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Tax Season 2012: Work No Longer Pays

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  • #31
    Re: Tax Season 2012: Work No Longer Pays

    Originally posted by FreshFish View Post
    In the meantime you'll also have had use of your money along the way as well.
    This is not a benefit for the majority of Americans that would spend all their money on glitter ponies and hovercraft instead of investing it, if they could access it.

    If I can invest a percentage of my income, pre-tax, and my employer GIVES me money, pre-tax, in my retirement plan, why wouldn't I want to take advantage of that as a portion of my investment plan? Just in CASE something horrible happens, and I have to pay a 10% penalty? That's not a certainty. I certainly would not advocate having ONLY a retirement plan as your entire investment strategy, but I think there's a lot of gray area there.

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    • #32
      Re: Tax Season 2012: Work No Longer Pays

      Originally posted by jen View Post
      This is not a benefit for the majority of Americans that would spend all their money on glitter ponies and hovercraft instead of investing it, if they could access it.

      If I can invest a percentage of my income, pre-tax, and my employer GIVES me money, pre-tax, in my retirement plan, why wouldn't I want to take advantage of that as a portion of my investment plan? Just in CASE something horrible happens, and I have to pay a 10% penalty? That's not a certainty. I certainly would not advocate having ONLY a retirement plan as your entire investment strategy, but I think there's a lot of gray area there.
      As Cramer says about every day on his show, "Diversify!"

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      • #33
        Re: Tax Season 2012: Work No Longer Pays

        We started putting a bit of money into post-tax savings as a hedge against the inevitably higher federal taxes down the road when the feds eventually have to develop a modicum of fiscal responsibility. With the ability to withdraw the principal from a Roth after five years, it's a pretty nice way to diversify pre and post-tax savings and use it as a rainy day fund.

        Certainly if an employer does matching, that's a great thing and I'd recommend taking advantage of it if possible. Working for the government, we don't get those sorts of perks like the private sector often offers.
        Originally posted by Priceless
        Good to see you're so reasonable.
        Originally posted by ScoobyDoo
        Very well, said.
        Originally posted by Rover
        A fair assessment Bob.

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        • #34
          Re: Tax Season 2012: Work No Longer Pays

          Originally posted by Bob Gray View Post
          We started putting a bit of money into post-tax savings as a hedge against the inevitably higher federal taxes down the road when the feds eventually have to develop a modicum of fiscal responsibility. With the ability to withdraw the principal from a Roth after five years, it's a pretty nice way to diversify pre and post-tax savings and use it as a rainy day fund.

          Certainly if an employer does matching, that's a great thing and I'd recommend taking advantage of it if possible. Working for the government, we don't get those sorts of perks like the private sector often offers.
          When you work for the government, though, there's also a pension which could be factored in.

          Which brings me to a thought: How much dependence, if any, should be placed on these government(-and-company)-provided "savings plans" such as pensions and Social Security? Obviously I disagree with how they're funded (especially social security), but should we assume there to be a time when these would not be available to us, despite our payment into the system?

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          • #35
            Re: Tax Season 2012: Work No Longer Pays

            The federal government does offer a match. There's a 1% automatic agency contribution to the TSP (the federal government's 401k system) whether or not the employee contributes. Beyond that, there's a dollar for dollar match on the first 3% and a $0.50 per dollar match for the next 2%. So, if you contribute 5%, you're effectively getting 10% of your salary thrown into retirement.
            should we assume there to be a time when these would not be available to us, despite our payment into the system?
            Plan your future based on not getting any help from these things so that you'll be pleasantly surprised should they still be around at the time of retirement. I think social security still existing is a safe bet, but the payouts will almost certainly be less generous than they've been for recipients thus far.

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            • #36
              Re: Tax Season 2012: Work No Longer Pays

              Originally posted by FlagDUDE08 View Post
              When you work for the government, though, there's also a pension which could be factored in.

              Which brings me to a thought: How much dependence, if any, should be placed on these government(-and-company)-provided "savings plans" such as pensions and Social Security? Obviously I disagree with how they're funded (especially social security), but should we assume there to be a time when these would not be available to us, despite our payment into the system?
              I assume Social Security and federally funded medical coverage will be nil by the time I can access them. I just view those deductions from my paycheck as an intergenerational tax that I likely will get little value from down the road. The boomers will ransack those programs for all they can get, leaving little for later generations.
              Originally posted by Priceless
              Good to see you're so reasonable.
              Originally posted by ScoobyDoo
              Very well, said.
              Originally posted by Rover
              A fair assessment Bob.

              Comment


              • #37
                Re: Tax Season 2012: Work No Longer Pays

                Originally posted by Bakunin View Post
                The federal government does offer a match. There's a 1% automatic agency contribution to the TSP (the federal government's 401k system) whether or not the employee contributes. Beyond that, there's a dollar for dollar match on the first 3% and a $0.50 per dollar match for the next 2%. So, if you contribute 5%, you're effectively getting 10% of your salary thrown into retirement.

                Plan your future based on not getting any help from these things so that you'll be pleasantly surprised should they still be around at the time of retirement. I think social security still existing is a safe bet, but the payouts will almost certainly be less generous than they've been for recipients thus far.
                I work for a state government, not the feds, and they don't offer some of the goodies the feds do, including any sort of match.
                Originally posted by Priceless
                Good to see you're so reasonable.
                Originally posted by ScoobyDoo
                Very well, said.
                Originally posted by Rover
                A fair assessment Bob.

                Comment


                • #38
                  Re: Tax Season 2012: Work No Longer Pays

                  Originally posted by FreshFish View Post
                  Saving "for retirement" is probably the single most destructive myth to personal financial security perpetuated by the financial services advertisements. I cannot think of very many things that distort sensible decision-making more.

                  We save money to have cash available for opportunities and emergencies. If you develop good savings habits at a young age, you don't need to save "for retirement" ... you'll have savings throughout your entire life, which will include retirement when you get there. In the meantime you'll also have had use of your money along the way as well.

                  In fact, because of the 10% penalty tax, and limitations on the kinds of assets one typically can own inside a retirement plan, saving "for retirement" restricts your options: while you save for opportunities (they are limited) or emergencies (which requires either a penalty tax or a loan against the plan).
                  You shouldn't be saving EXCLUSIVELY in tax advantaged retirement accounts, but they have an important role to play in most peoples retirement account. For long term savings goals, the tax advantages of retirement accounts are the tradeoff with reduced access to the money.

                  I have (and I believe that most people should have):
                  1.) a highly Liquid Emergency Fund
                  2.) short term savings goals in a low risk location (time horizon of under 5 years)
                  3.) longer term savings goals and investments (time horizon of over 5 years, but less than retirement)
                  4.) tax advantaged retirement accounts: A.) an IRA and B.) a 401k/403b/457 plan that includes any employer matching

                  If you are under 35 and choosing to not contribute to a Roth IRA (either through a direct contribution or using the current rollover loophole) you are doing your future-self a disservice.

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                  • #39
                    Re: Tax Season 2012: Work No Longer Pays

                    When in doubt, work for the gov't that can print its own money.

                    SS/Medicare will still be there decades from now. They're entitlement programs that support a group of people that votes in droves. Even politicians aren't stupid enough to eliminate such things because AARP will see to it they don't get re-elected.

                    On Almington's list, I'd say #1-2 are pretty much the same thing / will be parked in the same place (money market account / savings account / CDs).

                    Intermediate term savings goals are trickier - if it's < 10 years, the stock market is probably a bit too risky, but if it's > 5 years, you don't want to be losing ground to inflation by parking it in CD's either. Personally, I'd opt to put this money on a site like lendingclub, but that probably isn't for everyone (for those who don't know, that's a site that offers you the opportunity to invest in loans - as little as $25 per loan). If you invest the minimum per loan and spread it around among dozens of loans, the risk isn't quite so bad, and the returns are fairly decent (through one year of this, I've managed an 11.5% return even with several loans defaulting / being written off).
                    Last edited by Bakunin; 01-27-2012, 11:34 AM.

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                    • #40
                      Re: Tax Season 2012: Work No Longer Pays

                      Originally posted by Bakunin View Post
                      On Almington's list, I'd say #1-2 are pretty much the same thing / will be parked in the same place (money market account / savings account / CDs).
                      I like to keep them separate. My E-fund lives lives in the MM account at the credit union where my parents opened an account for me when I was 6 months old. The money that I am saving for specific goals it direct deposited to an ING savings account with multiple sub-accounts. That's what works for me, but you have to go with what is best for you.

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                      • #41
                        Re: Tax Season 2012: Work No Longer Pays

                        Originally posted by Almington View Post
                        I like to keep them separate. My E-fund lives lives in the MM account at the credit union where my parents opened an account for me when I was 6 months old. The money that I am saving for specific goals it direct deposited to an ING savings account with multiple sub-accounts. That's what works for me, but you have to go with what is best for you.
                        If you're looking for something highly liquid with an emergency fund (or even perfectly liquid), why would you use M2 (money market) and not M1 (straight checking, or cash in a shoebox)? I realize getting interest is a good thing, but would an interest checking account suffice?
                        Last edited by FlagDUDE08; 01-27-2012, 12:16 PM.

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                        • #42
                          Re: Tax Season 2012: Work No Longer Pays

                          Originally posted by FlagDUDE08 View Post
                          If you're looking for something highly liquid with an emergency fund (or even perfectly liquid), why would you use M2 (money market) and not M1 (straight checking, or cash in a shoebox)? I realize getting interest is a good thing, but would an interest checking account suffice?
                          Don't know how his account works, but for things like capital one / ING and the like, what they are calling "money market" these days is still good enough on the liquidity side (if I initiate a transfer to my checking, the money will hit in 3 business days). Of course, thanks to the Fed, the interest rate is pure ****. I believe the highest one you can get nowadays is around 1%.

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                          • #43
                            Re: Tax Season 2012: Work No Longer Pays

                            Originally posted by Bakunin View Post
                            Don't know how his account works, but for things like capital one and the like, what they are calling "money market" these days is still good enough on the liquidity side (if I initiate a transfer to my checking, the money will hit in 3 business days). Of course, thanks to the Fed, the interest rate is pure ****. I believe the highest one you can get nowadays is around 1%.
                            ...if you're lucky. But yea, money hitting in 3 business days vs. money hitting immediately is my point. I would think with an emergency fund, you want the money immediately upon demand.

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                            • #44
                              Re: Tax Season 2012: Work No Longer Pays

                              Originally posted by FlagDUDE08 View Post
                              If you're looking for something highly liquid with an emergency fund (or even perfectly liquid), why would you use M2 (money market) and not M1 (straight checking, or cash in a shoebox)? I realize getting interest is a good thing, but would an interest checking account suffice?
                              At the credit union we use, we get better interest on a money market account than checking, though admittedly even the interest on the MM is pretty minimal right now.
                              Originally posted by Priceless
                              Good to see you're so reasonable.
                              Originally posted by ScoobyDoo
                              Very well, said.
                              Originally posted by Rover
                              A fair assessment Bob.

                              Comment


                              • #45
                                Re: Tax Season 2012: Work No Longer Pays

                                Originally posted by FlagDUDE08 View Post
                                ...if you're lucky. But yea, money hitting in 3 business days vs. money hitting immediately is my point. I would think with an emergency fund, you want the money immediately upon demand.
                                Needing money instantly isn't really a concern.

                                The types of emergencies that I'm thinking of are: job loss, medical issue, traffic accident/car totaled, house burns to the ground, etc. None of these things would require cash-in-hand immediately. I can secure lodging / rent a car with a credit card. Hospital bills would mostly be covered by insurance and the remainder by my HSA balance. Loss of employment would be horrible, but again, I always have enough in my account to cover my bills, so moving money around wouldn't be an issue with that, either.

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