Tuesday, September 30, 2008

(Guest Post): Missing Out on The Tax Benefits of Retirement Savings

This is a guest post from LAL at "Living Almost Large." LAL is a twenty-something woman in a dual income no kid (DINK) household. As a scientist, she enjoys blogging about finances after hours and looks forward to one day having enough money to do what she really yearns, be her own boss. I wish her luck and hope she gets to own that book store she referenced in her original post or find enjoyment elsewhere.

Many people talk about saving for retirement. Yet I have found very few people actually maximize their retirement contributions. What does that mean? It means very few people actually contribute $15,500 to a 401k annually or $20,500 to a Roth 401k, as well as $5000 to a Roth, Traditional, or Non-deductible IRA.

Instead I hear from a lot of people, I am saving for retirement 10% or 15% and now I want to pay off my mortgage. I think it’s a huge shame! I mean it’s great, but do you realize that once you pay off your mortgage you cannot go back and stuff money into your IRA or 401k for previous years contributions? This is an opportunity that can never be regained. You only have one year to make your contributions to a retirement plan and you cannot contribute after the deadline passes. But they forget about the tax benefits of investing in a retirement plan.

If you invest in a Roth IRA, you can draw out the earnings tax free when you retire. No other plan gives you that benefit. But what if you don’t qualify? Then you should contribute to a non-deductible IRA still. Why? For a couple of reasons, the earnings are tax deferred until you withdraw them similar to a 401k. And while not tax deductible it is tax sheltered.

As for investing the maximum into a 401k, why should you do it? Well you have a 6% mortgage, but you are saving off the top 15% at a minimum on taxes, more likely 25% +! How can you compare paying 6% interest to saving 15% in taxes? That’s a 9% immediate gain, not to mention your mortgage is tax deductible! Personally my DH contributes the maximum annually to a 401k because it saves us 25% federal taxes and 6% in state income taxes. That’s 31%! Yes when we retire, who knows what the tax rates will be, but what if we live in a state without income tax? Or rules changes? Or we draw from our 401k only up until the 15% federal tax bracket and then we use our Roth IRAs? There are many scenarios, but given a chance I’d rather avoid taxes that I know I will occur. So, for these reasons, try to maximize your retirement savings annually. It’s the best return on your money.

Here's a link to the fabulous site "Living Almost Large."

Monday, September 29, 2008

What Else Could $700 Billion Buy / Do?

Would you like to know what $700 billion could buy / do? Here you go:

My calculations:
(1.) Replace 11.7% of U.S. electricity demand with windmill power (Straight line approximation using T Boone Pickens Plan numbers).
(2.) Put $162,224 in the piggy bank of every 2007 U.S. born child.
(3.) Put $2,333 into every adults' pocket or kids' piggy bank (300 million U.S. population).

According to CNNfn.com
(4.) Pay for 44% of the projected 5 year bill required to get our U.S. infrastructure up to a "good" material condition, according to American Society of Civil Engineers.
(5.) Put nearly 9 million college students through state University.
(6.) 10 years of Universal Health Care under Obama's Health Care plan.
(7.) Buy nearly 3.5 million homes outright, that's more homes than are currently in default.

According to SunSentinel.com
(8.) One Rolex watch for every woman in the U.S.
(9.) Seven MAC laptops for every school-aged child in the U.S.
(10.) A years supply of gasoline for every adult in U.S.

Sunday, September 28, 2008

Conditions Favorable For $700 Billion Financial Bail Out Plan (Latest Plan Details)

Yes, yes. I know DC doesn't like calling it a bail out. I insist. Here's the latest plan details for the $700 billion:

(1.) $250 billion issued when legislation passed
(2.) $100 billion disbursed only on president's discretion
(3.) $350 billion subject to congressional review

Other details:
(4.) Institutions would issue stock warrants to the U.S. government when selling it its distressed assets.
(5.) Multimillion golden parachutes not allowed to execs. However salary limits unclear if execs remain in position.
(6.) Govt would be able to buy distressed assets held by pension plans, local govts and small banks.
(7.) Oversight board in place.
(8.) As owner of distressed securities, the government can force renegotiated mortgage terms to assist struggling mortgage holders.

You can read the full 110 page plan here.

Saving Energy Around the House: Best Investments for $250

Mary Breckenridge of the Akron Beach Journal writes a good article ranking the best ways to save money on energy costs around the house. All methods cost less that $250 combined.

(1.) Programmable Thermostate: ~$35
(2.) Sealants: ~$42
(3.) Fluorescent Bulbs: ~$30
(4.) Landscaping: $75-150

Here's her article.

Saturday, September 27, 2008

It's a Really Bad Sign When Even Banks Can't Secure a Loan

This article is a good read if you're for the $700B bail out of wall street. It appears to be written in the stance to amplify concern over the freezing of our economy and the flow of funds between banks.

A few of the interesting bullets:

If the state of California were to try to issue a 20-year bond now, it would have to pay an annualized interest rate of about 5.4%, up from 4.84% just two weeks ago.

As for mortgages, Wells Fargo & Co. this week was charging 9.25% for "jumbo" 30-year loans -- those larger than about $730,000.

You can read the rest of the article here.

In Fond Memory of Paul Newman

Anybody that has viewed my profile since 2006 would have seen that my favorite movie is "Cool Hand Luke."

In Cool Hand Luke, Paul Newman portrays Lucas Jackson, an iconic film anti-hero, in this classic film. Luke seems to have wandered aimlessly after winning several medals in WWII, and in the beginning of the film he's arrested for "maliciously destroying municipal property" - using a pipe cutter to cut the heads off of parking meters. (Movie summary from Amazon Cool Hand Luke DVD review)

I just had to take a moment out of my day to post this... I'm getting back to work now on a guest post i'm preparing for the personal finance site Living Almost Large.

Some Weekend Humor: Terry Tate Office Linebacker

Tomorrow is NFL Sunday! This YouTube video is remotely related to my site's content if you consider the video as a tool for promoting office productivity.

It took me a long time to find this clean version. Gotta keep it clean for one of my best fans... Hi Grandma

Friday, September 26, 2008

Allow Wal-Mart to Buy Out a Troubled Bank

Well, Congress has allowed Goldman Sachs (GS) and Morgan Stanley (MS) to convert to a Bank. Why not allow Wal-Mart to buy the next set of troubled banks?

In my opinion, allowing Goldman Sachs and Morgan Stanley to convert to a bank is far worse that Wal-Mart (WMT) entering the sector.

Fundamentally, why was General Electric allowed to enter the financial services sector and
Walmart be exluded? I know the two companies are in different primary sectors (industrial vs. retail), but how much difference does that make?

Opinion on The $700B Bailout? Call Your Congressional & Senate Representatives Via These Phone Numbers

If you are for or against the $700 billion bail out of Wall Street, follow this link for the switchboard phone numbers of Congress, Senate and White House. Give your representatives a phone call and let them know how you feel.

My opinion:
I'm for shoring up the CUNA and FDIC insurance funds. I'm not for bailing out the corporations that were fiscally irresponsible. Why throw money at companies that didn't manage money well in the first place? My only question would be how much more costly, if so, would it be to shore up CUNA and FDIC as compared to bailing out Wall Street?

Thursday, September 25, 2008

Payday Loans: Loans That Just Don't Pay to Get

Here's a great article about Payday loans from a Navy Knowledge Online posting of a Lieutenant Nuzzo. This is essentially Nuzzo's article verbatim with exception to the removal of several phone numbers. This article is useful to non-military also.

Payday loans. Cash advance loans. Deferred-deposit check loans. Postdated check loans. Within miles outside the gates of any military installation you are sure to find institutions making these offers to service members who they know will some day look for a quick answer to their financial woes.

But quick convenience often comes at a long-term price.

The search for such quick loans can, and often does, lead to spiraling problems that end up with a visit to the Legal Service Office, a financial consultant, or worse. In addition to all the credit related problems faced in the civilian world, service members must also consider the impact of their financial responsibility on their careers. Creditors might seek to involve a command, obtain a garnishment of wages or other practices that may eventually cause the loss of a required security clearance.

And these are just a few of the considerations.

The good news is that these problems can be avoided when you, the consumer, educate yourself and plan for unforeseen pitfalls that lie ahead.

Legitimately run pawnshops, check cashers, convenience stores and even some Internet companies offer a variety of loans that can go by a variety of names, but which all work in essentially the same way. Typically, a borrower will write a personal check payable to a lender for which they receive cash. The amount of the check is normally for the amount the borrower receives, plus a lending fee. From here the process can work in a variety of ways. Some lenders may hold the check until the member’s payday and then automatically deposit it. Other lenders may require the borrower to return to pay them - in cash - an amount equal to the total, in exchange for the check.

Lenders always allow borrowers to extend their pay off time by “rolling over” the loan. This is a huge benefit to the lender because they merely extend the amount of time in which the loan can be paid off in exchange for another lending fee. Essentially, the lender makes more money off the borrower without taking on any more risk by lending more money out. This way the lender gets more money for doing nothing more than it already had done. The rollover is invariably a very profitable win-win situation for the lender.

Let’s consider a brief example of this process in action: A borrower needs to borrow an amount, let’s say $100.00. An average finance charge payday loan lenders charge for a two-week loan on this amount is around $15.00. When this amount is converted into an annual percentage rate (APR), this loan is being given at a staggering 391% rate. Compare this to the rates of 7 to 20 percent consumers find with most credit cards (even high interest rate ones). Now, if the consumer rolls over the amount for just one period, the finance fee doubles. Borrowers can quickly find themselves facing 400%, 500% or even 1,000% APRs on the amounts they borrow. Put another way, rolling over this finance charge just three times in just over one month’s time –six weeks – would cost a borrower $60 to borrow the $100.00.

Couple these interest rates with bounced check fees and other penalties that both the lender and your financial institution can charge, and the potential costs of payday loans really start adding up. Additionally, lenders normally threaten late borrowers with criminal prosecution for writing bad, or “hot,” checks, which they may legally pursue even if they knew you wouldn’t be able to repay the money when they lent it to you. Often, a borrower will find themselves getting sucked into the quicksand of rolling over their loans and fighting just to pay the loan fees.

There are several practical ways to combat the payday loan problem, and everyone can do it.

- Shop for the credit you accept. Research potential lenders through the Better Business Bureau online (www.bbb.org) to see what their consumer track record is like. Pay close attention to APRs. While a percentage point or two does not seem like a lot of money, over the long term it adds up to hundreds, if not thousands of dollars. For example, a five year loan of $5,000 at 9.5% racks up $1,300.56 in interest over the life of the loan. The same loan at 7.9% accrues on $1,068.57 in interest, a savings of nearly $250. Free online interest calculators are available at sites such as www.bankrate.com and other websites.
Also, ask the lender you choose whether there are fees or penalties for early payoffs. These fees can be just as damaging as a high interest rate but remain hidden until you attempt to pay off the loan early.

- Develop a debt repayment plan with a free consumer credit counseling service. Often these programs are available at little or no cost through your bank, credit union or housing authority. Consumers may find services like this online, too. Be very cautious with what you find on the Internet, though. Don’t jump at the first one or two you come across. Research them. You should be careful in selecting these organizations, as you should be with any company which directly affects your credit.

- Call your existing creditors and ask if they can work with you to lower your payments. Most creditors are willing to discuss making adjusted payments in times of hardship and may do so with a minimal finance charge or possible no cost. You may be surprised to find that a one-month late fee on your credit card is actually less than the interest of a payday loan. Be careful though, some loaning agencies may have an acceleration clause in their contract with you, which would make the entire principal of the debt due immediately if you miss or are late on a payment. Also, some credit card company contracts provide for increased interest rates on credit cards under the same circumstances.

- Consider getting a small loan from a family member or friend. For obvious reasons, you should not be borrowing more money than you can afford to pay back, but this can be a interest and fee-free solution for you in a pinch. When and if you do this, remember that people expect you to honor your commitments in a timely manner. Don’t abuse someone else’s kindness by getting into a situation where you know you can’t repay an amount when you enter into the debt.

- Plan ahead. Start looking for solutions before you get into problems. Put off making a non-essential major purchase for several months if money is tight. Buying something expensive that you cannot afford will likely end with that item being repossessed and you being stuck with a valid debt on some amount a creditor couldn’t raise at a repossession sale. Consider looking into fixing things rather than buying new.

- The Navy/Marine Corps Relief Society makes interest-free loans to service members who can show a particular need. Their representatives can assist you with an application in an emergency, such as a death in the family, unexpected auto repairs or other calamities.

Military service members can contact the NLSO if you have any legal questions about payday loans.

Wednesday, September 24, 2008

Don't Buy Stuff You Cannot Afford (SNL Skit): The Sure-Fire Way to Get Out of Debt

This is a classic Steve Martin / Amy Poehler SNL skit detailing a sure-fire way for people to get out of debt. Enjoy!

Tuesday, September 23, 2008

Cutting Utility Bills With Wood Stove: 3-5 Year Payback Period

Justin Anderson of the Charleston Daily Mail writes a good article about the shift occurring to wood burning stoves. Here's a summary of his article:

People are anticipating the cost of natural gas to go up this winter and are considering wood-burning stoves. In West Virginia alone, the state's seven largest suppliers of natural gas have asked the state Public Service Commission for rate increases ranging from 20 percent to 46 percent. The commission is expected to make a determination on setting a preliminary rate by Nov. 1.

Nationally, wood-burning stove sales are up 54 percent, according to the Hearth, Patio and Barbecue Association.

In homes large enough for a central furnace, installing a wood stove in a frequently occupied room could save up to 40 percent on heating bills, the association estimates. Individual savings will vary, but will principally be determined by how willing the owner is to cut and chop their own wood.

If the homeowner has his or her own supply, a wood stove could pay for itself in about 3 years, If you're buying firewood, then it's about 5 years. Wood stoves start out at around $800.

The article also discusses pellet burning stoves, but the conclusions seem to be mixed on cost savings. If you're trying to keep the calories off and have a decent back, wood burning stoves are the way to go. I grew up using one as a child and split duties with my dad when it came to stoking the fire through the night.

More information on wood and pellet stoves can be found on the Hearth, Patio and Barbecue Association's Web site: http://www.hpba.org/. Justin Anderson's full article can be found here.

Monday, September 22, 2008

Bank of Goldman Sachs... Bank of Morgan Stanley: Both Companies Restructure to Ensure Eligibility for Federal Reserve Assistance

News for Monday morning. We've got two new Big Banks: Bank of Goldman Sachs (GS) and Bank of Morgan Stanley (MS). Here's the article discussing.

Potential Dividend Reinvestment Plan (DRIP) Investment Screening by Morningstar.com

This weekend I ran a stock screen on Morningstar.com. I looked for companies that:

- Scored an "A" in stewardship (highest score for fiscal responsibility)
- Wide economic moat (tough for competitors to enter same market)
- Were rated at 5 stars (Morningstar's highest rating)
- Were available via dividend reinvestment plans (DRIPS)
- Low level of uncertainty about companies fair value (best level based on quality of earnings visibility, predictability of future income).

Here's what my search turned up:

Microsoft Corporation (MSFT), Business Appl, Consider Buying $29.80
Paychex Inc (PAYX), Data Processing, Consider Buying $43.40

MSFT closed Friday at $25.16, 18.4% below the consider buying price
PAYX closed Friday at $32.89, 32% below the consider buying price

From a DRIP investing perspective, PAYX is the only good choice. MSFT charges a whopping $2.5 per transaction plus 10 cents per share. It's smarter to simply use limit orders on a discount brokerage account for MSFT and name your own price. As for PAYX, there are zero fees for cash investments, auto-investments or dividend investments. You can start a PAYX DRIP by going directly to American Stock Transfer and shelling out $250 for an initial investment. $250 to much? Then go to Directinvesting and buy just one share. If you do this, you'll pay a one time commission that is pretty large... You decide.

PAYX has been on my interest list in the past. I don't plan on starting a PAYX DRIP now. I've got over 20 as is. I was merely doing the Morningstar search to see if any of my DRIPS would pass the criteria. My largest DRIP holdings are Exxon Mobil (XOM), Bank of America (BAC), Aflac (AFL), 3M (MMM), Southern Company (SO), Johnson & Johnson (JNJ) and Home Depot (HD).

If you're interested in setting up a DRIP in any of the above companies or a non listed company, you should start at Directinvesting. Use the Directinvesting search tool and find the "agent name" in the company prospectus supplied by Directinvesting. Next, google the named agent and see if you can buy the stock at their site for little to no initial cost. If not, go back to Directinvesting and use them for the initial purchase and transfer to the named agent. Using Directinvesting typically costs $25 - $50 in initial commission. I've used Directinvesting to establish about half of all my DRIPS. I established all the other ones by going directly to the agent used for each company's DRIP administration. Some of the most common Agents used are Computershare, Wells Fargo and New York Mellon.

Aside: I use Morningstar.com for much of my research. I get a free subscription through my employer (U.S. Navy). If you don't want to subscribe to Morningstar, a good alternative is Yahoo Finance.

Sunday, September 21, 2008

Net Worth Unchanged in Last Month

Our household had numerous one time costs as we settled into our new apartment. Additionally, we hosted a lot of out of town company which included some dining out expenses. The final contributor was the manic stock market.

Going forward, i'm forecasting our net worth to increase by $2500 every month. We should also get a nice bump (~$3500) in net worth within the next 45 days since after we get reimbursed by the government for our "do it yourself" military move.

Link Love... Recommended Reads From My Blog Roll

Link love is where a blogger writes about postings on other sites that link back to their site. This is done to show appreciation for other sites doing this. Today I went through my blog roll links and picked a few articles to highlight.

Here's my first link love posting:

Breaking Even: Good guest post about Tutoring on her site. Breaking Even was recently discovered by me this past week. The owner of the site is creative / unique in her postings and writes with quality and depth.

Money for Military: Reflects on his last two years of blogging and discloses how much income he made through his blog.

Military Money Might: Talks about using dividend reinvestment plans to buy stocks and avoid commissions.

Grad Money Matters: Re-posts a fabulous article that motivates individuals into being upbeat and communicates a clear game plan in hard financial times.

My Good Cents: No one post in particular. Scroll through main page and you'll find a lot of free items, available shopping discounts and a few online contests.

Debt Free Living Guru: Talks about breakfast dinners and how they are a cost effective solution to eating out in the evening.

Funny about Money: Talks about using "no shop days" to help keep to a budget.

Blogging Away Debt: Discusses a low tech credit card scam that gives us all a good reason to watch our credit card statements carefully.

Dual Income No Kids: Discusses an article where somebody looses their shirt in the silver market after following a famous book author. My take: It's all about timing.

How I Save Money: Talks about saving money at CVS. Shopping for CVS specials with coupons seems to be a common thread amongst the frugal bloggers.

Out of Debt Again: Talks about the most frugal cookware.

Save and Conquer: Talks about items that are warrantied forever.

The Passive Dad: Talks about easy ways to create more household income.

Bullish Bankers: Good article about investing in Wal-Mart (WMT).

Fiscal Zen: Gives his interesting bits (links) to articles from around the web. I especially like the link to money lessons learned from the Great Depression.

Tasty Thai Cooking: So far, this is my favorite Thai recipe from her site. The Pad Thai recipe is also good.

Saturday, September 20, 2008


The quote "spending like a drunken sailor" has morphed recently into the new quote "spending like a drunken Congressmen."

As key Congressional leaders meet with Treasury Secretary Paulson and Fed Chairman Bernake, news is leaking to the public about plan(s) to avert the next Great Depression. News of several plans tied together with recent emergency spending point to a near term 14-17% increase in our national debt.

(Picture of tired Treasury Secretary Henry Paulson)

The first part of any plan will involve Congress raising our national debt ceiling to 11.3 trillion. The plan will also include the buyout of $700 billion in bad mortgage debt (sources: AFP, NY Times).

How did they determine the new $11.3 trillion debt ceiling? This is what I could piece together:

(1.) $9.6+ trillion in national debt (sources: debt clock, former comptroller general quote in article)
(2.) July '08 projection of a $482 billion 2009 budget deficit
(3.) $300 billion in FHA refinancing available for failing mortgages
(4.) $200 billion bail out Fannie Mae (FMN) and Freddie Mac (FRE) in return for preferred stock
(5.) $87 billion to JP Morgan Chase (JPM) to underpin trades with bankrupt units of Lehman Brothers (LEHMQ.PK).
(6.) $85 billion to rescue AIG, in return U.S. Gov gets 79.9% stake in AIG
(7.) $29 billion purchase of Bear Stearns bad debt, enabling JP Morgan's buyout
(8.) $4 billion to local communities for purchase and rehab of abandoned homes (Source for 3-8)
(9.) $50 billion to ensure money market mutual funds (Source 2,9).

Adding items 1-9 plus the proposed $700 billion bad mortgage debt bail out you get:

$11.54 trillion!!

That's about $240 billion over the previously discussed $11.3 trillion. I guess Congress expects to recoup some funds through the warrants / equity stakes it is taking in the bailed out companies.

All of this is back of the envelope math. It ignores the FDIC bailout of banks which supposedly should be covered by insurance premiums FDIC banks are paying to the Treasury. Please let me know if you've figured out anything else with more accuracy.

The above story is just the tip of the iceberg. If you really want to know the dire consequences of our nations' fiscal irresponsibility, conduct an online search on:

Former Comptroller General David Walker + unfunded liabilities

If you do, you'll see that our nation has between $44 and $50 trillion in unfunded liabilities (much of it coming from social entitlement programs). Two articles quoting the Former Comptroller General David Walker include this Seattle Politics Examiner article and a more dire website posting here.

Shopping Addicts Apparently Suffer From Low Self Esteem

This Chinese newspaper article (written in English) discusses the work of German researchers in identifying root causes for peoples' shopping addiction and advances the idea that shopping addicts suffer from low self esteem.

I previously read other PhDs advancing the idea that some people increase their consumption (spending) habits to fulfill other voids within their lives. So, the findings quoted in the above article seem to be on track with prior readings.

Friday, September 19, 2008

YouTube Video: Father Investing in Daughter's Development

I've been a fan of this fatherhood.gov video for some time now. It's a perfect example of investing in your child and puts a smile on your face when you watch it.

Thursday, September 18, 2008

How Investors and Policyholders are Affected by Actions at Lehman Brothers, Merrill Lynch and AIG

I found this great Washington Post article answering a number of common questions that Lehman Brothers (LEH), Merrill Lynch (MER) and AIG account holders have.

Questions answered:

(1.) What if I own Lehman Bros. Stock or have a mutual fund that has Lehman shares? How would its collapse affect my investment?

(2.) What if I have a brokerage account with Lehman or its subsidiaries?

(3.) What if I have a brokerage account at Merrill Lynch?

(4.) What if I have a life insurance policy or annuity with AIG, which is struggling?

Here's the full article.

Wednesday, September 17, 2008

Federal Bank Insurance Fund Has Dipped Below Congressionally Mandated Minimum... Plus Other Dismal Factoids

Associated Press released an article this evening asserting that the Federal funds used to cover FDIC insured accounts have dipped below the Congressionally mandated minimum balance required. The article also asserts that if Washington Mutual (WaMu, ticker WM) fails, then the Treasury COULD be required to tap tax payer dollars due to shortages in the Federal Bank Insurance Fund. When the FDIC chairwoman was asked about the possibility of tapping the Treasury for a line of credit she stated that FDIC wasn't expecting to tap the Treasury. At the same time, she didn't rule it out.

Other dismal factoids in the AP article include:

(1.) 2% or 1 in every 50 banks don't meet regulators' standards of adequate capital
(2.) Standard and Poors cut WaMu's debt rating to "junk" status
(3.) Total assets of banks on the FDIC's troubled list increased 300% in the 2nd quarter.

Here's the AP article that was summarized above.

Tuesday, September 16, 2008

Great Website For Use by Dems & Republicans to Get Smart on Our Nations' Most Important Fiscal Issues Prior to Elections on Nov 4, 2008.

Perot Charts is a fabulous site created by Ross Perot SR to help educate Americans about the grave seriousness of our Nations' fiscal irresponsibility. Ross Perot was known for his no-nonsense charts used during his 1992 Presidency campaign.

Perot Charts includes periodic guests posts in a "blog" section in addition to prepared charts and material on the following key government issues:

Budget Deficit
Federal Budget
Gross Domestic Product
Medicare and Medicaid
National Debt
Social Security

I recommend you take the time to watch this Youtube video if you want an intro to Perot Charts.

Follow this link if you wish to go straight to Perot Charts.

Russian Stock Market Crashes & U.S. Money Market Rate Doubles as Banks Hoard Cash

At 942 EST the Russian Stock Market was down 11.5%. CNBC was using the term crash to describe the RTS movement over the last two days. The Russian market is heavily dependent on oil. As we all know, Oil has been tumbling with a last quote near $90/barrel.

Another interesting article from bloomberg about banks hoarding cash and interbank lending rates doubling.

I'd recommend keeping your money on the sideline until things settle out with AIG, WM and UBS.

Monday, September 15, 2008

Best of This Month's Personal Finance Magazines

I spent a few minutes thumbing through the personal finance magazines and found my favorite articles for this month. I then went to see if the articles were posted online. Better for all of us since you don't have to buy the magazine to get the articles at home. Here's my favorite articles for Kiplinger, Consumer Reports and Money Magazine:

Kiplinger, Oct 2008:
"Frontier Markets Beckon Investors"
"Tax Records Online"
"Helping Your Parent to a New Life"
"Sell Your Home Fast"
"Tax Crackdown on Second Homes" - Not posted online

Consumer Reports, Oct 2008:
"Why Savvy Shoppers Buy Used Cars"

Money Magazine, Sep 2008:
"Is College Still Worth the Price"
"Are You Ready to Live for a Century" - Not yet posted online
"21 Good Things to do in a Bad Market" - Not yet posted online

I jotted down a favorite article at Smart Money but could not find it online.

Sunday, September 14, 2008

Leading Bidder, Barclays, Backs Out of Lehman Brothers Buy Out

Interesting note updating the status of the Lehman Brothers (LEH) fire sale. So far, Barclays has backed out of the possibility of buying Lehman Brothers citing that the purchase did not meet Barclays stringent requirements. Bank of America (BAC) remains amongst potential suitors. Please see this article for additional details. News on the Lehman buyout will likely get updated periodically over these next 4-5 hrs before the Nikkei opens in Tokyo.

Even if Lehman Brothers gets bought out, things should be very interesting during the week at Washington Mutual (WM) and AIG.

Bank of America is my largest dividend reinvestment plan holding (DRIP) so i'm keeping my eyes peeled.

150 Million Eligible for Free Credit Monitoring and Potential Cash Payout From TransUnion Settlement. Prior TransUnion Acct Not Req'd for Eligibility

As of August 22nd, only 380k of 150 million have applied for free credit monitoring and potential cash payout from a TransUnion class action settlement.

TransUnion is being nailed by this class action lawsuit because of alleged violations of the Federal Fair Credit Reporting Act. TransUnion is electing to settle and claims to have discontinued alledged practices in 2001.

The class action eligibility pool is:

"All consumers who had an open credit account or an open line of credit from a credit grantor located in the United States at any time during the period January 1, 1987 to May 28, 2008. The term “Plaintiff Settlement Class” shall include, without limitation, any classes asserted or certified in the Andrews Action and the Frey Action. Excluded from the Plaintiff Settlement Class are (a) Defendants and their predecessors, affiliates, subsidiaries, officers, directors and employees, (b) counsel for any of the Settling Parties in these Actions, and (c) any and all judges and justices assigned to hear any aspect of the Actions, along with their staff, the spouses of the foregoing and any children residing in their households."

A good article providing details of the settlement, as well as deadlines for applying can be found here.

Saturday, September 13, 2008

My Recent Public Speaking Gaff Prompts Me to Join Toastmasters International

Last night I was at an appreciation dinner for our command's OMBDUSMAN. There were a couple of hundred people there with several Admirals amongst other high ranking officers. I was probably one of the two most Junior Commanding Officers. Each command had a moment to go on stage and introduce and congratulate their OMBUDSMAN in front of the entire room. I'm normally not nervous when I speak, but I temporarily forgot our OMBUDSMAN's name. How horrible is that. I've known her for a couple of weeks now, I nailed her newborn child's' full name a week earlier in front of a large audience, but on this occasion I temporarily forgot our OMBUDSMAN's first name. I was sitting right beside her for about 1-2 hrs before going on stage. It was about a 4 second pregnant pause (seemed like an eternity) until I simply said her last name and pressed on. I got a laugh out of the audience in subsequent comments so I guess I redeemed myself. Nonetheless, I wasn't at all pleased with my performance on stage.

In the interest of self improvement, I'm investigating joining a local Toastmasters International chapter. Toastmasters' website states:

"Survey after survey shows that presentation skills are crucial to success in the workplace. Many people pay high fees for seminars to gain the skill and confidence necessary to face an audience. Toastmasters provides an option that is less expensive and held in high regard in business circles. This organization has been around for more than 84 years and offers a proven – and enjoyable – way to practice and hone communication and leadership skills. "

I participated in Toastmasters when I was in junior high and it helped a little with my impromptu speaking skills. Joining costs $20 with subsequent $27 semi-annual dues. I believe you get a magazine subscription out of it also.

I've had a couple of public speaking courses (junior high and as part of my MBA). Additionally, I've had to speak a number of times during my military career. But, unless you're somebody like Barack Obama or Bill Clinton, you can always improve your public speaking skills. I'm particularly interested in improving my ability to think on my toes in front of large audiences. Having skill in this area should help in the future whenever I have to do large audience question and answer sessions.

In my current job I know for a fact i'll be in front of others on a weekly basis. We'll see how it goes. It cannot hurt. Your best investments in life are those you make in yourself and your family.

If any of my readers has had experience with Toastmasters please let me know. I'd appreciate hearing any of your related stories.

As an aside, my public speaking event was a success in other ways. The OMBUDSMAN I recognized was technically our previous OMBUDSMAN who quit. Until her return this week, our command was without an OMBUDSMAN. She had done some great things in the past (command news letters, etc.); so it was a coup to get her back involved in our organization.

Read This If You Believe in Good Luck Charms

Some websites claim that Eve carried this out of the Garden of Eden. What is it that Eve took from the Garden? It is claimed that she took a four leaf clover. Why is the four leaf clover considered a lucky? Their significance pre-dates Christianity, going back to the pagan period, when four leaf clovers were Celtic charms. Celtic dominance once extended across Ireland and much of Western Europe. It was the Druids (Celtic priests) who elevated four leaf clovers to the status of Celtic charms, allegedly potent against malevolent spirits. Their status as Celtic charms is the origin of the modern belief in their power to bestow good luck. The first literary reference to draw on the tradition of four leaf clovers as Celtic charms seems to have been made in 1620. In that year Sir John Melton wrote, "If a man walking in the fields finds any four-leafed grass, he shall in a small while after find some good thing." Since there are on average, 10,000 three leaf clovers for every instance of a true four leaf clover, Sir Melton's hunter would have had to have excellent vision as well as good luck! (Copied Liberally from Pettebone)

Falco Soliton gives a 10 step finders guide to four leaf clovers here. Finding four leaf clovers is basically common sense. Just find a large patch of clovers and start looking. However, I noticed some sites claim that four and five leaf clovers are typically found, reoccuring, in the same spot. It was the opinion of some of these sites that this mutation may occur more frequently in these spots due to a number of organic factors pertaining to that particular patch of ground.

Hope you find some and they bring you good luck in money, love and overall well being.

Friday, September 12, 2008

I got a Free Pair of Contact Lenses at LensCrafters Because I Complained

This past month I started wearing contact lenses for the first time after 16 years of wearing glasses. After finishing the LensCrafters eye exam, I was verbally sold a "year supply" of contact lenses. At no time did they say, hey we're advertising the sale of a one year (52 weeks) supply, but you only get 48 weeks worth of lenses. So, it was not a surprise that I got mad and complained to LensCrafters about short changing me the day I picked up my lenses. They quickly acknowledged that it was the norm (selling 48 weeks worth as a one-year supply). But, they then told me that they would give me one free pair in addition to the trial pair that was provided on exam day. Doing this brought my balance of contact lenses up to one full year supply.

After complaining about the original advertising mistake and picking up the free pair of lenses, I discovered that I had paid for 48 weeks worth all along. No big deal, LensCrafters gave me "not for resale" trial versions which they probably got for free, and they make good on their false advertisement.

As an aside, LensCrafters was about 20-30% more expensive than it's closest competitor. I went with them since all of the other optometrists were booked for the week I wanted. At no time did I see Super Walmart advertised in the Optometry section of the phone book. Low and behold, I stumble across an optometry office in the local Super Walmart this past weekend with eye exams cheaper than EVERYBODY else. I never knew we had a Super Walmart nearby. Next time, i'll make the effort to schedule my exam at the Super Walmart Optometrist.

Thursday, September 11, 2008

Remembering September 11th: Facts and Figures

A number of offices may hold a moment of silence for the victims of Sept 11th. Here's a good link for facts and figures in the event you need to speak on the subject before or after the moment of silence.

Government Supplied Facts & Figures

Tactics Stores Use To Get You To Spend More

No hand baskets at the Wal-Mart, essential items at the back of the store, impulse items at check out. These are all a few of the things that we know stores do to drive up register average sales.

I thought about this topic as I walked through our local Kohls department store. I entered the store in an attempt to pass through and proceed to the adjoining mall. The only problem was that I felt like a rat in a maze trying to find my way out of Kohls. Kohls really made it hard to pass straight through. The stores' configuration forced me to walk past much of their merchandise.

I did my research and found this good article covering common tactics used by stores and measures you can employ to counter them. I hope it helps us all save money!

Wednesday, September 10, 2008

1 in 5 Identity Thefts Occur Here

Watch out for those credit card deals on campus where the issurer gives away a free gift after you to sign up for their card. These tables have been staffed by con-artists in the past.

Ellen Ambrose at the Chicago Tribune details how 1 in 5 ID theft incidents occur in school settings. Please read her article for further details.

Tuesday, September 09, 2008

Things I Live Without to Save Money. Lattes Are Not One of Them!

Why would anybody discourage caffeine from somebody's diet in an effort to save people money. Caffeine stimulates brain activity and helps you work longer - harder. Can you tell I'm a Starbucks stock owner? I bought in the $15s but that's besides the point.

I feel that most people need a vice, in moderation. If you live a miserable life, it's hard to be consistent in any savings plan long term. My vices are caffeine, yahoo fantasy sports, wireless internet and inexpensive his/hers laptops.

When I was younger, I went years without having a DVD or CD Player. Today i'm going without the following things in an effort to save money:

(1.) No flat screen TVs. I recently gave away a 20" color TV because I was downsizing to an apartment. The TV was 20 yrs old. I'm going to hang on to our two remaining traditional TVs and only buy a flat screen when one of the others die.

(2.) No HD TV or HD cable / satellite upgrades. I grew up in a rural area and was thankful to get 4 channels with coat hanger rabbit ears. I've come along way since then. While I have over 100 cable channels, I get it cheap and i'm happy with the clarity of a regular TV signal.

(3.) Subscriptions.
a. I have subscribed to Sirius satellite radio for about one month only. I used it when I was moving cross country. It's great, but for a regular commuter (less than 45 minute drive) it seems a bit excessive.

b. I don't subscribe to magazines unless I receive them as a gift. Most of the magazine material can be found online. Take for instance Money magazine. I routinely find what seems to be a majority of the magazines articles on the CNNFN.com website. Now why would someone pay for a subscription when they can get it online at no additional cost?

c. Newspapers. I basically buy the Sunday paper from time to time when we move somewhere new and my wife is interested in the classifieds. Or, I find that the grocery store isn't placing out enough coupons and I think it's necessary to supplement our household coupons with those from the Sunday paper.

d. I occasionally subscribe to Blockbuster online rentals but it basically depends on whether or not a lot of interesting new releases have accrued and i'm not otherwise busy with hobbies / work.

(4.) I don't play video games. It seems like a person could easily rack up $300+ in console and video game purchases / rentals each year. Instead, I choose to play fantasy football / basketball and baseball on yahoo.com. This is also addictive fun, like video games, but can be done for free or for $10 per season if you subscribe to stat tracker services.

(5.) My household doesn't keep a new or like new car. Between our two cars, the average age is nearly 8 yrs. We don't have any car loans and it's a great feeling.

(6.) No vacations, at least traditional ones. We typically spend our vacation time visiting out of state family about once or twice a year. Basically, we find things to do near our home.

(7.) No private mortgage insurance on any of our 3 rental properties. It takes aggressive financing to move money around, but I believe it's important to put 20% down when buying a house. It helps you get one of the best interest rates and lets you avoid PMI.

(8.) No cell phone add ons. I rarely pay for my own cell phone. Most of the time, If I carry one, it's a government phone. However, my wife has a cell phone and we don't pay for ring tones or other junk like that.

(9.) No gym membership. Military service members enjoy a number of perks which include free health care, gym and shopping privileges.

What do you live without to save money?

Monday, September 08, 2008

Warren Buffett Profiled in Sunday Parade

Warren is an investing legend. At the age of 6 he was selling chewing gum at a profit of two cents per pack. He moved on to selling Coca-Colas and the Saturday Evening Post. By the time he was 9 or 10, cops stopped him for selling used golf balls. When cops talked to Warren's parents, they were not concerned. They felt Warren was simply being ambitious. Today Warren Buffett has an estimated fortune of $62 billion. (Article copied liberally from 7 September "Parade" article pp 4-6).

(Photo by Michael O'Neill)

Some of Buffett's money-making secrets are:

(1.) Reinvest your profits. In high school he and a pal bought pinball machines and put them in barbershops. They took the earned money and bought more machines until they reached eight. Eventually, they sold the machines, reinvesting the proceeds to buy stocks. By the age of 26, he'd amassed $174,000 or $1.4 million in today's dollars.

(2.) Be willing to be different. In 1956 and with $100k from a few investors, Warren ran his investments from Omaha, vice Wall Street. He focused investing in undervalued companies vice popular companies followed by the crowd. 14 years later he turned the $100k into $100 million.

(3.) Never suck your thumb. Gather information in advance, stick to deadlines.

(4.) Spell out the deal before you start. Your bargaining leverage is always greatest before you begin a job... that's when you have something to offer that the other party wants. As a young child he was hired to dig out the family grocery store from a blizzard. After spending 5 hours his grandfather paid him less than 45 cents. Buffett was disgusted and learned to negotiate before.

(5.) Watch small expenses. In another article he has stated be aware of the helpers. There are a number of companies that try to profit off of your investments. It's best to stick with basic index funds when compared against mutual funds and or heavily fee burdened hedge funds.

(6.) Limit what you borrow. Invest when you're debt-free. Buffett has never borrowed a significant amount - not to invest, not for a mortgage.

(7.) Be persistent. With tenacity and ingenuity, you can win against a more established competitor.

(8.) Know when to quit. He once bet at the race track and lost, only to bet again and lose again. After squandering nearly a week's earnings, he never repeated the mistake.

(9.) Assess the risks. Compare your potential gains and losses. Don't take the risk if potential losses outweigh gains.

(10.) Know what success really means. He measures success in life by how many of the people he want to loves compared against those that actually do.

Sunday, September 07, 2008

Blue Chip / Trustworthy Affliate Programs Available To Earn Money From Website Referrals

I started to write a blog entry on the Fannie Mae - Freddie Mac debacle, but found a decent posting at Bloomberg.com. I then shifted focus to finding some trustworthy BLUE-CHIP affiliate programs that I could use on Pluggedinfinance to increase the income my website produces. At first, I simply started typing in "affiliate program" plus the names of trusted companies who market products I frequently use. I discovered the following by doing this:

Chase Credit Card. $40-$105 per new account.
Blockbuster. Online movie rentals. $33 per referral that subscribes.
Chase High Yield Savings. $25 per new account.
Netflix. Online movie rentals. Provides $9 per referral that subscribes.
Kayak.com. Online travel reservations search engine. Shares 50% of the commissions Kayak makes on referrals from your website.
Equifax. Credit scoring & reporting agency. Base commission is 15% of net .
Amazon.com. Trusted online sales of virtually anything. Base commission of 4%.
Hotwire.com. Online travel reservations. 2-3% base commission. $10 minimum disbursement.
Ebay.com. World's #1 Online Auction site. 50% base commission on fees collected.
Tigerdirect.com. 2-6% commission on sales.

I stumbled across linkshare.com while searching for affiliate programs. Linkshare uses its technology to advertise for a number of blue-chip / trustworthy companies such as Wal-Mart and other lesser knowns. All you have to do is sign up for an account and embed a linkshare widget on your website. Linkshare offers minimum distributions as low as $1 and sends payments up to 4 times a month. I could not find specifics on commissions that Linkshare charges. Not knowing the linkshare service fee, I signed up with blockbuster only to find out that they use a servicing company called commission junction.

From my new commission junction account I can see that they handle advertising for a number of other companies. It looks like my commission junction account should be fruitful and offer a number of decent choices. The only thing I have against commission junction is that you have to submit an IRS W-9 form. While I don't like doing so, it's a normal requirement for doing business and will be finished later today (W-9). A few Commission Junction advertisers include:

(a.) Wall Street Journal: earn $40 per subscription

(b.) EHarmony.com: Earn 65% commission, base commission is $39 for 1 month membership

(c.) DiscoverCard: Earn $20 for referrals leading to student credit cards, $40 - $100 for other non-student credit cards.

(d.) TradeKing: Earn $20 per new account.

Finding more trusted sources would require additional time, but a person could start looking at the following two sites which catalog affiliate programs (includes a number of questionable affiliates amongst a few blue chips):

Thursday, September 04, 2008

Taking Friday & Saturday Off to Focus on My Change of Command Ceremony and Hosting Family

I'm assuming command of a facility this Friday and am busy making preps. My wife and I are also entertaining a number of family members who are coming in from out of town tonight and staying the weekend. Because of all this, i'm taking the weekend off from posting.

Below is a photo of the Navy's Shore Command Pin:

Wednesday, September 03, 2008

Little Known Way to Tap Your IRA or 401K Early Without Paying 10% Penalty

The method requires one to "annuitize" their IRA. If you have a 401k, you would first have to do a conversion to an regular IRA. Here's what SmartMoney says about it. Pay particular attention to the 2nd paragraph. SmartMoney goes on to give additional methods where you can tap IRAs (Roth & Regular) while also avoiding the 10% early distribution penalty.

Tuesday, September 02, 2008

What Morningstar.com Says About My Dividend Reinvestment Plans (DRIPS) Prefaced By Overview On How to Invest in DRIPS

Excluding startup costs, I have built a $14k+ Dividend Reinvestment Plan (DRIP) portfolio that has little to no ongoing investment costs.

I used http://www.directinvesting.com/ to purchase most of my DRIPS and act as the transfer agent to set up the DRIPS. Using Directinvesting is fairly easy. You can either sign up for a membership and save on DRIP transaction fees, or pay higher transaction fees per DRIP purchase without a membership. I'd recommend considering buying into one of the site's cheaper memberships if you plan on purchasing more than 4-5 DRIPS. You would ultimately recoup your membership cost through subsequent DRIP purchase discounts.

I generally use Directinvesting if http://www.computershare.com/ doesn't already offer the DRIP. Computershare is my favorite site because it offers a number of DRIP plans at little to no initial start up cost (low purchase fees), but is significantly limited in its offerings.

What Morningstar Says About My DRIP Portfolio:

Morningstar lists 9 of my DRIPS as 5 star companies (its highest rating). Morningstar gives its highest ratings to those stocks with the best combination of economic risk, business risk and fair value estimate relative to peers.

The 9 stocks are:

(AA) Alcoa: 9.9% below Morningstar "Consider Buying" Price
(BAC) Bank of America: 7% below " " "
(DOW) Dow Chemical: 8.4% below " " "
(HD) Home Depot: 21.4% below " " "
(LOW) Lowes: 20.7 % below " " "
(MHP) McGraw Hill: 1.6% above Morningstar "Consider Buying" Price
(MMM) 3M: 13.8% below Morningstar "Consider Buying" Price
(XOM) Exxon Mobil: 14.2% below " " "

I recently started a $100 / month auto invest in 3M (MMM) based purely on gut feeling. I'm now glad to see that Morningstar confirms what I previously thought.

I like Home Depot (HD) and Lowes (LOW), but think that any purchases made through my DRIP accounts would be to slow and result in purchasing these stocks at a bit of a premium compared to what I can buy them at tomorrow in my reg. brokerage account. These two housing sector retailers are rocketing up right now due to Hurricane Gustav and the projected new business they'll receive from forecasted hurricanes & tropical activity expected from Hanna, Ike, Josephine, etc.

I'm toying with the idea of investing in Dow Chemical (DOW). I like the idea of investing in DOW since their costs of goods should be going down in tandem with falling oil costs. I also think that their recent deal with a middle eastern company sets them up well for future growth.

I'll keep my eyes and ears open for news on the other DRIPS listed above and post updates here.

Buying a Used Car Below Trade In Value By Using Ebay: Our Good Experience

I had a hole burning in my pocked last year when I returned from Afghanistan and felt like replacing my wife's car which had nearly 160k miles on it. There was no rush for replacing it, but I was prospecting for a newer car in my free time. I started looking for used cars which were still under warranty and below Kelley Blue Book Trade In Value.

I found that the best way to accomplish this, while not driving amongst dealer lots, was to search Ebay. It was contrary to my first thought since normally I associated Ebay with purchases made through remote vendors. But in our case, we were able to find a large number of used cars listed on Ebay which were within 30 minutes of our Memphis, TN burbs house.

I pinpointed my search to cars with either no reserve or already above the preset reserve price. I didn't mess with any Ebay classified adds or "salvage" titled vehicles. We settled on a 2004 Lexus ES330 with 46k miles. As soon as I saw it, my wife and I drove to the listing dealership. The dealership had the car listed on site for $2500 more than it's Ebay listing. Apparently, the listing salesman thought that by listing it lower that he'd get buyers bidding it up.

When we looked at the car on site, the salesman tried to sell me the car at the lot price and acted like the car would be bid up for his online listing. I didn't fall for it. In the end, I was the only bidder. Another guy in Michigan was inquiring on it, but I think his angle was to try and buy it after the listing unsuccessfully closed without a bidder (perhaps another bidding strategy). I bought the car in the final 30 seconds of the Ebay listing a whole $500 below Kelley Blue Book Trade In Value.

The most beautiful thing about our purchase wasn't found out until after we bought the car on Ebay. When we showed up at the dealership to take delivery, I learned that Tennesse doesn't collect sales tax on cars sold to military servicemembers assigned to Tennesse. No Sales Tax, $500 below trade in value, Yipee!

We have put over 30k miles on the car since purchase without any problems. Stock photo of our car, courtesy of MSN Autos:

Monday, September 01, 2008

Hurricane Gustav Fizzles In Terms of Impact On Oil Prices and Insurance Industry

A recent CNN post credits Hurricane Gustav with a projected economic impact between one-seventh and one-tenth of that of Hurricane Katrina. Meanwhile, oil prices are actually going down nearly 5% world-wide after traders are realizing that the oil platforms will likely not be impacted significantly.
I guess my recent fill up of both of our cars won't save my household much money. Here's a forecast of Gustav's path from Noaa.gov:

Sarah Palin's Seventeen Year Old Unmarried Daughter Pregnant: McCain Knew Of This Prior to Making Sarah Palin His VP Pick

Recent rumors are flying on the internet and TV this morning about Alaska governor's daughter, "Bristol," being pregnant. The rumor has been confirmed. Gov Sarah Palin's daughter, Bristol, is seventeen years old, pregnant and unmarried. Here's the link to a news article where McCain's Campaign Chief Steve Schmidt discusses this. You can go to google news and find similar articles from TV and newspapers nationwide.

In the picture below, Bristol is 2nd from the right between her mother and father.

What is My Military Pension Worth? Posting Also Useful to Potential Civil Service Pensioners or Others Trying to Monetize Passive Income Stream(s)

Many of you may want to know what your civil service or military pension is worth today. Some may even want to try and monetize other passive income streams. Determining the value of a pension or other income stream is either a two step or one step process. It's one step if you're in (or near) day one of retirement or just established a passive income stream. It's a two step problem if you still have a number of years to work.

Well, I want to know what my military pension would be worth today if I enjoyed a successful career and retired as a Captain / Colonel after 30 yrs of military service. This situation would give me $7287 / month which would be 75% of my base pay (ref: proposed 2009 pay table, O-6 over 26yrs).

Here’s two methods to determine the value of my pension (Method #1 using a basic calculator, Method #2 using a finance calculator).

Assuming a personal discount rate / IRR of 0.4% per month (equal to 4.91% APY) and a life expectancy of 30 years (360 months) past my retirement date.

1. Using a simple calculator with an exponential “^” function (minimum requirement)

(a) First find the present value of an "immediate annuity." Using the formula

PV immediate annuity = [ 1 – (1 + R)^-n] (P/R)
R = interest rate in decimal form
P= payment
N= number of periods

Filling in numbers you get:

PV immediate annuity = [ 1 – (1 + 0.004)^-360] (7287/0.004)
PV immediate annuity = [ 1 – 0.2376] (1,821,750)
PV immediate annuity = $1,388,885

This is the present value of the stream of pension payments the day I retire. This equation alone may suffice if you're at retirement or very close to retirement age.

However, I have 18 more years to work till retirement. To get the Present Value today, you have to discount the value determined above ($1,388,855) over the time I have left till retirement (18 yrs or N = 216 periods).

Present Value With Zero Payments Formula:

PV= FV (1+R)^-N
PV= $1,388,855 * (1+.004)^-216
PV= $1,388,855 * 0.4222
PV= $586,375

$586,375 is what my retirement is worth to me today assuming a discount rate of 0.4% per month or 4.91% APY

2. Using a financial calculator like a Texas Instruments BAII, you get a two step problem.

Step 1:

a) Assuming a 4.91% discount rate (~ 0.4%/month)
b) Assuming 30yr life expectancy once I hit retirement

N= 360 months
I/Y= 0.4%/month
PV= $0
PMT= $7287/month
FV= ?

Plugging into a financial calculator, you get a future value of $5,845,249. Now working backwards in step 2:

N= 576 (360 months for length of retirement + 216 months left till I retire)
I/Y = 0.4%/month
PV= ?
PMT= $0/month
FV= $5,845,249

Solving for PV you get $586,387

The difference between the financial calculator method and the basic calculator method is simply due to round-off error. The biggest determinant in figuring the present value of any stream of income is what interest rate you use for your "discount rate." Your present value (PV) will be smaller if you use a discount rate higher than 4.91% APY or 0.4% per month. I figured that 0.4% per month is reasonable and close to what one can get on CDs, I-Bonds and 30 yr Treasuries.

Keywords / phrases: how much is an annuity worth