I’ll write more in the next few posts about my job and my decision to leave, but in the first post since my decision to take a hiatus from blogging, I’ll write about a financial consideration of leaving…My blog is supposed to be a “PF Blog” ya know. It’s in typical freedumb fashion…discombobulated and very short on details. Too bad, I’m just getting warmed up.

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I received some great feedback from Enough Wealth telling me that in the long run trying to time the market may get me in trouble. I agree. For the most part I don’t do it, but my 401k is setup such that I can reallocate so easily. It’s hard not to. On top of that, they allot me X transactions a year, free. Since this cost is already included in the maintenance of my 401k, why not use it? Do you try to time the market? Do you think I should still not do it?

If you follow my blog, you’ll know in July my ROR on my 401k was 0.4%.  It sucked.  Well, in August I decided it was time to reallocate my retirement funds completely.  At this time, my 401k had already recovered to a ROR of 1.9%.  I went from:

20% - Money Market
45% - Bonds (Stable Value 20%, Total Bond Market 5%, TIPS 20%)
20% - Total Stock Market Index
10% - Total International Stock Market Index

To:

100% - Aggressive Fund

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Sort of.  I’m sitting here reading my Dream Book, and on one page it describes the “Top 10 retirement businesses.”

“Hmmm, interesting,” I think to myself. “Wait a minute! That means that I don’t have to really have as much as I thought I may need to retire!!”  That’s a revelation, and a very definite possibility.  AWESOME!  I’ve never really thought about it, but if your retirement funds are supplemented by a “retirement business,” then you really don’t have to wait until your 65 to “retire.”  It could come much earlier.

What were the top 10 retirement businesses listed in the Dream Book?

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Yup, finally did it.  I’ve shifted my retirement 401k from a very conservative to aggressive allocation.

My previous allocation
20% - Money Market
45% - Bonds (Stable Value 20%, Total Bond Market 5%, TIPS 20%)
20% - Total Stock Market Index
10% - Total International Stock Market Index

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…That’s only if you have company stock in your 401(k).  I never knew this until I read this Q&A in SmartMoney Magazine, where the reader’s asks, “Is it true that stock held in a 401(k) can be withdrawn and placed in a taxable account and ordinary income tax would be due only on the cost basis of the stock?”  (SmartMoney magazine, August 2006, page 42)

A couple of caveats:

• Own substantial amounts of company stocks.
• Have a substantial increase in value of these stocks.

Hah.  Good luck figuring that out…What is substantial?  Well, there is a point where paying the tax penalties for early withdrawl still makes sense because of the amount of money you would get because the stocks would qualify for the longterm tax status.  I didn’t think about this at all, but even still I think I’ll just leave it in my retirement fund.

My current rate of return (ROR) for my 401k year-to-date (01.01.2006 - 07.21.2006) is 0.4%. Not that great at all.

I’m curious, how are your 401k’s doing? What’s your ROR?

This is how ROR is calculated, per my 401k website:

Normally, you analyze an investment based on its Beginning Balance, its Ending Balance, and the schedule of Cash Flows between these 2 balances. Your Rate of Return is calculated as the Rate of Return for your particular Beginning Balance, Ending Balance, and schedule of Cash Flows. A compound daily rate of return is computed by testing different rates until one is found that increases (or reduces in the case of a loss) your beginning balance and all of your cash-flows to equal your ending balance within 0.00000000001%. Then the actual account performance during the investment period is calculated.

All this talk about saving for retirement, but no one really talks about after you’ve saved your money, then what? Do you take out one big lump sum? Do you take out a couple percent?

This article Know when to break the retirement investing rules, USAToday.com, has some specifics on what to do…First two are known, but the last one struck me as most interesting…First two being:

1: You’ll need 60% to 80% of pre-retirement income to keep your current standard of living once you retire. 

2: Tap regular accounts before tax-deferred ones in retirement.

Here’s the last suggestion…

3: Withdraw 3% to 4% of your portfolio a year, then adjust upward for inflation. 

I never really knew the specifics of how much to take out…A specific amount puts the other suggestions into perspective.

Well, I had originally hoped to reallocate my assets on May 1. Unfortunately, or fortunately, I wasn’t prepared to move my funds around. Fortunately because the stock market has been taking a beating in the last few days. I guess you could look at it in two ways, a buying opportunity or not.

I tend to believe the market is set for a fairly large downward turn because I believe inflation is real. Gas and metals are going up…way up. Not to mention the hurricane season coming up, which will add more pressure to many industries, agricultural included, meaning higher crop prices. Plus the housing industry is seeing a downturn. Add the tension in the middle east, and you’ve just got tons of things pointing to disaster.

Being a financial pessimist at this time, I feel like waiting it out for awhile. I did move money into my investment account, but I may just wait a little longer. With inflation comes the possibility of the feds increasing interest rates a full point? Wow. Anyway, I’m in no rush…Right now, I feel happy I’m not exposed to the market volatility too much.

My friend always brings up this topic, and debating it with him is like trying to debate which came first, the chicken or the egg. In my opinion, if you don’t need the money now, put it away whatever you can afford to for retirement. Makes sense right? But my friend believes that, sure you should put away for retirement, but just the minimum to get matching, why? Because he doesn’t believe it’s wise to lock up all that money for something you don’t even know you’ll be around for. He does have a point. What if all this money we’re saving for retirement just doesn’t come around? I know, how depressing is that…but what if? It’s important to consider it.

So, there is a balance point, and it seems like that point is very unique to each individual. I myself try to put away whatever I can up to the federal limit…might as well. What do you do? Do you max out your retirement contribution?