The whole purpose of the goal was to put me on a solid track for saving for retirement. I understood the power of compound interest at an early age and knew the cost of waiting to save for retirement. $100,000 is really not an important number and there is no science behind it, I just knew that if I had roughly $100k put away by the time I reached age 30 I would be on a very good track where if I were to sluff off on retirement savings to do other things (build dream house, pay for kids college, etc) that it would not hurt my retirement as bad because I had done the grunt work up front and had 30+ years and the power of compound interest on my side.

Over-simplifying things, but if I had $100k in my accounts at age 30 and never saved another penny and it earned 10% annually in the stock market for the next 35 years I would have over $2.8 million in my retirement account at age 65. Again over simplifying things, but that is the general concept. Save as much as you can as early as you can and get time on your side and saving for retirement will seem easy, especially compared to those that wait till they are 40 or older to start saving.

Below are the final results of my goal. I’ll provide more detail after you review the results.

As you can see the first thing you probably noticed is that I fell short of my goal. I will address that in a little bit. The other thing you might have noticed is that there is an additional column where I decided to count all of the matching money that my employer has contributed that is 100% vested. Originally I said I was not going to count on this money, which is good when setting a goal, never count your eggs before they are hatched, but in the end this money was contributed to my retirement accounts and it is 100% mine so its really no different than if I had contributed it myself. I made a conscious decision for taking this job over others and the retirement package was one of the reasons and I think I should be able to count those contributions.

Now to address me falling short. This certainly was not because I couldn’t reach my goal, its sort of that I decided reaching the goal wasn’t as important as saving for our dream house. As much as I like to go on and on about saving for retirement and how buying houses may not be the best financially for some people (wow had some foresight there) as was pointed out to me so eloquently by Doug in this post – you have to balance long-term savings vs spending some money now and enjoying life today. While this may sound goofy as I’m forgoing one savings to save for something else, I sort of view saving for a house as a short-term lets waste money on something and enjoy life now thing versus anything that would be smart financially. We already have a house it suits us fine and there is no reason we could not live here the rest of our lives. We just want something bigger and better and one of us has some crazy ideas on ways to waste money

So while I fell woefully short of my intended savings for this year – in the last 2 years I’ve been able to save $35,000 for our new house. In fact an automatic deposit today went to our house fund for $1,175 which ironically would have put me right at $100,000 if I had directed it to our retirement savings instead. So all in all while I feel some disappointment for falling just short of my goal – I do feel very good about where we sit financially right now and think our retirement savings is very much on track. The last two caveats I will throw in here are that originally the goal stated Dec 31 of the year in which I turn 30 which I will easily get (I changed the goal about a year ago when I thought the goal was getting too easy) and I also have $8,382 of contributions that I am not counting because they are not 100% vested until Jan of 2010. So I guess depending upon how you look at it I may have actually met my goal. Like I said this wasn’t rocket science I just wanted to make sure I was headed in the right direction and I feel very much so that I am.

I have not changed anything other than maybe scrounging up any extra cash I come across to stick into the market. So far if you look at my results you would say I am a complete failure as in the short term as my retirement accounts have lost almost $30,000 (30%+) in just the last few months. In fact if you include my employers matching contributions (which I don’t for my nestegg reports or $100k by 30 goal) since I started investing in 2004 I have invested just about $100,000 and at last glance my accounts were only worth $69,000. So after 4.5 years of investing and living well below my means sometimes saving nearly half my income for retirement and giving up some of life’s luxuries I have $30,000 less than I started with. If you look at this isolated point in time you could pretty much come to the conclusion that I am a complete dumbass and better come up with something better to do with my money.

I mean it has been confirmed that the sky is falling and any money you put into the stock market is better off being put through a paper shredder, lit on fire, and used for heat. No matter how optimistic I am about the fact that the markets will recover just like they have after every other single crisis that was suppose to sink this country and the world economy in the past, certainly I would be better to stop or at least slow down my investment contributions until some sign of life or recovery poked its head through the fire and brimstone we see in the market today.

I mean I am 29 years old have/had $100,000 invested in the stock market certainly I’ve done my fair share and if I am right and the market recovers I will still be lightyears ahead of my peers. Plus I can use my frugal lifestyle to store up cash reserves, maybe stock up on canned food, guns, and buy gold to bury in my backyard to prepare for the coming Armageddon.

I’d being lying to you if I haven’t at least considered the the aforementioned idea or at least some of them. I’ve watched people like Peter Schiff and Ron Paul who have been almost prophetic in the way they have predicted the current financial crisis and their vision of the future isn’t exactly balmy even after the nearly 40% drop of the market and failure of just about every major investment brokerage or bank. To be honest I’m huge Ron Paul fan and think the best thing our country could do is to put him in charge, I also think Peter Schiff is a very smart individual and the two of them understand much of what government and wall street do not.

Peter Schiff
http://www.youtube.com/watch?v=IU6PamCQ6zw
http://www.youtube.com/watch?v=EoB4BS7CGAw
Ron Paul
http://www.youtube.com/watch?v=04B3Wl2qouw

However I think even if they are right there is probably no better spot for my money than the stock market. Gold while a great fighter against inflation, has huge markups and transaction costs, is hard to get a hold of (especially if you want to physically own it), and cannot create wealth. The only thing gold does is prevent wealth loss due to inflation and when you pay upwards of 10-15% plus transaction costs to purchase gold or silver you are pretty much guaranteeing you are going to lose money on the deal. Plus you’ve got the scenario where if stuff does hit the fan and everyone’s investments and money are worthless then those being able to purchase or barter with you for your gold are going to be pretty slim.

If people like Ron Paul and Peter Schiff are right, which I believe they are then holding onto extra cash
is going to be a losing battle as inflation is going to eat up that money at rates we have not seen since the 70s or worse.

So other than buying real estate, which certainly has not been doing much lately you are pretty much left with consume and try to enjoy life now or put your money in the stock market and pray that this time isn’t any different.

I also have the luxury of despite me saving such a large amount of my income over the years, all this money was discretionary money. I do not need it for anything right now or anything in the immediate future. If I lost it all tomorrow, yes it would suck, but it would not affect my lifestyle one bit. If I was investing on a margin, HELOC, or with money I needed for expenses anytime in the next decade it would be an entirely different story.

The other point which I have not hit in this post is that by changing my investment philosophy I am pretty much guaranteeing failure or at the very least subpar returns. I had the unfortunate luck of starting my investment career at what right now is the absolute high of the stock market right before what is looking to be one of the worst if not the worst crash in our stock market history. So if I were to sell right now I would be locking in tremendous losses that would decimate my investment performance for probably the rest of my life. And really how much lower can things go

If I took the philosophy of lets just leave the money in there, but slow down or stop until some kind of recovery I would be weighting my portfolio towards the buy high end of the equation and it would likely take me a very long time to recoup my losses and my returns would be subpar because most of my purchases were at high point in the market. Plus I’ve already written you are an idiot if you try to time the market. This post is already getting too long, so I will defer to Five Cent Nickel who explains perfectly why you HAVE to keep investing regularly during market downturns. These times are our biggest opportunities!!! (assuming its not the of the world )

One final point which I will quickly make. Lets say I was one of those people who had not invested any money in the stock market and instead had lived life up, bought all the toys, big house, fancy dinners, etc. What would I have to show for it today? Would I really be any happier – would my life be anymore complete because I drove a nicer car, had a bigger house, and a bunch of useless crap stuffed in the garage and basement, because I just had to have these things that seemed cool or a must have at the moment only to turn out to be something you used only a handful of times and are now worthless. I can guarantee you the people that lived this way are probably more stressed out than I am now because they likely used lots of debt to buy these things and they probably don’t have over $60,000 of liquidable assets that can increase in value
.

I have no regrets and feel perfectly comfortably with my decision – which in the end is the most important thing. Whether I’m right or wrong I don’t think I would have done anything differently.

Step 1
The first thing you need to check is if the brokerage you want to transfer to is able to complete this type of transaction. Like I said Roth 401ks are very new and when I left my job at the end of January I checked with about 5 different discount brokerages and NONE of them offered rollovers for Roth 401ks at the time. However a check at the end of May resulted in me finding out that nearly all of those brokerages do in fact offer the rollovers now. What a difference 3 months can make.

Word of caution: when asking brokerages if they do in fact offer Roth 401k rollovers many of them by reflex will only see 401k rollover and say yes. Almost all of the brokerages I checked with in February said yes initially, it wasn’t until I verified with them that they caught the Roth part that they said they did not offer that service at this time.

Step 2
The second thing to take into account is whether you want to roll your 401k into a Rollover IRA or an normal IRA. If you roll your 401k into a Rollover IRA and do not try to contribute funds to this IRA down the road, in other words keep it with just your rolled over money, you have the option in the future if you so choose to roll that Rollover IRA into a company sponsored plan down the road. However if you roll it over into an existing IRA that you make your normal IRA contributions to or decide down the road to use your Rollover IRA as your normal IRA you will be forced to keep it in a IRA type account forever. This is because it’s hard enough for brokerages to keep track of what’s what as it is. I probably don’t need to say this, but will just for the sake of completeness. Roth 401ks can only be rolled over into Roth IRAs or Rollover Roth IRAs and Traditional 401ks can only be rolled over into Traditional IRAs or Traditional Rollover IRAs.

Step 3
Ok so step 3 is to identify what type of account you are going to rollover your 401k account into based on the information on step 2. So if you don’t have an existing IRA or decide that sometime down the road you might want to roll this money back into an employers 401k you are probably better off creating a new Rollover IRA (in my case Roth) with a brokerage. Once your account is setup and you have an account number you are ready to move onto step 4.

Step 4
Step 4 requires you getting the plan information from the company/brokerage that holds your previous 401k. In my case I needed to contact my previous company’s HR department and they sent me the necessary forms. I’m sure every form is different, but basically the key thing is you need to tell them that you want to transfer this money to the Rollover/IRA that you identified in Step 3. On my form I simply had to fill out the name and address of the financial institution I wanted the funds transferred to as well as the account number that the funds would be going into.

In my case they will liquidate all of my funds and cut a check with my name and the financial institutions name on it and mail it to the financial institution. I have never done this process before and am currently at the form filling out phase, but a buddy of mine just did a rollover and the whole process took about 3 days. Also in my case I actually have a Traditional 401k and a Roth 401k with my previous employer so I will actually be doing two rollovers to get the money out.

Another thing to note: You cannot rollover a 401k until you leave the employer that the account is with. If anyone is curious the brokerage I am using is Scottrade. I have been with them for 3-4 years now and have been very happy with them. The only knock against them that I have is that they do not offer free dividend reinvestment for stocks (although they do for mutual funds). The biggest reason I am transferring everything to them though is that they were the only brokerage where I felt completely comfortable that they knew what I was talking about with my various rollover questions and when doing rollovers like this the last thing you want is a mistake and the HUGE headache of trying to straighten it out if they do the rollover wrong.

Anyway these are my notes so far. If I learn anything new I will update this post, otherwise hopefully this is helpful for someone else going through this process.

If you do the things you have to do when you have to do them SOMEDAY you will be able to do the things you want to do when you want to do them.

We all know that getting up for work each day and isn’t necessarily the most enjoyable thing in the world. Then tack on the fact that in order to save for retirement you have to give up something now for something in the future that is hard for people to grasp. Saving for retirement for some people is almost the equivalent of throwing their money away. They just can’t see the big picture of what that savings is actually buying them and end up putting off saving for retirement. The longer you put off what you have to do (Save for Retirement) the later that SOMEDAY (financial freedom) will come.

See the thing is, people think they are giving up so much by saving money. They can’t purchase as much stuff now or get a bigger house or better car so they feel like it’s not worth it. However in my book they are giving up way more down the road than they are giving up now.

When you are 70-80 years old and are looking back at your life, what do you think is going to be more important to you? That new Chevy Escalade you drove for 4 years when you were in your early 30s or the fact that you got to retire 15-20 years before anyone else your age and got to spend time with your family/grandkids and whatever else was important to you in your life and made you happy.

To me that freedom to do what I want when I want to do it is priceless and if I have to work a little harder now to make that day come sooner then I’m going to roll up my sleeves and do it. Freedom is what I really WANT not a fancy house, car, social status, etc.

I’ve been meaning to come up with a long range retirement goal, but honestly the task is a little daunting and I’m not sure the best way to go about doing it. Now I’ve projected my retirement savings out 30-40 years in the future with expected investment returns, inflation, and withdrawal rates in Excel, but I don’t trust myself and even then how do you really know when you hit that magic number? In theory it’s pretty simple, just find a number that you can safely withdraw your required retirement income (inflation accounted for) without running out of money before you die.

So I’ve started down this journey and have used some online calculators, but to be honest I’ve gotten a wide range of results and many of them don’t even fathom you retiring before age 60. This is a huge variable that can drastically affect your retirement requirements. The earlier you retire the longer you have to live off your retirement savings and the less time you have to let the magic of compounding work in your favor.

I really kinda want to retire early, sort of. By this I mean when I get into my 40s (hopefully earlier 40s, although from my initial projects maybe mid-late 40s) I want to be financially secure so that I can do whatever I want. This won’t mean sitting on my butt all day watching Oprah, I’ve actually got grand visions of possibly a career change – maybe teaching high school and coaching sports and having the entire summer off with my wife (who is a teacher) and our kids. We could travel in the summer and I really think I would enjoy giving back by being a teacher and a coach. I may want to start my own business, or volunteer more heavily in a service organization, whatever master plan I come up with I don’t want to have to worry about sacrificing my retirement or my families well-being just because Dad decided to give up his “real job”.

So I’m on a quest to find the magical number that will allow me to sort of put retirement savings on cruise control and start concentrating more on areas of my life that I might enjoy more than working in an office everyday. So do you know your retirement number? If so how did you figure out what it was, what tools did you use, what factors did you take into account?

I’m really curious to see which retirement projection tools I haven’t run across yet and what it really takes to retire early.