Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series. This month the participants are discussing retirement.
Calvin is in his early 40s, earning a salary of $120,000 plus bonus as an IT project manager in New Jersey. He has recently finalized a divorce and has a teenage child. Read his bio here. Calvin is on Team Sara, with Certified Financial Planner Sara Stanich.
The net worth report below and following commentary refer to the last full month, May 2013. Last month’s report analyzed Calvin’s progress during the month of April. Continue reading this article to see the net worth report and Calvin’s own analysis, which are followed by Sara’s feedback.
Analysis from Calvin
This past month looks like it was good. On paper my net worth took a $5,000 leap into positive territory. I guess I should be excited about that, but since a large part of the gain was on investments in my 401(k) and Long Term Incentive Plan at work it doesn’t feel particularly real.
I did have some restricted stock units that vested, which means that they convert the awarded amount to real shares and then sell enough of the shares to pay the estimated income tax due on the award. The total award amount then shows up on my pay stub as income for this year. The end result for me is that there is now an actual number of shares in an account, and I need to decide whether to sell them and put the cash somewhere else, or leave them in the account and continue to let them grow and collect dividends. I do not need the cash right away, but I may need it before my next bonus, so for the time being I am leaving it in the account.
I was thinking about using it to pay off a credit card, but because I am not sure right now if I will need it to make up my monthly short fall, I have to hold onto it for a few more months. When I get my next bonus from work, I think I will be able to kill my first large credit card, which will free up almost $400 a month. My company’s stock continues to outperform the overall market by a large degree, so this money has grown more then 10% in the weeks since it was awarded.
Another small snafu that happened this month was that my ex-spouse had her 2012 tax refund seized by the IRS to pay off an outstanding tax bill from 2011 that I have responsibility for. Now I owe $5,000 to my ex instead of the IRS, and neither of us is very happy about that. I have made her an offer for monthly payments, more than what I was paying the IRS, but I am still awaiting her reply.
This is just an example of the many loose ends that remain after our divorce and the financial entanglements that have to be undone. These are a large part of why divorce is so stressful. I have good perspective, realizing now that the majority of these entanglements are behind me. I know I can navigate through those that remain.
This months topic is retirement, and I’ve been thinking about that quite a bit. According to most financial planners, I am way behind on my retirement savings. I know this and it concerns me.
Unfortunately at this point in time there is nothing I can do about it. I am not even contributing to my 401(k) to get the company’s match. My intention is to start 401(k) contributions again next spring when I get my next bonus and increase. Initially, I will contribute enough to get the full match and then look to increase that amount each year until I am putting the maximum away each year. I do not think that my situation is as dire as it might appear from the outside for several reasons.
- I am still fairly young and have at least 25 years to save for retirement and that is if I retire at 67. I should be able to amass a decent nest egg by then given my new focus on financial priorities.
- My company still provides a pension benefit to its workers. I have worked here for 15 years and have amassed a certain amount in a defined benefit pension plan. My ex is entitled to half of that amount up until last year. It turns out that this year my company is switching from a defined benefit plan to a defined contribution plan where they will make contributions to a retirement account each year based on our length of service and level. I believe that for me they will put 10% into that account each year. This benefit is separate from the 401(k) match, so between the new pension account and my 401(k) I will be putting aside 20% of my salary for retirement.
- I am really focusing on lowering my expenses.
My divorce has fundamentally changed my values, and I have deliberately embraced a simpler living style. There are many blogs that discuss the peace of mind that comes from simplicity and frugality. It goes way beyond living without, and I find that the simpler I live the more fulfilling my life actually is. I had the big house, multiple cars, a boat, a camper and five-star vacations. Honestly, I always found most of that to be hollow and lacking any ability to make me really satisfied.
In my new life I spend much more time with my daughter and my dog outside in nature. I find myself to be satisfied with my life a lot more of the time. So in the end I think that my retirement will be less about cruises and golf resorts and more about time with family, giving back and volunteering. I have to make a recommendation here for a couple of blogs that I find really inspiring, although I am sure they are not new to many Consumerism Commentary readers. The first is Mr. Money Mustache and the other is Raptitude.
Feedback from Sara Stanich, CFP
Congrats on another good month, Calvin! Positive net worth territory is definitely a milestone, even if it doesn’t feel real to you yet. (Pat on back.)
This month’s theme is retirement. You are fortunate to have a defined benefit pension plan at your company. That income should be factored into your retirement projections, but of course you need to save on your own as well. You plan to resume making 401(k) contributions to get the full match next year, after your expected raise and bonus. Could you try to start smaller, sooner? Even just 1-2% of your salary will help build that account over time and get you in the habit of saving. Perhaps after you pay off that first credit card?
I’m sorry to hear about the tax situation with your ex-wife. I understand that you would rather owe $5,000 to the IRS than to your ex. Although a personal debt like that probably doesn’t involve an interest expense, I would actually recommend making this debt a high — perhaps your highest — priority. I suspect this situation is stressful for both of you (she probably had plans for that tax refund), and the sooner you eliminate it, the better.
I actually got chills when I read your comment, “y divorce has fundamentally changed my values, and I have deliberately embraced a simpler living style.” I am so happy to hear that from you. I work with many clients who are going through or have gone through divorce, and I can tell you that I have heard this before. Pre-divorce, many tend to spend like crazy –- not because they are materialistic, but because they are unhappy. Your new outlook is positive for you in many ways, not just financially.
This communication is intended only for the person or entity to which it is addressed. Any taking of any action in reliance upon, this information by persons or entities other than the intended recipient is not recommended. Any information provided is for informational purposes only and does not constitute a recommendation. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision. Raymond James and Sara Stanich, CFP, are not affiliated with and do not endorse, authorize or sponsor any third party websites, their respective sponsors, or user comments found on this or other sites.