LiquidSapphire's Journal

Where are you and where are you going?
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LiquidSapphire
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Post by LiquidSapphire » Tue Aug 02, 2011 7:55 pm

Hello,
I've been lurking for a few weeks and would like the opportunity to chronicle my journey toward FI, please feel free to follow along. Any food for thought is welcome.
I intend to start with a few short posts about me, my situation, and my numbers. I intend to update roughly monthly with actions taken and things I'm pondering/struggling with.
About me: My name is Olivia. I am 28, living outside of Denver, Colorado with my boyfriend who owns his home. He has one child who lives with her mother. I have no children. We don't want any more children. I'm currently a federal government employee. The earliest I qualify for a reduced pension, if my agency has a reduction in force, would be after 25 years of service. For me, I would be 47 years of age. I would qualify for a pension (with penalty) at 52 and a full pension at 57. I cannot mentally wrap my mind around working for the feds for another 19-29 years (I haven't even been ALIVE for 29 years). ER is it for me. I will probably not be as extreme as Jacob, but I enjoy reading the possibilities anyhow.
I am supposedly an ISTJ... though I think maybe I have some P at times.


LiquidSapphire
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Post by LiquidSapphire » Tue Aug 02, 2011 8:02 pm

Goals:
My first, soul-consuming goal, is to save/pay down debt/reduce expenses enough to where I can just quit, and take my time figuring out what the next phase in my life will be. I don't see myself just engaging in golf the rest of my life, and I would be OK with working for pay again. However, if I do go that route, I want it to be on my terms, and because I want to, not because I *have* to. I will consider this goal met once 3% of my investments equal my annual expenses.
My secondary goal after that would be, assuming we are still together, to assist my boyfriend/husband in achieving ER as well. But this is still at least a few years away so I am not focused on it for now, especially since our relationship isn't permanent (though it has potential, he's a great guy).


LiquidSapphire
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Post by LiquidSapphire » Tue Aug 02, 2011 8:08 pm

Stuff I have already done:
1) Rebalanced my asset allocation to be more conservative. I was previously about 92% in stocks and 8% in Treasuries/Bonds.

I am now investing more like a 40 yr old rather than a 28 yr old. Once I get more clarity on the ERE date I can bail, I will probably adjust more.
2) Paid the early termination fee to T-Mobile ($200) and got out of my smartphone contract. Sold the phone+accessories for $180 on Ebay after fees, the phone was originally $200 new plus maybe $50 for the accessories. I bought a $20 phone from Straight Talk, and I am on their $30 1000 minutes plan, no contracts. I figure I should be whole after about 5 months. This is my only phone.


LiquidSapphire
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Post by LiquidSapphire » Tue Aug 02, 2011 8:13 pm

Stuff I'm focusing on:
1) I am currently trying to be more mindful about how often I go out to eat dinner with my boyfriend. I think about 2 times per month would be about right, but last month we got a little crazy.
2) I'm also going to try to cut out all drinking at bars; boyfriend likes to do it but for me, I just don't get a lot of

value out of it. I'm still going to go and tip the bartender well, but just order the iced tea with free refills. (Also going sober at home, for weight loss reasons first, financial second).
3) I started a price book about the various things we buy at grocery stores in an attempt to try to get the best price on things we buy a lot. It's in its infancy but it has helped a little so far. I am vegetarian, boyfriend is not, but even so we don't buy much meat. I have no idea why our food bill is so high. I'm hoping this helps.
4) I am going to, on a trial basis, start taking the bus to work after I get back from some business travel this week. It

will extend my one way commute from 25 minutes to about 70 minutes including the walking, but I like to read and listen to

audio books. I also get a free bus pass through work. If this goes well, I intend to look into selling my car.
5) My cell phone usage this month will be high due to business travel, but I don't anticipate any more travel for my job in the future. I am considering changing phones again to the Double Minutes promotion at Tracfone. I would have to buy another phone, but they are selling 3000 minutes for $200. I read that the break even point is roughly 430 monthly minutes. I almost never use that many minutes so if I can get my monthly cell phone bill to roughly $17 that would be nice. It's too bad I already burned $20 on the Straight Talk phone but I consider it a sunk cost.


LiquidSapphire
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Post by LiquidSapphire » Tue Aug 02, 2011 8:31 pm

Numbers
Gross Salary: 91000 (My monthly take home is usually right at 4004 after taxes, other deductions, 401K deduction, etc. However, I'm paid biweekly so some months have 3 paychecks rather than two.)
TSP (401K equivalent) 98239

Roth IRA: 30983

Taxable accounts: 32407

Liquid Cash: 20693

2007 Toyota Prius, KBB Value: 17005
Mortgage: None, I've never owned any property

Car Loan: 12311 (3.25% interest)

Student Loans: 20447 (2.5% interest)
I'd like to note that I had two huge raises, one in January 2011 and one in May 2010, one due to a change in personnel systems and the other due to my coming back from overseas to the states. The two increases together nearly doubled my salary, so I haven't been making this kind of money for too long.
Now here are my expenses for July thus far, for the joint expenses, they are my half only:
Rent/Internet/Water/Sewer/Trash/Electricity/Netflix: 600

Car Loan: 311

Student Loan: 174

Auto Insurance: 247 for the next 6 months

Gas for car: 94

Cell Phone: 363

Groceries: 139

The liquor store *smacks hand to forehead*: 80

Going Out to Bars/Restaurants/Entertainment: 168

Car Maintenance: 87

Ebay Shipping Fees: 9

Travel: 43

Walking Poles for hiking 25

Misc Stuff 213

Political contribution 20

Charitable contribution 33
-----
Total: 2606
Notes: I live with my boyfriend who owns his home, we split everything, I write him a monthly check for house bills (listed above as $600). I pay an extra $10 above what's required on my student loan. My dad paid for a tank of gas in contribution for a road trip into the mountains, I've been using the remaining gas all month. The cell phone bill had June T-Mobile Service, T-Mobile early termination fee + taxes, and July Straight Talk service on it. The Miscellaneous stuff was things like stuff for the house, refilling propane tank for grill, converting a PAL DVD I've stored forever, pair of shorts, printer ink, coffee syrup variety pack (stops me from going to Starbucks), etc.
I have other stuff I save for, like car registration, pet bills and eventual medical copays, but I encountered none of those costs this month.
Net Worth: 166569

3% of Net Worth divided by 12: 416.42

Total Monthly Expenses: 2606

I am roughly 15% of the way there.


bigato
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Post by bigato » Wed Aug 03, 2011 10:39 am

Hi, be welcome!
I suggest you run a simulation in a spreadsheet to show you when you will be able to retire. Then you can play with the numbers and see how much sooner you will retire if you cut this or that monthly spending.
Also, why not liquidate the loans right now?


LiquidSapphire
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Post by LiquidSapphire » Wed Aug 03, 2011 8:43 pm

Hi Bigato,
Thanks for the idea. I looked up the Google Docs Akratic posted (Thank you!). Primarily using the "budget" tab, if every month was like last month (increased the cost for health insurance though, right now mine is employer subsidized), it would take me 11.84 years. Of course last month didn't have many irregular expenses. Once I put what I think I can cut down to eventually, the figure reduces to 4.03, and I think the tool doesn't build in any assumptions as far as interest gained during that time frame. Wow, maybe I can "retire" before I turn 33, that would be pretty rad, but it would probably be more like 5 or 6 so as not to live a completely austere existence.
About the loans, I think about that. I guess I figure it's smarter to put the money into various investments than it is to pay off the loans, since the interest rates are roughly at the rate of inflation. I don't include them in my "future" monthly expenses, since in my mind it is assumed that I would pay them off prior to eliminating my income so as to improve my cash flow situation. Last year I still got an income tax deduction for the student loan but I think this will be the first year I make too much for that so that excuse is gone. If I sell my car, of course the car loan would be gone. On occasion a bill will come on the hill that recommends paying off the student loans for federal employees who have been on board for at least 10 years (I have 6). So I guess it's partially in hope that that bill will just be paid for me :) Although considering the state of our government today, in combination with FI in 4 to 5 years, I guess that is unlikely to happen.


LiquidSapphire
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Post by LiquidSapphire » Wed Aug 24, 2011 7:49 pm

I'm excited for August's numbers but I have made some progres so thought I'd update in the meantime.
Stuff I've done so far:

1) Rebalance my portfolio to be more conservative (July 2011)

2) Cancel my T-Mobile Smartphone contract and change to a Prepaid StraightTalk Contract (July 2011)

3) Started taking the bus/bike whenever possible (August 2011)

4) Reduced my student loan payment (See explanation below) (August 2011)

5) Became more conscious on trying *not* to spend on unnecessary items. (Ongoing)
Stuff I'm working on:

1) Need to work out a car share agreement with BF on the off chances I need a car

2) Need to prepare my car for sale

3) Thinking about developing possible income streams to speed all this up.
Reflections:
So in hindsight rebalancing to be more conservative was some kind of genius move, as I was able to do that near the peak of the market.
Straight Talk is working out quite nicely. I may switch to TracFone or Page Plus upon retirement, but I think I will stick with Straight Talk as long as I am commuting to work via the bus. I like to use the data package to surf various blogs during that time.
I'm attempting to transition to car free whereas previously I was almost 100% car dependent. So far it is going pretty well. I started riding the bus to work (free to me due to employer subsidy). I leave for work about 10 minutes earlier than I normally did, and I get home approx one hour later than I normally did. It actually hasn't been that bad at all. I don't really mind the extra time spent on the bus, mainly because I am enjoying what I do there (reading, etc), stuff I would do on my free time anyway. I find the people on the bus (basically commuters) to be pleasant, and better yet, quiet, which introverted me likes very much. Safeway is a 5 minute walk away from home, and Whole Foods is a 10 minute walk away on my work lunch breaks.
I pulled a bike I got for free years ago (I had never taken it for a spin, ever) out of the shed. Turns out in a former life BF was a bike mechanic. I had this resource and had no idea :) We've gone out every Saturday since. I bought new brakes and tires for it, he put them on for me, and we've been just riding around town or running errands on them. I have made a conscious effort to either bike or walk everywhere, and I am growing more confident that I don't really need the car, so long as I am able to borrow BF's now and again.
The "restaurants" and "entertainment" categories are significantly reined in and I don't feel deprived. I actually enjoy just being home most days. For me, home is my retreat.
Someone hit my car kindly badly while it was parked on the street. There is some nice leftover paint and a good license plate indent on the driver's door. (No number, unfortunately!) Need to get an estimate for this and see if it is worth fixing prior to selling the car. I have insurance but a $500 deductible. I also need to work out some kind of deal with BF on car sharing. After that, I will list the car for sale.
I found out that the law that allows public sector workers to forgive their loans after 10 years actually passed. Unfortunately it passed in Oct 2007, which is when the 10 year clock starts. So if I am still working in October 2017, the remainder of my student loan balance ($8900) would be forgiven. I don't know if this is worth it or not, to stick it out that long. However there are other options to fill out that time, like joining the Peace Corps, or working for a nonprofit that provides services in a limited variety of areas. However, I've decreased my student loan payments to the bare minimum (154.44 vice 172.91). It is a 2.5% fixed interest rate so I can do better putting it pretty much anywhere else, and if I end up working that long, well there is no sense paying any more than necessary. Apparently the total cost in interest over those 6 years is approximately $120.00. I think I can handle that!


Maus
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Post by Maus » Wed Aug 24, 2011 11:07 pm

Way to take the bull by the horns with the car, the mobile phone, etc. If you can reduce your expenses, it'll shorten your time to ERE remarkably. I agree with you that it's difficult to match Jacob's path, but inspirational to see that it can be done. I am striving for a mere 50% savings rate, so his success provides some perspective.
What, may I enquire, do you do for the Feds? $91K is pretty good bacon for a public sector job. How's the health benefits? I've considered applying for a gig as an AUSA, but the federal retirement is nowhere near as good as CalPERS.


JohnnyH
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Post by JohnnyH » Wed Aug 24, 2011 11:27 pm

*cell: Wow, that's a lot of cell time. I'd get a headset.

Pageplus (verizon network prepaid) has a $45 unlimited voice/text. You can easily do this the month of your travel, then switch to the $30 1200m/1200txt plan the next.

VirginMobile (sprint prepaid) has $55 unlimited voice/text/data.

*Denver has a great lite-rail. If you can get to one of the stations it works great. When I lived there it was quicker for me to bike to train station than to bus there. I'd consider driving to rail station if it saved a lot of time. Selling car, or at least getting cheap car is key, however... Yikes, car = $533/mo! Do you care how your car "reflects" on you? If not checkout an 1964-1976 6 cly Valiant/Dart. Fantastically cheap in 4 door and surprisingly reliable and economical.

*I enjoy drinking at bars, but I stick to good happy hours/specials/sharing pitchers. This really cuts the cost.
Seconding what public sector job makes that much AND has gotten raises in this "deflationary" environment!;)


LiquidSapphire
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Post by LiquidSapphire » Thu Aug 25, 2011 1:58 am

Hi -

Thanks for the feedback. I don't want to provide too much detail on my job because with enough information I can be found on the web, my agency posts my contact information. I work in HR which, you wouldn't think so, but is considered a critical hiring need for the feds. The reason being is that they didn't have very much foresight during the Clinton administration and bought out all of the people with institutional knowledge and great experience, and that, followed by a hiring freeze, has created a severe lack of people with skills in my field. I was able to leverage this by changing agencies twice, and moving overseas. I also got caught up in this perfect storm where my former agency was trying out a personnel system which made movement to higher level work much easier (but with no increases in pay). However, Congress, bless their hearts, outlawed the system, so we had to go back to the legacy system. By then, I had already moved up to higher level work twice (in the new system it was considered a lateral move), and so my salary jumped by a huge amount to be compensated (whereas I was not being compensated before). I then traded the free rent/utilities of overseas for the Locality pay of Denver, CO. I determined if I was able to spend less than $1000 on housing, it was worthwhile, and I was able to do so so it was a win win for me. So my experience is not really repeatable, I just got lucky by making the right moves at the right time.
Benefits in the Federal government are OK. They are not awesome like everyone seems to think they are. One thing that is nice I suppose is that if you live in any kind of metro area, you have your choices amongst at least a dozen health plans, so that is good, but bad because it is tough to know a good one from a bad one, and it takes a lot of analysis to see what would work best for you. Anyway, if you're truly interested, you can check em out here: http://www.opm.gov/insure/ BTW from what I understand, Congress is in the same health insurance plan as all of us, they do not have some kind of special Cadillac plan like some people think they do.
I'm on the $30 Straight Talk Plan now which is 1000 minutes, 1000 texts and 30mb of data which is easily 5X what I actually need, but when the data becomes less important I definitely intend to check out Page Plus Pay per minute deal, looks like you can pay as little as 4-5 cents per minute if you play your cards right.
Unfortunately no light rail in my area... I have heard they are expanding it but I will be long gone by the time they get here. My issue with the car is this: Your costs are not just gas, you also have to pay for insurance (even though you're only driving 1-2x per month, maintenance (oil changes, etc), when stuff breaks, you have to deal with that, AND if you have any kind of new car, you end up with depreciation also. My BF offered me his early 90s Mercury Cougar for free that needs work in order to get it running, but the problem is that damn insurance! I am not going to pay $50 a month for something I barely use. So that is sort of why I am looking at ditching the car entirely.


George the original one
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Post by George the original one » Thu Aug 25, 2011 3:37 am

> Seconding what public sector job makes that much

> AND has gotten raises in this "deflationary"

> environment!;)
It's not THAT tough to get an $85k-$95k salary if you've got IT experience. I work in IT for a municipal government and this would be a common salary for any senior IT position and management makes more. We didn't get a COLA last year, but did this year and all prior years.
Feds, though, are the last good bastion of a pension. Oregon public employees pension (defined benefit) was reformed 8 years ago and we only get the pension if we were already enrolled in it. The new system doesn't offer any choices and we no longer get matching money.


LiquidSapphire
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Post by LiquidSapphire » Thu Aug 25, 2011 2:49 pm

An 85K-95K Salary is not uncommon in the Federal Government. Consider the number of people and resources that are managed, for instance, I am currently running a program that has impact on 12,000 employees, and we have employees in five personnel systems. The scope and complexity of the work we do does not compare well with public sector often. If you are a generalist with some specialized knowledge and have been around a while (this applies to many many fields), 80K is not unusual. You do not even have to be a supervisor to get this. It is pretty much unheard of that you would get there at the beginning of your career though, you have to work your way there, either as a fed or in some fields, you could get private sector or military experience that would transfer in well at that level.
Ahh, the pension. It took me a few weeks to wrap my mind around the fact that ERE would result in me voluntarily giving up my pension. The Feds are a great place to end your career if you are much older than someone like myself. All you have to do is work for 5 years until you turn 62 or for 10 years before your "minimum retirement age" (Mine is 57) and you will be eligible for a pension equivalent to 1% for each year worked, for an amount based on the average of your highest 3 years of salary. You will also get to keep your employer subsidized health insurance (you still have to pay 30% of the premium). So had I stuck it out to 57, I would be getting 35% of close to my end salary for the rest of my life, with diet-COLAs each year. Golden Handcuffs. But I am only 28, and 29 years is a very, very long time. Retiring early would likely not be feasible, I would have to be laid off or such, and still I'd have to put in 25 years to even be eligible for that. However, I expect this system to change, the federal employees are low hanging fruit for the super committee in DC looking at where to trim costs.


Dragline
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Post by Dragline » Mon Aug 29, 2011 3:37 pm

You look like you are in good shape/making progress.
About those loans, though -- they are very tricky. Even though the interest rates are low, they are still like a cancer that needs to be removed. And since they have to be paid with after-tax dollars, you really need to gross them up by your tax rate and then decide whether you can really achieve that kind of return "risk free". If not, its better to pay them down quicker.
The student loan presents the added danger in that it cannot be discharged in bankruptcy. I know, that's the further thing from your mind, but things that seem "impossible" happen much more often than we think -- that's why these giant financial institutions keep failing and why markets crash (and why we just had an earthquake in Virginia).
My advice would be to increase your payments on them even if you do not decide to pay them off completely -- that way you are hedging your bets about whether your can beat those returns after taxes. And it will enforce a discipline in cutting expenses in other areas.
The other thing you should think about is matching the maturity of your investments to your future obligations. This is what insurance companies do to make sure they have the money to pay claims when they need it.
You are actually doing great. At your age I was about $100K in the hole and about to marry someone with debts almost as large. We lived small -- had patio furniture in our living/dining room until we got some hand-me-downs -- and threw every raise and every extra dollar at the debts until the cancer was dead. It was an extremely gratifying/exhilarating bonding experience for the both of us.


LiquidSapphire
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Post by LiquidSapphire » Mon Aug 29, 2011 9:57 pm

Thanks Dragline. You gave me some food for thought. I am anticipating moving in the next couple of years and ideally I would like to purchase a home outright for around $100,000 or less and so I think right now my focus is going to be amassing the cash for that, with a possible 401K loan to make up any difference I can't come up with on my own if it should come to pass sooner rather than later. (We are waiting for our elderly 130lb Bernese Mtn Dog to die before moving.) So I think once that purchase happens, I will probably pay off the loans. In my mind, I could pay off the loans but if doing that is going to force me to go get a $20K Mortgage that wouldn't be ideal. I really really hate the mortgage application process and the amount of hoops they make you jump through and will avoid it if I can. I did more research into the loans and looks like they are only forgiveable if you are on some kind of income contingent repayment plan and are paying less than you would have on a 10-year repayment schedule. Well at 22 I didn't think about it much and for some reason the default pay off period after consolidaton was 20 years, so it looks like I am not eligible for loan forgiveness. So I guess after the house purchase, there are not many downsides after that to just paying them off once I get substantial cash reserves again. I did pay off my car this month so I could get the title in hand so there's that.
What do you mean about matching the maturity of my investments to future obligations? I was thinking about that the other day, that I am so heavily loaded in my 401K equivalent account. I really need to come up with some serious on hand cash, now. First, $100,000 to buy that house and then another $60,000 or so to have about 5 years of living expenses on hand so I don't have to sell stocks in a down market. I'm thinking some kind of 50%/50% asset allocation, with 50% distributed amongst international, small cap, large cap, REITs, etc and 50% in more conservative investments such as bonds, 5-10 yrs living expenses in laddered CDs, maybe really stable dividend stocks? But I haven't gotten farther in my thinking than that.


Dragline
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Post by Dragline » Mon Aug 29, 2011 10:39 pm

Maturity matching works like this: Assume you have a chunk of change that you could pay down the loans with or invest somewhere else. You decide not to pay the loans down early, but take that money and invest it with the idea that you will essentially use it to pay down the loans as they come due. You do a projection of how much money you will need to pay your loans in years 1 through X (whatever the last year is). For the near years, you want short-term investments that come due when the payments are due. For longer-term ones you can take more risk. The simplest way to do it is to use laddered debt instruments (CDs, bonds, etc.). Equity instruments are trickier, because you have to estimate the probability they will get socked when you need them.
Insurance companies are required to do this to minimize risk, but its a good idea anytime you have invested funds that you believe you will need to pay off something in the future.
But you have another factor -- that house purchase you might make. If its going to happen soon, you would not want to put your house money in anything very risky. One thing you might consider is to pay down the debts and take a small mortgage in exchange (say a 5-year ARM if you can pay it off in that time). The reason to do this is taxes -- your mortgage interest is tax deductible while the current interest on debt is not.


LiquidSapphire
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Post by LiquidSapphire » Mon Aug 29, 2011 11:19 pm

Hmm interesting. I will have to think about what investments would make sense over just paying it off. Like you said, hard to find risk-free rates that do better than 3+% nowadays. I also need to get smart about taxes, and see if doing that would make it reasonable to itemize. Right now I pay a TON of tax (almost 20K annual in fed/state) because I have no tax shelters beyond my TSP. I guess I could start a business... but what? is the $64,000 question. perhaps literally. I don't want to start one just for the sake of starting one, I'd like to do something I'd actually enjoy, and would throw off some profit, with the tax write offs as a side benefit. But I'm having so much trouble determining what would be best.


Hoplite
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Post by Hoplite » Tue Aug 30, 2011 12:15 am

@LiquidSapphire,

The business idea could be good if, as you say, you can find one that you actually enjoy. I have found that thinking about the things you enjoy can lead to better choices than say focusing on a laundry list of possible businesses, but often just trying something can give you a better idea, from "not bad" to "never again" :)

For tax consequences, I think Nolo provides some good advice on what you can deduct without running afoul of the hobby rule:

http://www.nolo.com/legal-encyclopedia/ ... 30000.html

And in your case, unfortunately, there are also ethical restrictions on federal employees depending on what it is that you want to do for an outside activity:

http://www.justice.gov/jmd/ethics/generalf.htm

No sense getting into trouble over a business. But I sure hear you when you say you can't imagine being a federal lifer! Best of luck to you.


Dragline
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Post by Dragline » Tue Aug 30, 2011 2:27 am

@LiquidSapphire
You are correct that as a basic wage earner you are basically screwed as far as tax deductions are concerned. But make sure you itemize to at least get the state tax deduction (assuming you pay them). If you are healthy and they allow you to choose a high-deductible health plan with an HSA, take that one too.
Oddly enough (or maybe not so odd), the more I've made in the current system, the more I've been able to shelter, but you have to be deemed "self-employed" and be part of a large organization to really do it. I keep expecting the merry-go-round to stop, but it never has. I retire when the wage-earners wise up, but they seem distracted by the promise of more jobs if you give people like me more money or some other religious faith in unproven economic theories. Honestly, its really weird, but I take my opportunities as I find them.


justjohn
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Post by justjohn » Tue Aug 30, 2011 2:52 pm

@LiquidSapphire
I'm curious about the Federal pension ... isn't there the concept of "vesting", so that after ten years you would receive a pension at retirement age? Even if it is only 10% (for ten years service), seems like it would be worthwhile to stick around for that. Four more years service for a $9000/yr pension in the distant future?
Sure, some people would say that the government will fall before then, etc. But you never know.


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