The pre-paying the mortgage question

Yes, yes I am.

No, I’m not pre-paying at the expense of other diversified savings.

Currently our rate is 5.5% (yay Wells Fargo no cost refinance).  We do itemize.

If we buckled under, we could pre-pay it in 4 years. But we have decided not to go that route.

Why?

Mainly for diversification. We want a fully-funded retirement. We want 529 plans. We want to make sure that we’re putting money in the stock market on a regular basis in order to get average returns. We like the tax advantages of retirement and 529 plans. We don’t want to put all of our money in one place– a single house in a single real estate market. Of course, we’re not fully funding our tax advantaged retirement savings (yet) either… Mainly because we don’t have an extra 76K to fill out those accounts, but partly because we’re using some of that to pre-pay the mortgage. (It is SO weird going from only being able to put retirement money in Roth accounts to having way too many options.)

So we’re doing some of each. Somewhere between 15 and 20% to retirement, some to a 529, and some to prepay the mortgage. Right now we’re on a 12 year repayment plan instead of the 29 that would have been remaining in our 30 year refinance if we’d just paid the minimum.

We also have an irrational reason for pre-paying the mortgage even before I’d thought about the issues. Our mortgage is something like XX37.10. I hate writing checks for anything other than a round number. I like writing a check with one or two number(s) followed by a lot of zeroes.

Addendum… we may be doing another no-cost refinance.  4.75%.  CRAZY.  That makes the prepaying decision even more difficult.  What do you think?  Do you pre-pay and why or why not?

Addendum #2:  Savvy Working Gal mentioned the tax benefits.  I was curious to see what the effective interest rate actually is.  Luckily there is a calculator for anything on the internets.  You may also need to know your marginal tax rate based on your income.  With the 5.5% our effective interest rate after taxes (assuming DH keeps his job) is 3.960%.  If we get the refinance, that becomes 3.420%.  Those are pretty low.  Still, with easy-to-obtain savings rates hovering around 0.40% (and inflation hovering around 0%), I think pre-paying will be a good use of extra cash until things turn around.  We can re-evaluate then.

I am such a bad listener

It drives me nuts when people complain again and again about the same then and then get all hostile when you make suggestions for how to fix the problem.

Either try to fix your problems or stop complaining about them.  Or at least don’t bitch out people who gingerly give germane gentle advice after listening to the same whine for the 50th time.

Yes, because I have none of your problems I couldn’t POSSIBLY understand how to not have your problems.

Things I want to buy

1. All the books and music on my amazon wish list

2.  A new mattress

3.  A gas grill

4.  A piano

5.  Lots and lots of fruit trees

6.  A gas stovetop

7.  A new kitchen

8.  A xeriscaped lawn

9.  A driveway that fits 2 cars

10.  Time

Whaddya think?

I’m thinking 2, 3, and 4 are going to happen this year, and maybe 5… but we’ll see. #9 is really just a pipedream— a gas line will probably keep it from becoming reality. And 7 and 8 are definitely post-tenure.

I, sorceress

Best spam subject lines I have received recently:

Insanity may help you

Manage multiple priorities

I sorceress

I do kind of like those spams that are random jumbles of semi-coherent text with sophisticated words; they almost make sense, in a surreal sort of way, like talking to someone with schizophrenia who has neologisms, word salad, and radically de-trained thoughts, and yet who has some meaning in there if you know how to look.

I’m always tempted to write back to the spammers offering me easy online degrees.  I have a PhD– what can you do for me?  I don’t, though.  In addition to the regular Nigerian 419 scams, I seem to get different types of spam subject lines in my different email accounts.  In my main personal account, I get more of the v1agra/c1al1s spam (note to spammmers: your clever substitution of numbers for letters doesn’t fool my spam filter).  In my work email account, I get lots and lots of offers for knockoff watches.  I wonder how different spammers are crawling different sites or have purchased different lists in order to send me these different spam profiles.

What’s the most interesting spam you’ve received lately?

Blue Children: Or why I am no longer on any natural parenting forums

I let my child be vaccinated on schedule.

I may really not trust doctors, sorrowing in the lack of decent statistics training for the majority, but I do know how to use PubMed and I have more trust in the peer-reviewed scientific method than I have for claims of random crackpots on the internet.

Once I was invited to join a natural parenting forum.  I cheerfully discussed the science behind early potty training, read about the myriad chemicals in mattresses, and reassured people who didn’t want to CIO or follow X, Y, or Z parenting book as if buying the book and subscribing to it completely were the only way to prevent your kid from becoming an axe murderer.  I ignored the free-range parents and the unschoolers and the praise-haters and a number of other techniques that would probably not result in the end of the world if the kid survived to college.

One day, as usual, one of the members was going off on a rant about modern medicine.  Sure.  I understand some of the problems with modern medicine.  The FDA isn’t doing as good a job as it could be on many fronts.  Insurance companies aren’t reimbursing optimally leading to overuse of some medical care and under use of other care.  A lot of doctors don’t understand that correlation is not causation.  Never get elective surgery in July.  I get that.

Then she proceeded to talk about how antibiotics are some sort of weird government plot.  Evil drug companies are also involved.  Note that these people do not tend to watch Fox News.   She would never give her children such poison.

So instead, she gives her kid colloidal silver when he’s sick.  Colloidal silver is a topical preparation.  Silver is a natural anti-biotic.  It is sometimes put on large wounds to prevent infection.

Taken orally, it turns you blue.  It takes a while to get enough built up to actually turn you blue, but it doesn’t leave your system ever, unless you get your skin scraped off and regrafted or some such horrible thing that I was so disturbed by the first time I can’t look it up again because I don’t want to unlock that black box of horror in my mind.

So the one voice of sanity on the forum, herself a Phd student, in the most politic terms (which I am not possibly capable of repeating), suggested that just because big medicine is evil, doesn’t mean that big quack medicine is any better.  (She, of course, did not call it quack medicine.)

The blue mother responded with approximately 10 pages of internet links to medical mistakes and crackpots suggesting that big pharmacy and the FDA are evil.

Me, being the educator that I am, tried to clarify the PhD student’s point…  Just because A-> bad doesn’t mean that B-> not bad (even if B is not A… see, when you’re ~(A =>B) that’s actually ~B=>~A; a lot of people forget to flip the order because they don’t really understand what it is saying).  Only I said it without symbols because I understand that stupid people are generally math phobic.  (Note:  that does not mean that if you are math phobic you are stupid!  I can fix math phobia.  Stupid takes a lot more effort than I have time for.)

Oh, instant anger.  Repeating of points that government is evil.

Clarification AGAIN.

Just NOT understanding.

So I give up.  And I say, because I do not want the other 500 people on the forum to do what blue momma is suggesting, “I am not going to give my small child who is still growing anything that will turn him BLUE.  Especially if it has not been tested…” etc.

FIRESTORM.  Oh, and she’s not giving him enough to make him turn blue.  (Note– that probably means not enough for it to work as an anti-biotic either.)

I send some links about the risks and dangers.

ANGER.  Personal emails to my junk email that I delete unanswered.

I realize I hate yahoo groups (#@$#ing email).  I think about my options.  Option 1:  Call Child Protective Services and really get myself into trouble, taking myself away from a healthy research agenda.  Option 2:  Get off the natural parenting group and pretend to myself that I just don’t know and can’t do anything about it.  And stay away from the crazy people who think too much but not critically enough about parenting.

I chose Option 2.  Yes, I do feel guilty.

p.s.  If you don’t comment on this post, then I will tell you ALL ABOUT early potty training in a future post.  Save yourself while you can!

Adventures in Retirement Saving Part 3

And now, the long-awaited conclusion to our series. (Part 1, Part 2)

Previously I posted some big questions and general answers. Today I’ll walk through them with the example of my university’s byzantine retirement programs.

How much to save: We’re not naturally big spenders and our university incomes are comparatively high for the small town we’re living in, so tax advantaging our longer-term savings would be all to our benefit, even if it’s more than “recommended.” On top of that, we need to make up a bit for those high rent piddly stipend years in graduate school. (There’s also that dream in which we get $10mil, quit the rat race, and move to Northern California to share a 3 story flat in SF with the library on the ground floor.) So we’re thinking we’ll put away the mandatory amount plus an additional 33K (this is 16.5K for each of us). Any additional savings we will pour into pre-paying our 5.5% mortgage.

DB vs DC: The DB plan took 5 years to vest. The DC plan vested right away. Untenured first-year professors go with DC, all other things equal. I still think this was the right decision to have made.

How much to put in the DC plan: At my school, it is mandatory to save something like 6% of income which is matched at around 6%. Apparently the actual number is determined on an annual basis. Ironically, this mandatory plan is called our “optional” plan. (Mine too!)

On top of the optional plan we have two other methods of saving. We can individually save up to 33K on top of the ~12% of income that’s mandatory. That’s an awful lot of money, and probably way more than most of us need to be saving in retirement accounts (with the exception of older folks who need some serious catch-up or people with very high incomes). As I noted before, we’re going to try to save an additional 33K in tax-advantaged retirement savings. We did max out the Roths with the funky Roth conversion but we’re not Roth eligible for next year (and in the traditional IRA phase-out range), so all 33K of that will be going via our employer this year.

How to invest:

We’re too young to trust an annuity company to stay in business, so that was out right away.

First I compared the fees and general portfolios across the target-date plans of all of the 403(b) options. Target plans are great because you can “set and forget” –they will rebalance automagically and they’ll have a reasonably good diversified mix of stocks and bonds for your target retirement date. They’re great for satisficing. Unfortunately, companies know that people think they’re great (or more likely that the people who most want to use them are also the people that least want to or know how to look at expenses) so most of them are charging much higher fees to use Target date funds than to use the individual funds that make up the target-date (much higher than the amount Vanguard charges to make up for the additional expense of rebalancing). Fees for my target date ranged between 0.72% to 1.17% (Ing, but it doesn’t charge the 0.7% on top of that for the target date funds). Not so great compared with Vanguard’s 0.20%. So target date funds were out… back to a more complicated mix of low-fee index funds.

Both the 403(b) plan and the 457 plans offered low fee index funds. The 457 plan fees weren’t given as a percent, but as a weird kind of step function with actual money amounts. So I had to do some math to make the comparisons. In the end we narrowed it down to two, TIAA-CREF and Fidelity. TIAA-CREF in the 403(b) option has index funds that I know and understand across the board at 0.34%. Fidelity has some Spartan funds that have an expense ratio of 0.10% and I need to see how those map into what I want, but also has some Indexes (that I actually understand) at 0.62%.  Right now I’m pretty sure we’re going with Fidelity.  If worse comes to worse we can keep it all in their 0.10% funds and diversify with our old IRA accounts.

Figuring all of this out took more than 8 hours and several phone calls to companies. Before we actually make the plunge in August, we still need to go through one more time. We’ll build the portfolio we think best and compare Fidelity and TIAA-CREF and make sure that the indexes are actually what we think they are. Then we will call a representative, print out paperwork, and make the switch. It will all be settled before we get our first paycheck for the year.

Ok, other questions: Regular vs. ROTH 403(b). That’s a good question we haven’t figured out yet. Our income is lower for the 2010 tax year, but back to normal for 2011. So what I’m thinking we will do is contribute some of our leftover cash from this year to a ROTH IRA (which we won’t be able to do next year), then use a regular IRA for the 403(b). It’s a little risky in case the income numbers don’t work out quite right with the ROTH, but if I do it this way I won’t forget to change it to a regular IRA for Fall semester. We can actually do both in the 403(b), but with the same income limit. Next year we will probably mix it up since tax diversification is nice. I like paying fewer taxes this year, but I will also like paying no taxes in the future. Mmmm. I know the government needs our money to fix market failures (among other things), but I still like keeping mine.

403(b) vs 457: Since the various reasons to prefer one over the other didn’t apply to us, we went with the 403(b) because it seems to have lower fees. The 457 only has one option and it gets expensive.

Welcome to carnival of personal finance readers

We’re listed on this week’s Carnival of Personal Finance:

Carnival of Personal Finance #267 at Beating Broke

Welcome!

What’s your superpower?

Here’s us creating a superhero:

The Recaller has the ability to draw books to her from all over the world (like instantaneous interlibrary loan) and find them in her magical bookcase when she wants them. The books stay with her until she releases them and are untraceable to her (or are they?).

(This superpower, of course, would be important and relevant, unlike these, and would probably be more fun than this!)

Formerly a mild-mannered assistant professor, she was bitten one night by a borrowed book and now conceals her powers from jealous colleagues and an evil syndicate (called The Class) of cheating undergraduates. The Class want to kidnap and torture The Recaller in order to make her steal one-of-a-kind rare books from libraries and museums around the world. Sometimes their parents shoot lasers at her from their helicopters.

Her fatal flaw is that she naps a lot and would rather read genre novels than write the incisive and highly-cited publications she needs in order to get tenure.

The Recaller fantasizes about procuring an entire steampunk wardrobe and wearing it to teach in, but she doesn’t do it because she doesn’t have tenure yet. Only a few of her closest friends know of The Recaller’s powers, but they don’t know that she has superpowers; they think she is just friends with the librarians or something. Her name, of course, is Jane. She has a slight penchant for tweed and a very comfy chair at home.

What superpower would you choose? Tell us in the comments.

Never notice that you don’t have any referee reports to write.

The universe will soon fix that problem.

It’s so true.

Things I have learned from my kid

1.  You can fix anything with tape or kisses.

2.  Ketchup covers a multitude of sins.

3.  Frozen vegetables are better than the cooked kind.

4.  The best thing to wish for when you grow up is to be grown up.

5.  There is enormous freedom in running around the house clothes-free or mostly clothes-free.  Especially if you are giggling at the top of your lungs while doing so.

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