Sistah Ant wrote me a comment the other day on my post about Laddered Annuities.

“I am so jealous that your parents are forward-thinking savers. I wish mine were! In their mid-50’s, they have no savings, and they’ve just started investing, and they have small pensions from employers, but they have absolutely no plans to retire, since they figure they will have to just keep working until they’re unable to work anymore.”

That really struck me. My folks are pushing 70. My father had to retire from working after his stroke. He hasn’t been the same since. Retirement came for dad a little earlier than we expected. Working till being unable to work anymore is not a good retirement strategy. I don’t think my parents expected that he’d be out of commission before turning 70. I think they figured they’d work well into their 70’s, but that’s not going to happen now. It’s too much work for mom to care for dad and their 24/7 business and I’ve been pushing her to consider retiring now before her own health turns into a crisis.

I never knew my parents to be savers. I’ve been hand carrying my financial aid papers to school since I was 12. I’ve always taken a look at their tax returns in the aid papers, which their tax accountant filled out for us. They’ve never had much to list as income or savings on those papers. But after I graduated from college, my parents no longer had to pay tuition and I guess at that point, their accountant really started to push them into saving and making investments.

My folks work for themselves. There is no pension waiting for them. There’s Social Security, two kids who love them, the house, the business and their savings/investments. That’s it. If the accountant hadn’t told my mom 15+ years ago to start taking an official salary and making points in the SSA system, she wouldn’t even have Social Security waiting for her. That’s the value of good financial planning and advice. She’s going to end up with her full allotment for the credits logged, but she doesn’t have the years in the workforce behind her to beef up that amount. It’s kind of a shame.

I don’t think my folks really turned on their saving until they were in their 50’s. They’ve saved, but in unconventional ways. I’m surprised sometimes that they have saved at all, but I found out over the weekend, that’s it’s not as much as I thought. They made some smart moves by buying their own home, having their own business, and making the commitment to save money. It’s still probably not enough for the rest of their lives, but it does make me feel better that they aren’t going to be completely destitute. Only a little destitute. But it definitely means I have to rethink my own strategy to accommodate the failures of theirs.

ps- I asked my pop how their investments have been doing in the crazy market. He told me that their broker had moved them heavily into bonds a while ago since they are so old and their accounts haven’t fallen too much. Lucky them for having a good risk manager! I peeped their last financial statement as of the end of Q3 and they had lost less than 3% of their portfolio at that time. October though is a whole other story.

Rich Slick at Get Rich Slick asks what happened to all the Prosper blogs. My reply:

Prosper.com is paying out better than my high yield savings account, but I don’t have much invested there and it has yet to break even now that one loan is seriously delinquent.

In further detail, you can see my stats on LendingStats.com But honestly, I don’t really like tracking my account through that site. It’s confuses me with its discounted rates to allow for bad loans. I prefer to note my stuff more simply.

Currently I have 7 loans, one of which is very, very late. The outstanding principal owed is $39.12, which is more than the interest received on the current set of loans. However, I have one loan that was paid off early and if you add the interest from that loan, I am officially in the black, but just barely. I wrote my comment before one or two payments posted to put me into positive territory.

Pardon me if you think my analysis is sort of fishy. There’s a way that I look at the accounting that’s may not be the correct way to evaluate my rate of return, but it works for me.

I’ve made $405 in loans, but actually only deposited $275. The difference is reinvestment of all my interest payments into additional loans. Well, if you consider that, then my rate of return is 1%. That’s $41.93 in interest less $39.12 in bad loans for $2.81. Divide $2.81 by $275 and get 1%. OOH AHH. As long as nothing else defaults, then all else is gravy. But I’m still not sure if you factor in present value of money, etc whether or not tying my money up for 3 years in these loans was worthwhile or not.

I haven’t decided what to do with the cash I have sitting on account in Prosper. Right now I have a low balance that isn’t enough to make a bid on a fresh loan, and if I’m not mistaken, with the current quiet period at Prosper, I can’t make a loan now anyway. I could take the cash out for kicks. I could use it to snowball some debts I have. But right now my highest interest rate on any debt is 7.18%, which is my HELOC. I’m not sure it’s worth the time and effort to move around $30.

Ok. Let me start of by saying, I dislike annuities. I don’t get how they work.

I mean, I get the core of how they work. You spend a lot of money to get one and then it periodically pays money to you over time in the future . It works off of the present and future value of money and has an interest rate. But I don’t get fixed vs variable and all the weird permutations out there especially deferred ones.

Kiplinger’s had an article in their August 2008 edition that went over immediate annuities. The article made sense to me since it deals only with one specific type of annuity used as guaranteed retirement income.

Now, I know you’re thinking, why is she thinking about this now? She’s under 50. But my folks are on the cusp of retirement in very sketchy times. My mom thought she was going to be retiring any minute now, but the markets are going insane and she’s unclear again if she’s going to sell the gas station soon. Since she does have a lot of money in bonds right now, a laddered annuity strategy might make sense for her and my dad.

I haven’t checked out all of mom’s accounts recently, but at one point a few years ago, she had about $300K in her retirement accounts and they were mostly in bonds and in a telecommunications stock, which pays a good regular dividend. She might have moved everything into bonds in the past year, if so, I hope she still has $300K today. (Dad says they didn’t lose a whole lot in the market turmoil because they have a lot of bonds. Their financial advisor actually does his job correctly!)

My dad is already receiving monthly Social Security payments that are about $1700, which is just enough to cover the mortgage. My mom is waiting to retire at 67 so she can receive about $1300-$1500 a month. Add to that $800 from a $100K immediate annuity for mom at the age of 70, she could be doing fine. Then in 5 years another $100k annuity paying out $900, that would make about $4700 month. Not too shabby.

We shall see.

This year, I did a little charitable giving to various places like Modest Needs, Make A Wish Foundation, and Doctors Without Borders. Along with that were donations to Goodwill to clean stuff out of my house.

In DC, it’s all about the Combined Federal Campaign, or CFC. It’s a side effort for government employees to give to charity. This includes civil and military employees, as well as the USPS, even though they’re not a full government agency anymore, but a quasi one.

At any rate, I don’t work for the government so I don’t participate in the CFC. But my firm does have a formal giving program with regular payroll deductions. There is a theme this year for local communities and environment. I struggled with this for a while. Initially, I picked four-five charities:
American Red Cross
Doctors Without Borders
Heifer International (because they offer sheep and bunnies for spinning and knitting!)
Arlington Free Clinic (public health clinic)
Arlington Food Assistance Center (a food bank)

In the end, it was really hard because all the charities do valuable work, but I decided that I would stick really close to home and give only to the free clinic and the food bank for 2009. It will be the most money I’ve ever donated in one year, and quite possibly for the last 5 years combined. I know I’m doing this partly because I get to do it through work, but also because I can give to two local causes I believe in. I still have friends who are under insured and I can see them easily needing the services of the free clinic, or even a bag of groceries from the food bank. It’s better maybe for me to mention these places than offer my friends money if ever they need a helping hand.

What about you? Even though the economy is slowing down, are you thinking of stepping up your giving this year and/or next?

I actually have two cousins that moved to DC this year. The other one is from the other side of my family. She’s about 10 years younger than I am and used to work in Korea for Lehman Brothers. During her last year in Korea, she worked for Merrill Lynch.

While we were having dinner, she began to tell me about her former Lehman Brothers colleagues. Apparently the entire mortgage division in Korea was closed sometime last year. The employees were given generous ‘early retirement packages’, which is actually what they call it, an ‘ERP’. But it sounded more like a severance package. One colleague from the mortgage arm interviewed with my cousin’s former boss and was hired after nearly a year of unemployment, as the ERP ran out. Just a sign of how bad the subprime meltdown is in the rest of the world. It took her nearly a year to find another job.

Then my cousin told me a story about Merrill Lynch. At Merrill, she worked in the Private Client division, i.e. services for high net worth individuals. I guess they guided their clients towards strong American financial stocks resulting in a lot of their clients holding Washington Mutual shares and now their net worth is severely eroded due to the crashing market in the US.

Later as she was showing me her iPhone, she happened to hit the Bloomberg application and we looked at the market results from last Wednesday. She gasped when she saw that the entire right hand column of the screen was red with declines across all international market indices.

While it’s bad here and people are probably going to lose their jobs, it’s just as bad in other places. Misery loves company I guess?

I spent $2 on Sunday. I bought a Diet Coke and Doritos at Home Depot. A power breakfast if I ever saw one. For some reason I got up on Sunday and wasn’t hungry. (Shocker. I’m ALWAYS hungry.)

After watching boyfriend drop a mint in supplies at HD, I snacked on my treats and waited till dinner. I then had dinner with my cousin and her husband. They were happy to feed me Korean food and told me to come over every week since I never cook and if I do cook, Korean is not my specialty. I might take them up on this offer since Korean food is much healthier than I normally eat.

I also took them a big bag of baby boy clothing. They’ve just moved from Korea and expecting in a few weeks. I’m very excited because this cousin is just about my age and married after 30. I am really glad to get to know her. Right now moving to the US while having a kid is a bit overwhelming, which is why I begged my girlfriend for her hand-me-downs. All but one of my friends this year had a girl, and fortunately, the one who had the boy lives close to my office. I picked up the clothes last week for a drop-off and dinner on Sunday. Excellent.

After reviewing what was in the bag, I now have a good understanding of what else my cousin needs for supplies and presents. I’m happy to make the connection and get her lots of clothes for her baby. Since my girlfriend now knows she can unload all her baby clothes onto my cousin, I hope this eases any concerns they have for converting Korean won into US dollars for stuff they’ll use for only a short period of time. I easily took $300 worth of clothes over.

Later we’re going to make a run to Leesburg Outlets to the Carter’s store. I hope we can get my cousin some other things like receiving blankets, etc. I’m already thinking of knitting a boy’s blankie from yarn I have at home.

Sorry this isn’t very personal finance-oriented. I guess saving money for my cousin and spending only $2 was all that was on my mind.

Justice Oliver Wendell Holmes: “I like paying taxes. With them I buy civilization.”

I got that from a NYTimes Op-Ed today.

I never understood that about people saying they want to pay less in taxes. I mean yeah, I would like to pay less in taxes, but I find that paying them is a patriotic act because it pays the salaries of the men and women who serve our nation in uniform and in the civil service. I am glad to pay the salaries of my friends in DC who work for the government and around the world. I feel like I actually get stuff for the money I pay

My taxes pay for:
Roads
Schools
Medicare/Medicaid
National Defense
Air travel infrastructure
Scientific research
Space exploration
Museums
National Parks

There’s plenty of pork out there, but pork barrel projects don’t even come close to the outlays for things like the $700 billion going to stanch the bleeding in the financial markets. Cutting out pork won’t balance the budget. To do that, we’d have to tighten our belts in the US to point of cutting our nose off to spite our face.

Oh well. This is as close as I will get to a political post this election season. Just make sure you are registered and go vote.

So for years I’ve been complaining about my mortgage payment shifting around annually. Most of the time, I have to kick in a few extra dollars for an escrow shortfall, but this year, I actually got a refund check back.

This actually happened in April, but I filed away the statement in the wrong place and didn’t find it till September. Don’t worry. I deposited that check right away!

I dislike overpaying escrow, or paying any of it at all to the bank. I’m not 100% sure of how to get out of under it and pay my tax bill directly to the county. But it’s a convenient evil I’ll live with if I keep on getting checks back!

This month, I will break the six-figure barrier on my primary mortgage. Mind you, when I bought my condo 4 years ago, the mortgage was only about $108K. Most of my payments have gone towards the interest, say $6K a year. I also have the stinker of the HELOC which means I owe quite a lot more, but I’m grateful for the small milestone after four years of some not-so-great times owning this place.

Well, I was feeling lucky last week, but now BRKB is sliding with the rest of the market and I am officially in the red with all of my retirement accounts. This means everything is shrinking in value, and not that I’m actually in debt. Which I am. But not against those accounts. I don’t margin trade.

At any rate, I took a good long look at my new company’s 401k and the money I socked away into it in 2008. It’s about $6000 for my Year-to-Date contributions. Not too bad, but not too great either. It’s more than the minimum required for the corporate match. You see, I don’t get the match until I’ve been with the company for a year. Then, if I read the documentation right, I get a match up to 6% of my salary for that first year’s worth of contributions. After that, I get the match with each contribution.

At least, that’s what I think the documentation says. And if it’s true, then I get to stop putting in money right now because my account is down 20% this year and I would have been better off paying taxes on the money and putting all that cash into my pocket. Corporate match be damned.

Now that I realize that I can’t really make this 20% loss back for a good long while, I’m thinking of throwing the baby out with the bathwater and destroying my last goal of contributing to my 401k plan. I’d like to stop now thank you and put all that money towards debt reduction. It’s a surer bet for me financially than my retirement.

Sounds crazy. I know. I should be dollar cost averaging all these low share prices in my 401k.

But what do you think? Am I better off stopping my retirement contributions, paying tax on the income and using the extra take home pay to guarantee myself a rate of return approximating 6.75% on my credit card debt? (It averages out to less than 7% APR right now.)

Lots of places are saying do nothing different right now. Or bank cash for an emergency fund and be conservative in these trying times. Just this morning NPR had someone tell me that paying down debt now is the best action.

My rate of return on my 401k money is -20% for 2008. What do you think of a +6.75% rate of return in the form of less credit card debt?