interested to know what kind of financial affiliation they do have with DFA, meaning that I wonder how they are compensated. The good news is that DFA funds are no-load to my knowledge, and at least you know that a financial adviser that works with DFA is at least willing to recommend index funds (these advisers, I can only assume, are all fee-only advisers).

My problem, however, is that I don’t liked being “forced” to use a financial adviser just to access these funds. Although I’m sure a good financial adviser is worth their fee, I don’t personally want to pay the fee for such services (which can range from 1-2% of assets I’m told). I don’t see why DFA can’t institute some painful early redemption penalties if investors don’t follow their guidelines. How about a 5% or 10% penalty for share held less than five years for example? It seems like they could figure out some kind of guidelines that would allow small investors like me access to these funds.

I also wonder how much better these funds are versus a do-it-yourself Vanguard or low-cost ETF portfolio. I know DFA takes a science-based research approach, and it seems reasonable to believe that by trying to reduce turnover they are able to gain noticeable fund operating efficiencies (and these efficiencies would not be visible in the “expense ratio” of a fund). As we know, however, expenses count. And I’m not convinced that the additional expense is worth the added value.

If I was looking for a fee-only financial adviser I would at least consider one that had access to DFA funds. What’s your take though? Are DFA funds worth the added expense of using a fee-only financial planner? Could it be worth it for even a small part of your portfolio?

One lower-cost alternative I’ve found, if you’re interested, is AssetBuilder.com. AssetBuilder will give you access to DFA funds for a management fee of 0.5% to 0.25% (depending on invested assets). Currently they’re only accepting new accounts of $50,000 which is very high in my opinion, but it might be an option for some. Some 529 plans have access to DFA funds, including at least one plan from West Virginia.

Have any of you worked through a registered adviser to have access to DFA funds? Do you think it is worth it?

Image Credit: aymlis

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Posted in Index Funds, Investing | 5 Comments »

Preparations To Become A One-Income Family

October 28, 2008 – 5:20 am

With my wifey pregnant, it’s time to prepare for her income to disappear. We agreed and worked our best to engineer our lives around this coming change, and it has made all the difference.

I’ve harped on this before, but I hate fixed costs. All on-going payments bug me, because it effectively raises our family financial run-rate forever. Some of these expenses can be cut if necessary (like telephone, cable, a Netflix membership, ect), but others are difficult. Moving to a smaller home, for example, would be very costly, especially in an inopportune time (like now for me). And who wants to move with a pregnant wife? She’s tired all the time already!

Here’s my list of recommended actions:

Agree on who will stay home with the kiddo(s). I’d love to stay home with the kids, but I’m sure it’s less work for me to just keep my day job!
Figure out what the new stay-at-home spouse was really earning. This will help you decide if your spouse should ever consider going back to work. You many find that they weren’t earning that much after taking taxes, job expenses, tolls, and gas into account.
Agree on any shifts in responsibilities. Most stay at home parents function as chief family officers, and as such do a large number of tasks. Will that person take over managing the budget, buying groceries, planning vacations? This is not a recommendation to dump all the family responsibilities on the stay at home spouse though!
Decide if your stay-at-home spouse will return to work when the kids enter school. My goal, in agreement with my wife, would be to engineer our life so that she won’t HAVE to return to work. If she choose to, great. If not, no major deal.
Create a budget based on just the remaining income. We’ve been doing this for about 1/2 a year, and I am now confident that we can make ends meet on just my current income. I have my wife’s pay deposited in a completely separate account, so I’m absolutely 100% sure that we’re not spending any of that money. If you really want to go the extra mile on this step you might consider doing an emergency or worst-case budget just in case you lose your job or have to take a lower paying job.
Discuss what’s really important and what could be potentially cut. My wife has wanted to be a stay at home mother her entire life. She would be willing to go to any extreme to accomplish this, including moving, living on a much lower income, dropping down to a one-car family, etc. Boy do I love this woman! That takes pressure off of me, and allows me to work hard and try to provide her with these “extras.”

Did I miss anything you would recommend?

Do any of you have other suggestions?

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Posted in family | 9 Comments »

Feeling The Need To Spend

October 27, 2008 – 5:32 am

I don’t know why, but immediately after I found out that I would not be laid off I suddenly had the desire to go spend some money. It’s true that my wife and I put off a few purchases until my future employment was a bit more certain. Some of these things my wife clearly knew about, and others she probably didn’t. She reads this blog though now that I signed her up for an email subscription, so I guess she’ll know the full list now!

Items that I’ve been waiting to purchase:

a new computer. Actually it doesn’t have to be brand new, but from searching craigslist and ebay for a few months it appears that I can buy a new version of what I need/want for the same amount as a used computer. This is caused mostly by the fact that a lot used computers come with a bunch of stuff I don’t need, like monitors, installed operating systems, etc. I’ve been bringing my work laptop home for a while now and I don’t mind doing that, but it would be nice to have a computer at home all the time that I could use. Cost: $300.
a new watch for my wife. Her last one had a crack in the watch face. It only cost $15 or so (my wife never likes the expensive watches…boy is she a keeper!). Perhaps I’ll take her out this weekend and get her a new “expensive” $25 watch.
food containers. My wife and I pack our lunches every day. I eat 3-4 small meals throughout the day at work (not counting the 2 I eat before and after work at home). My wife used to eat just a single meal at work, but now that she’s pregnant with twins she needs 3 meals a day at work too. This has increased the need for more plastic containers. Cost: ~$30.
My car needs an oil change. Although it’s a bit illogical that I postponed doing this for a couple weeks, it still seemed like delaying the outflow of money made sense. Cost: ~$30. I know I could change the oil myself for less, but I don’t really have the space to do it (my driveway slopes quite a bit), and since my car is pretty old (1990) I like having the dealership look the car over a few times a year.

All in we’re looking at a few hundred dollars. Nothing too crazy, but I’ll probably wait a while on the computer until these uneasy feelings subside a bit.

Image Credit: Simon Davison

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