Why I'm Sticking with a Traditional 401 (k)

This is the time of year to set up my 401 (k) for 2008.

During 2007, I had a pre-tax $1000 per month going into it. My plan was to raise that by the amount of whatever raise I got for 2008. Well, surprise! No raise. Nonetheless, in the spirit of good financial management, I'm going to increase my contribution by $25 a month.

The bigger question is whether to put my contributions into a Roth IRA or the pre-tax 401 (k). For the first time, my employer is offering both options. My employer does not match my contributions, but does contribute an amount equal to 6% of my income into my 401 (k)--no choice there--it cannot go into a Roth. The dollars I contribute can go into either.

After looking at all the numbers, as well as making some predictions about my future plans to retire in 11 years, I've decided to stick with my current 401 (k).

Why?

Well, first of all, I need available cash to pay down debts. Given my short time line to retirement, I have to both fund that retirement AND get rid of my indebtedness. Funding a 401 (k) with pre-tax dollars gives me a stronger immediate cash flow which allows me to do both.

But is that at the cost of less money during retirement? I'm betting not.

Right now, I'm in the 25% federal tax bracket, creeping up toward the 28% bracket. But when I retire, I will most likely be in the 15% tax bracket. My house will be paid off, leaving me only with taxes and insurance to pay each year. I live in a city with a great transit system, so will not need a vehicle. My retirement date is well after Medicare kicks in, which will help with my insurance needs. Even with the anticipated expense of supplementary health insurance and long-term care insurance, I expect to need $3000 a month, maybe less. Social Security will make up around $1600 of that, based upon current projections. The remainder will come from retirement savings, but will be less than the $32,550 line dividing those in the 15% bracket from their brethren (sisteren?) in the 25% bracket.

When I help my friends analyze whether they should use pre-tax or after-tax dollars for their retirement funds, I find that in most cases, the Roth is the better choice.

But there's always an exception. That would be Grace.

Reading, Writing and (I Hope) Arithmetic

I'm working on my New Year's Resolutions.

Some are the same every year.

One of those is to write and market my science fiction short stories. I've always listed it as a personal goal, but this year, I'm putting it under my financial goals. And I'm making it public. We'll see if it makes a difference.

It's no secret that unless you're Norman Mailer (in which case, you're dead), Danielle Steele or J.K. Rowling, you're not going to become wealthy as a writer. On the other hand, there really IS a paying market out there for science fiction and fantasy short fiction, unlike the more literary markets where one is supposed to be satisfied with copies of prestigious but usually non-paying Reviews.

I've been reading science fiction since I was fourteen. I started writing it during graduate school. Occasionally, I've sent out my work to various magazines, and even more occasionally, some of it has been published. With that comes a check, usually somewhere between $200 and $600. NOT enough to give up my day job but a nice little bonus for doing something that I love.

So this year's resolution is to stop being a dilettante and start being a REAL writer. Along with that, I hope, comes some REAL money that can be applied to REAL debts.

And you, Dear Reader? Any hobbies that done with more focus and more energy could help increase the cash flow?

The Killer Week Before the New Year

Am I the only one who finds the week between Christmas and New Year's Day to be a financial black hole?

The truth is, I spent all my money for Christmas. Christmas is close enough to my next payday (December 31) that I didn't pay close attention to the fact that there are 5--count'em, FIVE--whole days before that paycheck arrives. My daughter still thinks I should feed her during those five days. Actually, since she's on her Christmas break, she's of the opinion I should also cover movies, take her to lunch and otherwise help her occupy her time in ways that financially impinge.

So yes, I stayed within my Christmas budget. But--um--no, I'm not exactly within my monthly budget.

C'mon, 2008! Get here quickly!

Merry Christmas, Happy Holidays, and All That!

What the title says!

If you're still on the computer (and just WHY would you be on the computer on Christmas Eve? A good question that I mean to ask myself later!) take a look at this week's Carnival of Personal Finance, hosted by The Digerati Life. It comes complete with Christmas ornaments.

You'll find a post of mine near the bottom.

What Small Thing Would Make You Feel Rich?

Forget the manse on the hill or the beemer in the garage. What small thing would make you feel rich?

As I was yelling at my kids to please close all the doors (to the upstairs, to the basement, to the bathroom) before turning on the heat this morning, I realized that being wealthy, to me, would be turning on the heat and neither worrying nor caring if it "got wasted." Given that my two-story 1929 house has an oil furnace, being wealthy would also mean never worrying that the tank would run dry--something that happens to me at least once every year, clogs up the lines, and costs me an extra $90 to put back into operation.

For my long-deceased mother, it would have meant using each teabag only once. As it was, she never got over her depression-era habit of using each teabag at least twice before discarding. I still can't see a saucer with a used teabag sitting on the counter without thinking of her.

My oldest daughter told me that being wealthy would mean that she could fill her car up with gas, rather than getting it $10 at a time; Her husband said he'd know he had it made when he could purchase a woodworking tool without concern that there would not be enough in the bank account to last until the end of the month.

One of my colleagues at work said he'd be wealthy when he could go through the local bookstore and pick up whatever he wanted instead of weighing how much he wanted a particular book against the amount of time he was willing to wait for it to become available at the library.

Another colleague felt that wealth would be hers when she no longer felt compelled to buy generic breakfast cereal and frozen orange juice.

So what about my readers? What minor change would make you feel richer than you are now?

The Joys of Christmas Shopping

I'm still within my Christmas budget!

This may not sound worthy of an exclamation point, given that my budget is relatively large compared to many of my readers--I have $1845 set aside. That's to cover gifts for 12 people, Christmas dinner, one round trip to a town 5 hours away to deliver gifts to some of the grandkids, one round trip to a town 2 hours north to deliver gifts to other grandkids, the tree, the greens for the house and door, the charitable contributions, and the collection plate at Christmas Mass.

But I don't recall that I've ever gotten within 15 days of Christmas and still not used my credit cards, at least not since I've been an adult.

Although it makes me anxious, I have used Ebay more than usual this Christmas. My largest expenditure was $236 for a Cricut Complete--some kind of scrapbooking device that my oldest daughter wants. I'm paying half and her sisters are contributing to the other half. It hasn't arrived yet, but I tried to keep all the safety measures in mind--paid through Paypal, bought from someone with a longish sales history, checked out the feedback, etc.

I also bought computer peripherals through Ebay. I purchased an 8 MB memory card that sells for $20+ around town for $11, including shipping. I got a 4G flashdrive for my granddaughter for $28 including shipping, when the cheapest I could find it at Circuit City or Best Buy was $34.

The tree ($20) is sitting on my porch, awaiting trimming which will happen tomorrow. The door swag ($17) is on the door. Many of the dinner supplies have been purchased. For reasons I don't understand, turkeys that sold for 19 cents a pound during Thanksgiving will be closer to 99 cents a pound at Christmas, but Christmas turkeys are a family tradition around my home. It would have been smart to buy two turkeys at Thanksgiving and save one. Unfortunately, my freezer had no room for it.

As I count up what I still have left to buy, it looks like I will actually stay within my budget.

If I can stay on target, that will be Grace's Christmas present to Grace!

Planning for 2008--Part I

The first part of any plan is knowing what one will be making. Since I am a union member, and part of our collective bargaining team, I now know exactly what I'll be making in 2008: precisely the same amount I made in 2007!

However, I will be getting a lump sum in January, 2008. That's the good news. The semi-bad news is that in January, I owe both my daughter's private school tuition and tuition and books for my granddaughter in community college. The lump sum plus another couple of hundred will just about cover both.

Of course, I would owe all that tuition whether or not I get a lump sum, so getting the money is better than not getting it.

But it would have been nice if I could actually see, smell, touch even an extra dollar!

Sadly, it is not to be.