Some Blog Site

Not too long ago, I posted this article about someone’s trying to convince me that it would be to my advantage to reduce my 401k contributions and increase my Roth IRA contributions by the same amount. Since then, I have put together a handy-dandy online calculator to compare the scenario for me.  You can click the link in that previous sentence or use the link in the sidebar to the right, under the Pages category.

The goal of the calculator was to show that there is really no difference to me. And it does show that. The amount I have at retirement is the same regardless of the mixture. I will pay slightly more in taxes in the one case, but it does not affect my bottom line.  The key is that in having more in the pre-tax 401k, I will have more take-home pay, which means that I can contribute that extra to a Roth.  Feel free to put various scenarios and situations into the calculator and see how much the mixture of 401(k) and Roth matters.

The real problem with reducing my 401k contribution is that I know I will not be as diligent in saving the money for a Roth IRA as I am with the 401k, since the 401k is done automatically by payroll before I ever see the money.

“Behold, I send you out as sheep in the midst of wolves; so be shrewd as serpents and innocent as doves.”
– Matthew 10:16

Brett Favre has retired, officially. I, as did much of America, liked his perseverance and personality. There has been much speculation over the last couple of years when he will retire, and it looks like this is the year. I am glad he had a good 2007 season, especially when compared to the previous season. I am glad he holds a number of records, and I hope he gets to keep most of them for a while.

But one thing I ask: please stay retired! Do not come back to football as a player. Do not pull a Michael Jordan. Do consider the retirement attitude of Sandy Koufax. Take up a hobby or a different job – golfing, running a charity, being a play-by-play or color commentator, mentoring children, etc. There are so many things you could do. You’ve had a nice run, but give someone else a chance to be the Packers’ quarterback. Try something other than being a quarterback. I know that has been all you’ve ever known or done, but expand your horizons.

“Whatever you do, do your work heartily, as for the Lord rather than for men”
– Colossians 3:23

When you have children, make sure they are born in the spring.   Then you’ll avoid any problems and decisions about whether to start them in school early or hold them back and start them late.  My wife and I are trying to decide what to do regarding sending our son to kindergarten. Do we send him now? Should we hold him back a year?

I enjoyed high school, and I think I missed some trouble because I was on the young side – being naive has its advantages.   On the other hand, I don’t know if I may have enjoyed school better being older.

If we start our child in kindergarten now, then he will be four when he starts but he will turn five a couple of weeks later.  That seems to be the right track, but then he will be only 16 when he starts his senior year, and that seems too young.  On the other hand, he seems ready for school and has almost completed a year of pre-school.

If we wait a year, we can always supplement his schooling and teach him things at home, ahead of his school schedule.  If we start him now and he turns out to be not ready, what are our options? Either he struggles through school or we hold him back a year.  What will be the worse option for a child: having to repeat a grade or being a grade ahead in some subjects?  From the child’s point of view, those choices are: am I not good enough or am I smart?  How would you rather have your child feel about himself?

“Give {instruction} to a wise man and he will be still wiser, Teach a righteous man and he will increase {his} learning. ”
 – Proverbs 9:9

The worst flavored food in recent memory was a sandwich that I made one day.

I wanted to make a ham-and-swiss-with-mayo like I usually do, but we were out of the normal wheat bread.  I looked around and put the ham, swiss cheese, and mayonnaise on the only bread I could find – cinnamon and raisin bread with icing.  I tried to eat the sandwich, but I couldn’t make it more than a few bites.

I saw a list of the worst possible ice cream flavors a while back, but the only one I can remember is “wet dog flavor”.  Also, Marmite has a very bad flavor, but they are aware of that and have put together some recipes which may help mask the taste of the Marmite itself.

Also, if you ever see a menu item called “chicken teriyucky“, don’t order it.

Ten Reasons Why Cats are Better Than Dogs

1. Cats do not jump up and put their muddy paws on me.
2. Cats do not try to lick me.
3. Noisy neighborhood cats do not wake me up.
4. Homeowners insurance questionnaires don’t ask you if you have a cat.
5. Cats can catch their own food and feed themselves.
6. Cats do not put their noses in inappropriate places.
7. You can leave a cat for the weekend.
8. If someone’s large cat starts chasing me when I’m out for a jog, I do not have to worry.
9. Cats can take care of their own potty needs – no need for you to let them outside.
10. “Wet cat” is not that bad a smell.

“Do not give what is holy to dogs, and do not throw your pearls before swine, or they will trample them under their feet, and turn and tear you to pieces.”
– Matthew 7:6

I had a meeting with a personal financial representative and he told me I was saving too much money in my 401(k).

His recommendation to me was to contribute only the minimum amount necessary to get all available company matching for the 401(k) then take the difference from my now extra take-home pay and put it into a Roth IRA. The reason was to pay less in taxes. His question was “Would you rather pay taxes on small contributions or on the large sum that you’ll have in retirement?”

Here is an example to show how it works. Note that the numbers used are general figures.

Round numbers: Someone make $50,000 a year. He contributes 7% of his salary, making that $3500 a year. $3500 invested for 40 years at an average return of 10% = $1,700,000. Isn’t compound interest great?

Now he contributes 3% of his salary, making that $1500 a year. This hypothetical individual wants to keep some money going into his 401k in order to get his company’s matching contributions.  He takes the extra $2000 after taxes and puts it into a Roth IRA. His total investment over 40 years is going to be the same, $3500 a year for 40 years.

But the tax amount is what differs. His total return in the first part was $1,700,000. That is not going to be taxed until he retires, so he’ll pay 15% on $1,700,000 (assume he drops down one tax bracket in retirement). Total taxes = $255,000 at a minimum (his funds would continue to grow during his retirement, but this is a simple example).

His taxes in the second part are going to be 25% of $2000 a year, or $500. $500 for 40 years equals $20,000. After he retires, his Roth IRA withdrawals are tax-free.  “So,” the representative said after showing me a fancy graph, “would you rather pay the government $20,000 or over 10 times that?”

If one’s goal is to help fund the government, then one can keep maxing out one’s 401k. For the other strategy to work, one need to be disciplined enough to fund the Roth IRA one’s self. The other question is this: would the government rather have a little money now or a lot of money later?

If the government compounds $500 a year for 40 years at a 10% rate, it would end up with $243,000, which is pretty close to what it would get later. So at the end of it all, it would seem to be a wash: the government could end up with $250,000 either way. But one way, the individual pays the entire amount; whereas the other way, the government has to invest a smaller amount and earn the full amount.

To see how much he has at retirement, he could take the $1.7 million and subtract taxes from the 401k withdrawals. In the first case, the withdrawals would have taxes of at least $255,000. In the second case, he has to see how much of the $1.7 million comes from the 401k and subtract those taxes. He could also see how much extra taxes he would pay because his take-home pay is larger going with a Roth IRA. So if he went with a full 401k and invested the extra take-home pay in a Roth, what would be the effect of that?

The advisor’s point was that I should reduce my 401k contributions and do more with my Roth IRA. His motivation behind compelling me to do that was mostly because he had some mutual funds that would be just right for my Roth IRA, I think. In case you are wondering how things ended: I did not move any of my 401k into his mutual funds.

The example was a little simple, as it does not take it to account a lot of factors: the higher take-home pay due to reduced 401k contributions will result in higher income tax, maybe I would rather have $500 a year now at the expense of future money, will Roth IRA rules change in the future?, how much would inflation cause that $225,000 tax bill to be in today’s dollars?, etc.

How much should you put into your 401k?  How much should you put into a Roth IRA?  I don’t know.  I am not a financial advisor nor do I play one on TV. Any information on this site is general in nature and is not intended to be financial advice for your specific situation. I recommend that you discuss any tax, investing, or other financial items with a professional advisor.

“Know well the condition of your flocks, {And} pay attention to your herds; For riches are not forever, Nor does a crown {endure} to all generations.”
– Proverbs 27:23-24

A while back I had an interesting traffic situation. I was attempting to leave a shopping area. There was one car in front of me, sitting at the stop sign.  Just when traffic was about to clear, allowing us to enter the road, the driver put his car in park and got out. He then crossed to the far side of the driveway, went partway down the drainage ditch, and picked up an empty can.

It took him about 15 seconds to get the can and return. And 15 seconds of idling would waste about 1/1200 of a gallon (at a rate of 1/10 of a gallon per 30 minutes).

At $3.00 a gallon, 15 seconds of idling burns about a quarter of a penny.  The shopping center was in the state of Michigan, which gives you 10 cents for eligible can returns. So the guy did not waste that much money by idling his car – in fact he came out 9.75 cents ahead.

And 9.75 cents per 15 seconds of work translates to 39 cents a minute or 23.4 dollars an hour, not a bad rate. But there is no way he would be able to collect cans at a sustained rate of 1 can every 15 seconds, at least not by driving along the road and stopping for recyclables.

These calculations do not take into account the extra idling required because he then missed the traffic window provided by the nearby stoplight. So he and I – and the person behind me – had to wait even longer for traffic to clear. And I did not get any money out of it, so it was not worth my time.

It is one thing to stop and pick up cans. It is another to block traffic to do so. If you’re going to stop your car, please make sure you are not in anyone’s way.  And if you are stuck behind someone, do give them the benefit of the doubt

“If it is possible, as far as it depends on you, live at peace with everyone.”
– Romans 12:18