As you probably already know, 2010 is a great time to convert your Traditional IRA to a Roth IRA.  The year is now more than half over, so I thought I’d share my thoughts on the Roth IRA Conversion.

In 2010, you can convert a Traditional IRA to a Roth IRA even if you make over $100,000.  Also, you will pay taxes over a two year period and the first payment (1/2) isn’t due until April 2012 and the other half will be due by April 2013.  Here is a full list of 2010 Roth IRA conversion rules.

Even though I knew converting in 2010 would provide some distinct advantages, my wife and I decided to do it back in 2008.  Here’s why …

Why we Converted our Traditional IRA to a Roth

1. Bookkeeping – Keep everything in one account – Basically, over several years we had been lazy and accumulated some 403bs here and some there.  My wife had a Roth IRA and 403bs through two different organizations.  We didn’t roll anything over when she left old employers.  We decided that everything was getting hard to track and properly diversify, so we wanted to roll everything into one account.
2. Economic Meltdown – Since around 2007, I’d toyed with the idea of converting my Roth IRA.  By the middle of  2008 when our account values were cut almost in half, I decided that I would take advantage of the economic downturn and convert our traditional IRAs to a Roth.
3. Anticipated income increase (also higher tax bracket) in the future – My wife is currently a stay at home mom.  However, since she has a Master’s Degree in Education, we anticipate that sometime she will go back to work.  Being in a lower tax bracket now made this a perfect time for us to convert to a Roth IRA.

Should You Convert To A Roth?

Because this is a very complex situation, you should ask your tax accountant to help you think through all of the various implications.

The best piece of advice I’ve heard on the topic is to consider diversifying your investment vehicle – not just your investments.  In other words, have some money in a Traditional and some in a Roth.  This way you are in a position to financially benefit regardless of your tax bracket at retirement.

Since there are so many unknown retirement variables, you should think through this decision carefully.

Free Money Finance quoted the following from this piece from Kiplinger:

1. Can you afford to pay the tax on the conversion with money from outside your IRA?
2. Do you expect to be in a higher tax bracket in the future?
3. Will you need your IRA money in retirement, or do you think you’ll be able pass most of it on to your heirs?
4. How long do you plan to keep the money in the account?
5. Do you plan to pay college bills soon?

What if the government changes rules regarding the Roth IRA?

Well, that is bad new for me.  This is also one of my major concerns.

One of my regrets about converting is that the government has been known to do whatever it wants regardless of former laws.

Also, what if, despite all your best guesses, tax rates are lower in the future?  If you are diversified (some Roth IRA and some Traditional IRA) then you are in a position to benefit either way.  At least you are in a position where you won’t be financially hurt.

What if a Roth conversion isn’t right for you, but you still like the Roth IRA?

Perhaps you have run the numbers and converting your Roth is appealing, but you don’t have the money for the taxes.  In this case, you should simply start a Roth and contribute future retirement savings into that account.

Did anyone convert or plan to convert a Roth IRA this year?  What are your thoughts on it?

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Warning.  What you are about to read is highly irreverent.  If you are offended by people making light of serious issues, then you should probably read something else.  May I suggest my other site – Help Me Travel Cheap. You could learn about How to Get a Refund for Airline Tickets or Airplane Games for Kids: Make Time Fly.

My mum (“mom” for the Americans) has been talking about retirement – she’s just trying to find the right time.  The only problem is that one annoying factor is missing from her retirement equation – and it is important too – how long will she live?  Since the Bible tells us to honor our mother and father, I’m going to try and help my mother by introducing you to a homemade calculator that will help you know how long you will live.  Now, this will make retirement planning so much easier …

If your parents have already passed away, take the average age of the life span.  If only one parent is living then you can use that as a reference point.  If both parents are still living, then you’re probably not close enough to be worrying about such a heavy issue.

Now that you have your median age, you need to make adjustments based on your lifestyle choices:

• For every 100 hot dogs you have eaten, take away one week.
• Remove six months for each of your kids.  Wasn’t it you who said, seriously, you’re killing me?
• If your kids are currently making good choices and seem to be reasonably responsible, then add 3 months.  If your kids are constantly making poor choices that cause you to lose sleep, then remove 1 year.
• If you have ever used a microwave, computer, electricity, or been in contact with anything made of plastic, cotton, or silk, there is a good chance you’ve been exposed to something that causes a serious disease.  Take off a year just to be safe.
• If you don’t smoke and don’t consume an excessive amount of alcohol, add 2 years.  If not, subtract two years.
• For every dozen times you eaten at McDonald’s, take off 1 month.  If those occasions have been after McDonald’s introduced salads, then you might not be penalized.
• If you’ve gone to church every Sunday, add 2 years.  I’m a preacher so I’ve got to encourage church attendance.
• If your son is a blogger and wrote an entire post about how long you will live, subtract 1 month – how embarrassing.  If your son is a blogger who constantly makes spelling and grammar mistakes then take away 1 week for every time your heart skipped a beat and you said ,‘How does he still not know the difference between your and you’re?’

Now once you have compiled all your information, simply add your extra years and subtract the deductions.

While this post is an absolute waste of time, isn’t this the stuff that insurance companies do?  They develop a formula where they charge you for life insurance based on your statistical likelihood of death.  I wonder if their formula is more or less detailed than mine?

In the end, I think this all just goes to show that we cannot control something that belongs to God.  We take what we know, plan the best we can, and entrust ourselves to the care of God.

Round Up

And, now I’ll add something of value …

Articles To Highlight This Week

Bible Money Matters asks Should Married Couples Divide Their Money? How annoying would it get always splitting the bill at the restaurant?

Jay Guin says the ministers housing allowance may be on the chopping block.  Thanks to Matt Dabbs for pointing out the article.

Canadian Finance Blog tells us How To Cut Your Insurance Costs.  He forgot to add not to trust bloggers’ home made life span calculators.

Being a second hand shopper, I like reviewing What Should You Buy Used? What Should You Buy New? at Get Rich Slowly.  Here’s my own list of Buying Second Hand: Ten Items to be Cautious About.

Len Penzo dot Com shares A Frugal Fact: The 6 Most Valuable Grocery Store Products Known to Man.

Christian Common Cents shares Tax Credit and Deduction Adjustments to Be Aware Of.

Carnivals

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When deciding between a Roth IRA and a Traditional IRA and the tax implications, you just need to remember one little fact.  You will pay taxes on that money.  The only questions are: when and how. 

There are other differences, like the withdrawal rules, contribution limits, and income limits, but that is another post for another time.  In this article, we are going to focus on clearly explaining the tax implications of the Roth and Traditional IRA. 

When you start your retirement planning, one of the first decisions you will need to make is which retirement account suits you best. 

Roth IRA and Taxes Explained

With a Roth IRA, income tax is paid up front, and you do not pay taxes on gains.

If you put $5,000 into a Roth, you will still be required to pay income tax on the $5,000.

Thus, if you invest in a Roth IRA, you will not receive any tax benefit this year just because you invested in a Roth.

If, when you retire, the account is worth $75,000, you do not pay any more income tax; nor do you pay any taxes on the gains.  You keep all $75,000 because you have already paid your taxes when the contributions went into the account. 

Tax Summary: Income tax is paid at the front end when you make contributions, and it is not subject to capital gains.

Traditional IRA Tax Lessons

With a Traditional IRA, income tax is paid at withdrawal, and there are no taxes on gains.  This is called a tax deferred investment.  You defer your taxes to a later date.

If you put $5,000 in a Traditional IRA, you don’t pay any taxes on that money today – it is tax deferred. 

If you put in $5,000 in 2010 then you would pay tax on $5,000 less dollars this year. 

However, a Traditional IRA will be subject to income tax when it is withdrawn.  If your account is worth $75,000 at retirement and you withdraw $75,000, you will pay income tax on $75,000.  You will not, on the other hand, pay any capital gains taxes.

Tax Summary: Income tax is deferred until you take the money out, and it is not subject to capital gains.

Roth IRA is like McDonald’s and the Traditional IRA is like Applebee’s.

Sometimes a little analogy makes everything clear.

When you go to McDonald’s or Applebee’s, you must pay for your food.  When you invest in either, you must pay taxes.

At McDonald’s, you pay when you order the food (payment is up front).  When you invest in a Roth, you pay taxes when you put money into the account.

At Applebee’s, you pay when you are done eating and heading out the door (payment is deferred).  When you invest in a Traditional, you pay when you withdraw the money.

Compare the Roth IRA and the Traditional IRA: Which is Better?

There is not one investment vehicle which is inherently better for everyone, so (unfortunately) you’ll need to do a little retirement planning.

Two Questions to Answer When Deciding Which is Best – a Roth or Traditional?

What is your current tax bracket and what do you expect your bracket to be at retirement?

Let’s assume you are a younger person just getting started in the work force and you are in the 15% bracket.  You anticipate, however, that in the future you will be paid more money so you will likely jump up to the 25% bracket.  Furthermore, you anticipate taking out enough money at retirement that you would be in the 25% bracket.  In this case, you are better off using a Roth IRA because you are only paying 15% on the money.  You will probably not be in this low tax bracket again.

The biggest factor of all … will tax rates be higher or lower when you retire? 

Let’s assume you are paying 15% taxes today, and in 30 years when you retire the government decides you will only need to pay 5% in taxes.  Well, if you used a Roth IRA, you’re going to feel bad because you paid 15% on that money when you put it in.  However, if you used a Traditional IRA, you’re going to be happy because now you pay 5% instead of the 15%.

FYI, in my opinion, tax rates will likely be higher in the future.  Based on what?  Nothing other than my gut feeling.  That is why I invest in Roth IRAs.

Not feeling particularly confident about your prediction?  You could just take the safe road and invest in both a Roth IRA and a Traditional IRA. 

Which investment would you suggest: Roth IRA or Traditional IRA?

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“Will I have enough for retirement?” is a very difficult question to answer.  Last week I left on a low note by introducing you to the 7 retirement factors you cannot control.  I guess it was probably a little discouraging.  However, I am not advocating you simply throw up your hands and ignore retirement planning.  I am suggesting that the process should be simplified and your time commitment to all the details minimal.  Hence, the subtitle of this article is once again how not to waste time planning for retirement. 

Since there are so many variables, what we need to learn to do is acknowledge those variables and develop an investment plan that accounts for those variables. 

How to Plan for Retirement in the Midst of Unknown Variables

* Special Note: These tips are specifically for those in their 20s – 30s.  The closer you are to retirement, the more refined your retirement plan can and should be.

1.   Vow not to use another retirement calculator for 10 – 15 years.

If you have never used such a calculator, go ahead and run some numbers just to get a ballpark idea of your future nest egg.  However, these exercises are extremely time consuming and often produce little tangible results.  Typically when some runs a calculator, they realize they need to put in “x” dollars a month and then shrug and say, “With my budget I can’t afford to put that much money into retirement.”  At the end of the day they have changed nothing after sacrificing an evening to running the numbers. 

2.   Identify and focus on the variables you control.

You can control what you contribute, what investment vehicle you use (like a Roth IRA), the fees you pay to a brokerage, and your asset allocation.  You cannot control the fate of government programs and you cannot control the direction of the stock market. 

3.   Determine a percentage of your income to contribute to retirement.

Most financial advisors will suggest a number between 10% and 15%.  Obviously, the higher the number is, the more likely you will be able to reach your goals.  Perhaps you are doing less. Simply make an effort to increase that amount by at least 1% each year till you reach your desired threshold. 

4.   Automate your investments.

Once you have set your contribution dollar amount based on your percentage, automate your investments.  As a result, you will be most likely to continue your investing habit. 

5.   Review annually.

Each year review your current finacial plan.  Every year you will likely know one more piece of the grand retirement puzzle.  That knowledge may cause you to tweak your retirement planning.  You may change your asset allocation.  You may increase or decrease the percentage you invest.  Don’t strive for perfection in the review, just give due attention to the process and then move on to something else.

Hopefully you have a little more confidence to put down the pen and calculator and get out and find a better use of your time then fretting over the question, “Will I have enough for retirement?”.

How do you simplify your retirement planning?  How do you deal with the variables of retirement?

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Subtitle:  How not to waste your time planning for retirement. 

Often we are told to ask the question, “Will I have enough for retirement?”  On the surface that certainly is a valid question.  However, the younger a person is the more variables exist that make the equation too complicated to properly calculate.  As a thirty-something year old male, I have come to realize that most of my wondering “will I have enough for retirement?” has been almost a complete waste of time.  Here are some retirement planning variables I believe we cannot either know or control:

1.  Social Security

Right now I chuckle to myself when I read the asterisked segment of my social security statement.  Here is my translation.  “Hi, Mr. Ford, US Government here.  Just wanted to let you know that the dollar amounts we are writing on this paper mean absolutely nothing.  In fact, we don’t anticipate having the necessary funds to pay you the stated amount.  Have a lovely life.  P.S. We are happy to continue receiving your social security payments.”   In the future I suspect that giggle with turn into a scowl.

2.  Rate of Return

Should you plan to get a 12% rate of return?  Is 6% more accurate?  Should you split the difference and go with 9%?  Regardless of the estimate you use, there is a good chance you are going to be wrong.  Sure, you might save a million dollars, but that still might not be enough.  Your asset allocation will influence you rate of return, but you still cannot know what return you will get.

3.  Inflation

How much will $1 be worth 30 years from today?  Will a Big Mac cost $15 and a gallon of gasoline $25?  I don’t know.  Do you? 

4.  Retirement Age

 The first financial advisor I met with at the age of 21 asked me when I wanted to retire.  What an impossible question to answer.  Now more than a decade later I don’t think I am any closer to answering that question.  I’m not even sure if retirement is the goal of life.  Will I have a job I love?  Will I hate what I do?  Will I be healthy?  Will my wife be working? 

5.  Activity During Retirement

 When (could we even say if) I retire I have no idea if I will be sitting at home reading the daily newspaper and playing croquet or putting on a suit jacket and heading back into the office for another day of work.  If I work part time what I need for retirement will fluctuate greatly.  At this point in my life those questions only result in an “I don’t know shrug

6.  Our future income

 We impact our future income by our conduct, character, and work ethic.  However, I cannot predict today what I will be earning 20 years from now

7.  The end of time

 As a Christian I believe the things of this world will not last for infinity.  Much like Jesus, I do not know the day or the hour, but from an earthly perspective at some point there will be a generation who will not even make it to retirement.

How Should You Plan For Retirement?

Be responsible with your retirement savings.  Plan and predict.  However, don’t worry or fret because who of us can add a single hour to our lives by worrying?  Far too many people spend hours and hours trying to predict these things, but that is extremely difficult to do.  Instead focus on the things you can control.  What can you control?  We’ll that’s the topic of our post next Monday.

Any other unknown variables you think should be included on this list?

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Editor’s note: I wrote this article a long time ago (August).  I’ve never been closer to pulling an article off my posting schedule (I’m writing this within three hours of posting time).  In some posts, like this one, I try to challenge your thinking without necessarily dictating an action for you.  I’m trying to challenge traditional thinking in light of the gospel.  If your thinking was stimulated, then this article is a success. 

The reason I feel increasingly uncomfortable with this post is because if people (without consideration of their specific situation) followed the tenants in this post it could be very detrimental to their personal financial situation.  What this post may mean to you is determined by your debt level, how long you’ve been investing, and how much you have saved.  Providing for your family is necessary so that you do not become a burden to the church.  If you have not saved enough for retirement it is quite acceptable to save more than you give. 

Think about this post as a challenge to the status quo, not an action I’m advising every Christian to go out and follow.  Ultimately I decided to publish the post because I’m trusting my readers are mature enough to get new information, evaluate it, and apply it to their own lives in a way that honors God.

In a two part article I asked the question Is it Biblical to Save for Retirement.  I agree with the fundamentals of that article.  It is appropriate for Christians to save.  It is a blessing to both families and churches when we save.  However, I am reconsidering the question how much should I contributed towards retirement.

The probing question is –

Should I be saving more for my future retirement than I am currently contributing to God’s present work of the Kingdom of God?

photo by Mykl Roventine

How we frame a question gets us halfway to the answer so I want to point out the six words I intentionally put in comparison:

Group #1: My vs God’s

Group #2: Future vs. Present

Group #3: Retirement vs. Kingdom of God

My Vs. God’s

In some ways Group #1 could misrepresent reality.  It depends on your understanding of retirement.  Are you saving for yourself as a means to an end, or are you saving for yourself in order to:

1. Provide for your family
2. Remove yourself as a burden to the church
3. Help others in need. 

Depending on your theological understanding of retirement, it may or may not ultimately be for yourself.

Future Vs. Present

Group #2 is the most challenging word group for me.  One of the key differences between the wealthy and the poor is their view of money.  For the poor, money is for today because money is a tool of survival.  For the rich, money is a resource used to be invested and grown.  Thus, money is for tomorrow.  As Christians we know our future is unknown.  James writes:

Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. Instead, you ought to say, “If it is the Lord’s will, we will live and do this or that.” (James 4:14-15 NIV)

Granted, James is not talking about ignoring tomorrow, but he does want to acknowledge that ‘tomorrow’ is God’s decision – not our own. 

There is an immediacy to the presentation of the gospel.

He told them, “The harvest is plentiful, but the workers are few. Ask the Lord of the harvest, therefore, to send out workers into his harvest field. (Luke 10:2 NIV)

Said another way, the harvest is ready.  Fruit and agricultural harvesting is time sensitive; if you delay, the fruit will be lost.  There is much evangelistic work to be done today and my disproportionate focus on tomorrow may have negative implications for today. 

There is an immediacy to the issues of poverty.

Bread for the World reports:

1.02 billion people across the world are hungry.

Every day, almost 16,000 children die from hunger-related causes–one child every five seconds.

Why focus sole on my tomorrow when the ‘today’ of so many has an immediate need?

Retirement vs. Kingdom of God

Again, I’m putting these two items against each other so the differences are highlighted.  As I said regarding group #1, these two things are not necessarily pitted against each other depending on your mindset as to the reason and function of retirements savings.  In fact, I would say the Kingdom of God can be advanced by Christians who are responsible with their finances.  In fact, if I misappropriate my funds today I may hinder the work of the Kingdom of God by becoming a burden to the church.

What is the solution?

After dealing honestly with this issue my conclusion (a personal decision for myself) is that I cannot continue to contribute more to tomorrow’s retirement than I do to today’s work in the kingdom of God. 

Coming into 2010 my wife and I made some adjustments to what I thought was a lack of balance between our giving and my saving for retirement.  I felt like at the least those two amounts should be equal.  So we now give as much as we save for retirement.  This was not a decision made by guilt or legalism.  But, because of our relationship with God we felt compelled by the love of Christ to make a change.

Most financial advisors suggest we save 10 – 15% of our income towards retirement.  Many Christians give 10% while ministers and others suggest we give even more.   You’ll need to find your right saving balance.

Lord willing, God will open the door in the future that our giving will far exceed my saving, but as for today in my financial situation I want to ensure that at the very least I am not giving more to retirement then I am to God’s Kingdom Work.

Editor’s note: I wrote this article a long time ago (August).  However, I didn’t realize that it would be posted so closely to other “counter cultural” posts.  In many posts, like this one, I try to challenge our thinking without dictating action for you.  I figure there are a lot of sources out there that will give you the best financial advice only.  I’m trying to balance that by challenging traditional thinking in light of the gospel.  If your thinking was stimulated, then this article is a success. 

Anyone else have thoughts about the relationship between retirement dollars and giving dollars?  Any reflections?

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When it comes to planning for retirement and saving for retirement every Christian investor should add a simple word to their vocabulary – enough.  The Bible seems to indicate that a Christian who neglects an I-have-enough attitude is considered a hoarder.  The danger of hoarding is that it can direct our attention away from God.   

¹⁶ And he told them this parable: “The ground of a certain rich man produced a good crop. ¹⁷ He thought to himself, ‘What shall I do? I have no place to store my crops.’ ¹⁸ “Then he said, ‘This is what I’ll do. I will tear down my barns and build bigger ones, and there I will store all my grain and my goods. ¹⁹ And I’ll say to myself, “You have plenty of good things laid up for many years. Take life easy; eat, drink and be merry.” ’²⁰ “But God said to him, ‘You fool! This very night your life will be demanded from you. Then who will get what you have prepared for yourself?’  ²¹ “This is how it will be with anyone who stores up things for himself but is not rich toward God.” (NIV Luke 12:16-21).

To simplify things, there are two analogies you can adopt as retirement saving strategies.  The two retirement options are the Wealth Snowball and the Ocean Tide.

What Is Your Retirement Savings Goal?

If your asking how much should I be saving for retirement that will depend on which of the following approaches you prefer.  This question, of course, should be asked only after you have asked yourself should retirement be the goal of life?

Choice #1: The Wealth Snowball

The pattern is obvious. When you get ahead financially it is easy to stay ahead and become more and more wealthy.  Perhaps this is why the rich keep getting richer. The problem with an unchecked wealth snowball is that your life will be consumed with building bigger and bigger barns to store your wealth.  Depending on your savings habits it is quite surprising how easily one can become an accidental millionaire. 

The inherent flaw with the wealth snowball is that it always grows and one might never realize when they have enough.

Choice #2: Ocean Tide

The ocean pattern is painfully predictable.  The tides are equalizers.  If the tides kept coming in indefinitely we would have issues with flooding.  If the tides kept going out forever there would be issues of water shortage.  But, the tides, high and low, maintain a balance for an overall fixed sea level.

Applying this illustration to our finances, we should find a fixed level for our retirement savings.  This predetermined level becomes our equalizer.  When money comes in there is an opportunity to look around for helpful places to use those funds as a blessing to others.  Notice that those extra funds are not just going to be used to increase your nest egg; instead, they will flow out in the pockets of worthy churches, organizations or recipients. 

When you appear to be falling short (tide goes out) you can once again rebuild your nest egg to your fixed level.  This allows you to ensure that you have enough, while also avoiding the temptation of hoarding.  It is essential that we all find a right savings balance.  Some people use the graduated tithe as a tool to help them find the balance. 

Do I Have Enough To Retire?

Unfortunately, I cannot answer that for you.  I have enough difficulty answering that question for myself.  It is, however, a worthy issue to discuss with trusted friends and your church staff.  Pray over the issue, insightfully read your Bible, and trust that God will make things clear to you.

When it comes to retirement planning, I suggest you define a point when you have enough so as to avoid the danger of hoarding as exemplified in Luke 12:16-21.  While that point will vary greatly by individuals, it honors God to determine when enough is enough.  You can learn more by exploring the question how much should Christians save?

Photo by jesse.millan.

What criteria do you use to help you determine when enough is enough?  How much is enough to retire on?

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The North American Life Trajectory: School. Work. Play.

A friend was recently sharing some of his impressions after reading a book, but I forget the title.  The book introduced the three linear main stages of the Western life – school (learn), work, and play.  Typically children go to school from ages 5 – 21.  From there, they join the work force for a period of approximately forty years.  Then remaining years of life are the years where we peacefully reap the rewards by kicking back and relaxing.  School. Work. Play. 

The book challenges this assumption saying we should do all of these things simultaneously, not separately.  I absolutely love that idea.  My personal philosophy is to work hard and play hard.  I believe God gave life as an event to be experienced, not a task to be endured. 

In a culture where time moves faster than a speeding bullet, if you blink your eyes your life will pass you by.  I refuse to be part of a culture where I am completely defined by what I accomplish, attain, and build. I believe the Sabbath principle is valid today.  The Sabbath principle is that God is powerful enough that he can take care of the events of the world for a day without my help (thank you very much). 

Are you saving up all your fun for retirement?  Have you done all your learning?  Is your life shaping up to be three completely separate compartments on a linear line – learn, work, play?

Enjoy Retirement Living Today

All life, including retirement years, should include aspects of learning, working, and playing.

The question of whether a Christian should retire depends almost exclusively on how one defines ‘retire’.  To retire could mean to formally end all ties with a company to allow an optimal amount of time for ministry and assistance – all with your own financing to cover expenses.  You are now a freelance worker for God and all your expenses are not passed on to the recipient.  If this is how you define retirement, I would say go for it. 

• I was visiting with a man in his late seventies.  He credits his good health and energy to reading.  He says it keeps him sharp and invigorates him.  By the way, he still works part time. 
• I know another man in his late 70s who spends the majority of his time taking meals to shut ins, doing church visitation, and offering a hand whenever there is a need. 
• I met a husband and wife who spend six months a year traveling overseas to visit with missionaries, encourage local missionary works, and to offer helpful seminars.

All of these men are working, learning, and playing.

To retire could mean to formally end all ties with a company to allow an optimal amount of rest and time period of unproductive living.  You have given your time to God and others and now this is your time for yourself.  I think this view of retirement robs God of a wonderful resource that he could be using for his kingdom work. 

Instead, I suggest you live every day for the glory of God.  Mix elements of learning, working, and playing into each day.  While you might find that work wears you out today, you might find that tomorrow work reenergizes you. 

Retirement Planning: More Than Money and IRA’s

When you plan for retirement begin to think about what you would like to do.  How can God use your time for his Kingdom?  Even though I am not completely sure what retirement will look like down the road, I am convinced that I want to be fully flexible to be used by God.  In order to help accomplish that goal I  take a portion of my income today and save it for retirement needs in the future. 

When it comes to retirement do not sacrifice everything today for the sake of tomorrow.  Instead, live in the glory of God each day by learning, working, and playing.  When the years of retirement present themselves embrace them as an opportunity to seek a new role in God’s kingdom.  Perhaps, though, if you embrace the learn-play-work cycle, retirement might not be any different than the other stages of life.

Do you think it is possible to live a cyclical learn, work, play pattern, or are we confined to the linear school, work, play pattern?  What are you doing to keep a healthy balance of all three?

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Retirement planning.

IRA’s, 403(b)s, 401Ks, dollar cost averaging, mutual funds.

There is a plethora of topics related to retirement. There are blogs, websites, and financial calculators to help with the process. Since the very earliest posts on this blog, I have made it my goal to think critically, evaluate motivations, and establish the true biblical teachings associated with many culturally accepted North American practices.

As an example, I encourage you to take a look at the post where I discuss the differences between biblical and personal finances.

Ephesians 2:1-3 offers three characteristics of the un-regenerated life:

1. Lived following the ways of this world.
2. Followed the ruler of the kingdom of the air (Satan).
3. Gratifying the cravings of our sinful nature.

These three characteristics reveal that following can be a dangerous thing. I find this list especially interesting in light of a well known American phrase “keeping up with the Joneses.” By nature we follow. I believe this passage in Ephesians 2:1-3 challenges us not to follow but to think critically, study deeply, and follow faithfully. I have attempted to spend some time thinking critically about my retirement assumptions I have held for a long time. I wondered how they would hold up to serious biblical scrutiny. So I decided to write a series on topics related to retirement. Over the next few weeks I plan to post articles related to retirement. A couple of these will be distinctly Christian and the others will not. However, as always I pray that the Christian foundation colors, affects,and impacts all the posts that are not as directly “Christian” in nature. The following articles will run over the next few weeks:

1. Week #1: Is the goal of life retirement?
2. Week #2: Saving for Retirement: How Do You Know When You Have Enough?
3. Week #3: Should I Save For Retirement or Give that Money Instead?
4. Week #4: Seven Retirement Factors You Cannot Know or Control (How Not to Waste Time Planning for Retirement)
5. Week #5: Five Ways to Deal with the Unpredictability of Retirement
6. Week #6: Roth IRA vs. Traditional IRA

Photo by pedrosimoes7.

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As Bob at ChristianPF reported, this will be the first year since 1975 since the Social Security Administration will not be adding on a cost of living increase.  In addition, there are numerous companies who are not offering cost of living increases.  This really is not much of a shock considering the events of the last 18 months.  One sign that the economy is recovering is that people are now focusing on getting more out of their jobs than just keeping their jobs.  All is alive and well.

How Thrive Without A Cost of Living Salary Adjustment

1. Use inflation adjustments for … inflation.

   Far too many people take the extra pay each year and spend it on a vacation.  If it is for inflation, find your budget items that will need a price adjustment and use the money only for that category.

2. Cut your lifestyle.

   For at least a few years we ought to be able to battle inflation with lifestyle adjustments.  If the process continues over several years, you may need to look outside to deal with inflation.  (See discussion below.)

3. Get an extra job.

   If the increased cost of goods is burdensome, go find extra work.  Typically you only need to earn 3 % of your income so you might just pick up an extra job for a month or so.

4. Deserve a raise.

   Instead of waiting for your obligatory cost of living increase each year, increase your productivity and contribution to your company and earn a raise.

Is Inflation a Belief or Experience?

This discussion is timely because it highlights one of the things I enjoyed from reading Your Money or Your Life (this book is our book of the month).  Today I want to explore some concepts in Chapter 9 titled Now That You’ve Got it, What are you Going to Do With It?

This chapter addresses the issue of managing your savings by dispelling people’s biggest fear: will I have enough tomorrow? The author speaks of an “irrational fear” of inflation.

The Concept of Inflation according to Dominguez and Robin:

What is the consumer price index (CPI)? The CPI records the changes of prices of a fixed list of products and services from one year compared to the next.  In the book, there are some compelling charts that show how drastically certain price items have actually dropped over the years. This includes items such as food and clothing.

It [consumer price index] cannot account for the fact that yesterday’s top-of-the-line model is bested in all ways by today’s “economy model”. (300)

The CPI does not account for changing buying habits. (300)

Essentially, the authors propose that there has been a greater change in the standard of living, not the actual cost of living. If we as people were simply satisfied with yesterday’s products we could live for even less in today’s world.  Consider what you might pay for a standard line phone versus an iPhone.  Compare a portable CD player to an iPod.  The pricing has not increased on those items.  In fact, the price (and availability) has gone done.  What has increased is our desire for newer and more expensive technology.

Might it be that at least part of our experience of “inflation” is due to unconscious and automatic habits as well as to our chosen lifestyle?

While all of us can point to items that have increased – gasoline and health insurance costs, are there not equally a number of items that have decreased in price? Perhaps we focus so much on what has gone up that we forget that simultaneously other prices are going down.  For those items where the price has actually increased, a life style adjustment downward (GASP) could also minimize the impact of inflation.

Here are the summary points offered by Domiguez and Robin:

• While “inflation” may be a valid macroeconomic concept, this does not mean that it automatically rules your life.
• Your choices, attitudes, beliefs, habits, tastes, fears and desires have the ultimate effect on your bottom line.
• Consciousness is defined as the faculty of knowing what affects your mind or what goes on in your mind.
• No investment product or program is a guaranteed hedge against inflation.  Consciousness is. (pg. 305)

Cost of Living Increase | My Reaction

While I think the book does highlight a valid perspective on inflation, it simultaneously significantly underestimates the potentially devastating impact inflation can have on individuals.  Unfortunately, it is just as true that many people are not prepared to downsize.  We have a (false?) belief that we have a justified right to an increase of possessions as we pass through our lives.

There are some significant products that cannot be sidestepped by a decrease in lifestyle, at least without it catching up in a significant way. Personally, I have been impacted by some significant increases in our international health insurance over the last three years.  The cost has more than doubled which means I am now paying over $3,000 more this year than I was in 2006.  That increase would be terribly difficult to assume if my income did not increase in kind with the health insurance premiums.

Nevertheless, I have been reminded of many ways that life gets cheaper as I get older. As I learn new skills and (hopefully) make wise choices there are less ‘school of life’ tuition payments as well as more income earning opportunities.

Photo by Iqra Newspaper.

How much inflation can be handled by lifestyle change?  When does a salary increase need to kick in? Any thoughts on the content of chapter nine in this book?

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