The New Retirement

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I recently had the chance to chat with Todd Tresidder.  If you don’t know the name, don’t worry.  Up until about a year ago, I didn’t either.  But, the short of it is that the guy is retired.  In fact, he retired much earlier than most will.  At the ripe “old” age of 35, he retired.  Which must mean he’s off golfing around in the Arizona heat, right?  Or down, sipping OJ at some southern Florida retirement village?  Not likely.

Todd is retired in the sense that he doesn’t report to a boss.  He does what he wants, when he wants to.  One of the things that he wants to do is write books that help people like you and I become better financially.  He’s got several that he’s written so far, and I’m sure he’s working on more.  During that first meeting, Todd and I spoke for a while on retirement.  Speaking with another financially minded person, I usually expect to hear people talk about 401(k)s, IRAs, and stock purchasing.  I don’t discount those tools, but I just don’t feel that, like Social Security, you should be depending on them for your whole retirement.  Surprisingly, Todd agrees.  The longer we spoke, the more we found that we agreed on.  At the end of our conversations, Todd offered me a copy of his book on retirement. I accepted.

How Much Money do I need to retireLong story short, I finally read it.  It took me a while, but I’m glad I got around to it.

If there’s anything that stands out about the book, is that Todd knows what he’s talking about.  He’s got the experience behind him to talk about the subject in an informed and educational manner, and technically, probably knows more about some of his subject matter than I ever will.  He spends the first several chapters of the book dispelling a few myths about retirement, and about the way in which most people tend to think about it.  He then takes off on a few chapters of some of the math and logic behind the different ways of calculating your retirement needs, and calculating that mythical “number” that everyone seems to be seeking out that will indicate that they’ve saved all that they need to save for retirement.  Not only does that one perfect number not exist, he argues, but the calculations that we make to arrive at it are completely flawed.

The rest of the book is focused on what I like to call the New Retirement.  He goes into detail on the ways to properly estimate your income needs for the future, and then into ways that he believes (and I agree) that a properly diversified retirement “portfolio” should be structured.  I don’t want to spoil too much of the book so I won’t say much more.  What I will say is that the book isn’t terribly long.  It’s not a deeply structured manual on all the different retirement accounts.  And it’s not terribly expensive.  It’s $4.99 on the Kindle (free for Prime members), and about $10 in paperback.

Pick up a copy of How Much Money do I need to Retire at Amazon.  You can check out Todd’s site as well as the other books he’s written at FinancialMentor.com.

 

Embrace Peer to Peer Lending

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Imagine it is Monday morning. You just had a great Sunday with your family, doing chores around the house and watching a movie together. But now you are back in the literal driver’s seat, and on the drive to work your mind begins to wander, cataloging the day’s tasks.

And then the urge hits you, that tempting nagging gently haunting concern about your retirement account. “Has it gone up?,” you think to yourself. “Oh no, maybe it is down.” You know it really makes no difference, but you realize you have not checked the mutual fund you are invested in within the last three days. You know things are probably fine, but you can’t help but wonder. After all, you and your spouse’s well-being for the next forty years is wrapped up in those tiny digits on your browser screen.

You sigh, wishing there were another way to do this whole investment thing.

The Toll of Volatility

The headache in the first section is the price we pay for trusting our future in the US markets. This is because the market contains what investors call volatility; it can dramatically rise and fall within hours or minutes of breaking news. The supposed benefit of this volatility is that, in theory, things eventually become more steady. Millions of people trust these markets to give them an eventual positive return on their investment. “Give the market patience,” common wisdom says. “Trust your hard earned savings 30 years at a time.”

Then you turn on the evening news and watch channels like NBC Nightly News devote weighty portions of their show to how the market is faring. “The DOW rose/fell today by 1.4%…”, a report will start. Why do they talk about it every day if long term returns are all we should focus on? Because of volatility; because they lack trust. The 2007-2008 financial crisis five years ago was the largest since the great depression, even causing something as steady as copper to rise and fall like a ship in a storm.

Copper Price History

[source: Wikimedia Commons]

When looking at the graphic above (the price of Copper over the past 25 years), it is no wonder that people struggle with checking their retirement fund throughout the week!

The Peace of Peer to Peer Lending

There are many non-volatile ways to invest outside the US markets, and peer to peer lending is one of these. Instead of being tied to the global market, rising and falling on a whim, peer to peer lending returns just steadily trickle in throughout the day.

Of course there remain some risks. Some have lost money. But if a lender remains diversified in at least 200 peer to peer loans, there is an extremely low chance they will experience a negative return. In a study I did in February, only four diversified peer to peer lenders out of 3800 have lost money on Prosper.com.

In contrast, you can bump up your returns by using savvy filters on the available loan pool. Examples of good filters to use target borrowers with are:

  • No past bankruptcies
  • 10+ years of credit history
  • 5+ years of consistent employment
  • 10+ total credit lines on their report.

Lenders who compile a diversified peer to peer lending portfolio out of borrowers like these experience much less volatility than investing in the stock market.

My Experience

I used to be like those folks who was tempted to daily check the status of my retirement mutual fund. Articles kept telling me not to, but I could barely help myself. Checking my account was like a financial version of pornography; it was a need that could not be satisfied.

Then I discovered peer to peer lending. Since then, I found the emotional ease I had been looking for. I am diversified in 200+ notes across both Lending Club and Prosper, so I worry little about the state of my accounts. My returns are refreshingly boring in contrast to the US stock market: they neither rise nor fall by the day, staying at a healthy 13% or more every single day of the year.

Yesterday was Monday, and (against my better judgment) I logged into my peer to peer lending accounts to see how things were faring.

Nothing had changed. I closed my browser window and called my Mom.

Why I’m Withdrawing Money from an IRA

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I’ve been going back and forth with myself over whether I should write a post about how I am withdrawing money from an IRA.  It’s not something that is recommended, and certainly not something that most people who write personal finance blogs talks about.  In fact, it’s somewhat embarrassing that I am doing it at all.  And, I had decided that I might not talk about it.  Until I saw this post on my friend Sandy’s blog, Yes, I am Cheap.  For those of you who won’t click through the link, I’ll give you the quick rundown.  One of Sandy’s readers lost her job a while back.  Since then, the reader has used all of her savings to pay bills, and her unemployment status is in a sort of limbo.  The reader has 21k in her 401(k), and she asked if she should take that money out to help pay the bills until she can find work.

What that post did for me, and the reason that I’m writing this post, is remind me that I’m not an island in the personal finance ocean.  When I started this blog, I didn’t have a 401(k), or really even know what one was.  I was up to my eyeballs in debt, and contemplating bankruptcy.  As I searched the internet for information about that and other personal finance related topics, I decided that I wanted to share what I was learning, in an effort to help others who might be in a similar situation.  Sometimes, when writing post after post, here, I forget that I’m not the only one who has the same questions, or who is in the same situation.  There are other people who’s circumstances might make them cringe when bills show up at the door.  It’s for those people that I write here and share here.  And it’s for those people that I am writing this post.  I think this may be the longest introduction to a post I’ve ever written. :)  Let’s get on with it, shall we?

Withdrawing money from an IRAThose of you who are regular readers will recall that I quit my job in November of 2011.  It was a decision that I had been coming to  for many months, and a decision whose timetable was advanced by several situations at that job.  All of those situations made it very unhealthy for me to be there anymore.  So, I quit.  I didn’t do much planning, and hadn’t done much saving.  I had to quickly cancel the mortgage paperwork we had been trying to push through as we wouldn’t be able to afford the house we had been planning to buy.  All in all, it wasn’t the greatest idea, financially.  Emotionally and mentally, it was the best idea I’d had in a long time.

Why I needed to withdraw from an IRA

I then spent about 7 months working part time while trying to rapidly build my blogs, here and elsewhere, to a point where they might sustain my without having to get another full time job.  I didn’t succeed.  And I ran out of savings about a week and a half after I had taken a new full time job.  It’s a good job, and I enjoy it quite a bit.  But, it doesn’t pay nearly as much as my other job had.  When I started there, our finances were still bleeding.  They continued to as we continued to try and make ends meet.

Sometime last fall, it became apparent that the ends were going to begin to not meet.  If you’ve ever been there, you know that looking forward to a month where you might have to decide which bills to go delinquent on isn’t a very comfortable spot to be in.  It became very apparent, after several hours going over our budget, that we had a cash flow issue.  Too much going out, not enough going in.  The problem wasn’t with discretionary spending, however, although we did find some places to cut there too.  The problem was that we had too many payments taking up too much money.  If we wanted to survive, financially, we needed to find a cash flow solution.

I should say that it wasn’t an easy decision to tap into my IRA.  At  the time, I’d only recently rolled my 401(k) from my old job into it, so I’d just taken a hit by doing that.  But, I needed a way to create some cash flow, and an infusion of money would do it.  So, I called my adviser and had him issue a check for the amount I needed.

It’s my money.

There will surely be a few naysayers who come upon this post.  Most of them will tell me (and you) that what I did was a terrible thing to do.  That I’ve permanently set myself back for retirement, and that there had to be other ways to accomplish the same thing.  But, there weren’t.  Trust me when I say that I know my finances.

Yes, it will set my retirement saving back by quite a bit.  Yes, I’ll have to save more in the future to achieve any sort of retirement nest egg.  I know all that.  But, I feel that remaining current on my bills, and not having to potentially declare bankruptcy is more important than that.

There’s also a rebellious part of me that would like to just say that it’s my money and I’ll do with it what I want. ;)  In all honesty, it is my money.  Just so much as the money in your IRA or 401(k) is your money.  And, in my opinion, our money is only worth anything when it is improving our situation.  My situation needed improving now, not in 40 years.  (not that it likely won’t need improving then too)

Using the withdrawal from my IRA

For those of you who are thinking to yourselves that if I made a withdrawal from my IRA, it’s ok for you to do it too, just stop.  This was a last ditch effort to stop us from going into delinquency on several accounts.  Would it have bankrupted us eventually?  Maybe.  I’ll never know, and I didn’t want to find out.  But, what I will tell you is it took a good deal of thought to make the decision, and it took a good deal of determination to use the money properly when I did get it.

When the check arrived, I cashed it and went to the casino.

Just kidding!  Ya’ll were looking so dang serious!  I deposited it.  Directly into our checking account.  During the decision process, I’d taken a full audit of our bills each month and determined the ones we would need to, and could, eliminate in order to get ourselves back on the right track.  So, even before I asked for the withdrawal from my IRA, I had a list of the things that I was going to pay off.  Over the next several weeks, as those bills came in, I send them payment in full.  Until all but one of them was completely paid off.  The one remaining was a bonus bill.  I didn’t have enough to pay it off in full, but was hoping that I could get them to negotiate the amount down.  I wasn’t able to.  So we still have that payment.  But, once it was done, we eliminated several hundred dollars worth of monthly payments.  More importantly, we cut our monthly payments by enough that we have enough each month to pay the remaining bills while still having enough left over to pay a bit extra. We’re on the right track again, and making strides to keep it that way.

Would you withdraw from your IRA?

There are only a handful of reasons that most people will tell you that making a withdrawal from an IRA is a good idea.  Most of them involve exemptions from the tax penalty.  Would you ever take a withdrawal from your IRA?  In my situation?  In any situation?