Tuesday, January 12, 2010

Retirement Fund Rebound

I got this link in my inbox today from my Vanguard retirement account.
Why So Many Americans Are Broke. I didn't think it was a great article. I especially thought point #3 was crazy. First of all the research was from 1981. Couldn't they find anything more relevant, I mean gas is $3 a gallon now. They expect me to drive 20 minutes to save $5? Besides the gas, my time is worth more than that. Maybe if I had other errands in the same area, but I don't want to make a special trip.

I kind of have the same dilemma right now. I want a $19 RV sink that is located 45 minutes away. I could make do with a single bowl sink for $25 and buy it close by but I really want a double bowl sink so I am waiting until I can combine the trip with another errand on that side of town. I have to wait until Sunday but I don't have an immediate need for the sink (other than I just WANT IT NOW). If it was just the $5 savings ($6 in this case), I wouldn't drive all that way. But because it is a hard to find size plus a good price, I am willing to drive across town.

Besides the amusing article from my retirement fund, I also checked my balance and was pleased to see that it was only $500 away from it's peak back in 2007. Hopefully it will keep gaining and make up for the last 2 pitiful years.


Over the Cubicle Wall said...

my 401k is nearly at its previous peak too. I should have made a resolution not to look at it more than once a month.

Dave said...

You are not alone with returning to your 2007 peak. In the early retirement boards I peruse, most people there say they are back to where they were in 2007. My own portfolio (retirement and non-retirement combined, as I had a huge switch from the former to the latter in 2008 when I retired) has also returned to its 3rd quarter, 2007 peak.

As for the linked article, I will go to more effort to save big on big-ticket items rather than drive 20 minutes to save $5 no matter how much the item costs.

Better to be a lender who earns interest (i.e. buy bonds or bond funds) than to be a payer of interest (i.e. credit cards). I have always thought that paying CC interest is a waste, or as I heard a great anaolgy on TV the other night, paying CC interest is like trying to fill up a glass of water even though it has a sizable hole in the bottom of it which is leaking out water as you fill it.

Daizy said...

Over The Cubicle, I forgot about my 401k until I got the email reminder. It was a nice surprise to see it up.

Daizy said...

Dave, did the drop in your retirement account cause you to delay your retirement any? Or did you have plenty saved as a buffer?

Dave said...

Daizy, the drop in my 401(k) had no effect on my decision to retire in late 2008.

I split my overall 401(k) into two pieces as I had planned. One piece was my company stock which was worth about $300k. It was rising through most of 2008 except for a small (about 1%) drop at the end of the 3rd quarter. I cashed that out because it would not be as heavily taxed as the rest of the 401(k). That is now in a "big bond fund" supplying me with about $2k per month, more than enough to live on. I used my existing savings to pay most of the taxes on the sale.

The other part of the 401(k) was a more typical set of investments - an S&P-500 stock fund and a bond fund worth about $234k. The S&P fund had dropped a lot when I rolled it into a traditional IRA but I chose two mutual funds just like those I had in my 401(k) so while I sold at low prices I also bought back at similarly low prices. I chose an asset allocation between the stocks and bonds which was about the same as I had in my 401(k).

The S&P-500 fund in my IRA has recovered nicely and is back to where it was in 2007. The bond fund is now slightly higher than it was in 2007/8 despite some minor rebalancing to take advantage of the low stock fund price last February.

I will not be tapping into the IRA until I turn 59 1/2 so I will enjoy at least another 13 years of growth.