Screw Moderation: In Praise of Immoderation

So Blueprint for Financial Prosperity had a post about how the single greatest piece of financial advice he has is to achieve balance.

I believe that balance should be balanced by a healthy amount of lack of balance.

The dream of going through their life having 2.5 kids, a house, a wife, a middle management job and a white picket fence may be for some people, but it's not for me.

For me, it's vital I sculpt and follow through on my own unique vision of what my life should be, and not be beholden of what some established wisdom says my life should be. Part of who I am and hope to be is defined by comparison to this mold.

To define myself I have to do something truly unique and this requires that I sometimes be immoderate.

Here are some immoderate things I hope to accomplish:

1. Finish in the money at the World Series of Poker- impossible? how to know if I haven't tried?
2. Retire Early- How early? While I'm still young enough to appreciate not having to work.
3. Skydive- Hopefully my chute won't be full of silverware.
4. Visit the Galapagos Islands- not really all that immoderate, but definitely not the height of moderation.
5. Move to a Caribbean Island-or a similarly sunny island. Sunlight and warmth= happiness. Given a choice, I chose a place with a headstart on making me happy.

Should I become a Poker Geek?

One way I may be able to supplement my retirement income is by adding poker income. In my hayday (and at the peak of poker's popularity) I figured I could make around $40K a year from internet poker.

Since then my skills have declined considerably as I have been forced to actually work at a salaried job and the hobby has become illegalized by idiotic Congressmen.

However, if I figured I could make just $20K a year from poker while I was "retired" I could retire considerably earlier (probably 4 or 5 years earlier).

The rub: poker is incredibly boring when played nonstop every day in front of a computer without seeing live people. Online poker however is 1/10th the cost of casinos and you are able to play far more hands.

The other rub: the most important skill in poker is patience, working all-the-time has eroded my once easy-going personality and has caused me to lose my ability to be patient. With it has gone my poker skills, to be able to successfully supplement my income I will need to re-easyfy my personality to become the laid back kid I was in college.

I will most likely try to supplement my income with a few thousand a year from poker in retirement, but I definitely don't want to lock myself into a retirement stuck in front of a computer screen performing rote repetition.

Retire Young or Enjoy Your Work?

I would rather work at a job with a high salary that allows me to retire as soon as possible than at a job I would really like working at, but that would force me to work into my late 60's.

I can see the arguments going both ways, but for me, all work, no matter how enjoyable, is going to be a lot suckier than the joy of not having to work at all.

Would you rather work someplace you enjoy working at for 40 years or work someplace you are indifferent about for 15 years?

Sacrificing Your Life For Your Wife

So a new study shows that if women take their social security benefits at an earlier age and men at a later age, they will increase their combined couple net income, even though the man will die at an earlier age.

The widowed wife will enjoy the benefits of the higher survivorship Social Security benefit due to the husband's waiting to draw from Social Security.

But is this trade-off fair for the shorter living husband? He will get the increased peace of mind of knowing his wife is protected if something should happen to him, but he may have to endure a lot less comfortable retirement than he might otherwise have to. Maybe he will have to work longer in order to be able to retire. Working longer may mean he dies sooner as a result.

The fairest thing would be to plan ahead, and to save up enough to use retirement savings to offset the disparity. If I have to die 5 years before my wife, I intend to have a damn good time before I kick the bucket.

Baby Boomers Should Be Taxed Until They Cry . . .

I'm 27, when I retire I will need more than a million dollars in order to be able to assure that I have enough. The failure of Social Security and Medicare to provide for me is absurd given how much in taxes I will be paying for these programs.

The system returns vastly worse than the market: If I pay $2500 (and my employer pays $2500) towards Social Security, but I instead invested that money in the market at an 8% return every year for 40 years, I would have an inflation adjusted $383,030, or enough for $30,000 a year in payount (i.e. about twice what Social Security would pay in this situation). Even if Social Security didnt go bankrupt, it would still be vastly inefficient and under-rewarding.

The Baby Boomers Will Bankrupt the System-the flood of baby boomers retiring will mean a lot more in withdrawals and a lot less in contributions. Young people will be stuck with the bill: either by paying more in Social Security taxes or by receiving far less in benefits.

The Baby Boomers Allowed the System to be Bankrupted-it was Baby Boomers who allowed politicians to not fix the problems and to systematically raid Social Security to pay for tax cuts, military spending, social spending and other expenditures which amounted to screw-the-next generation for an immediate reward policies. Now, that the Baby Boomers have become vastly more wealthy than the younger generations, its time for them to pay for their own problems.

Two Possible Solutions

1. Fix the Problem Now- Baby Boomers' Social Security benefits should be cut or the retirement age raised NOW. No more of this grandfathering into the previous generous benefits levels. Baby boomers should take an immediate and severe hit to their level of retirement payouts. They broke this, they shouldn't be footing younger generations with the bill.
2. Let Future Generations Chose- I should be given the choice about whether to invest the combined $10,0000 that's paid by my employer and I to Social Security in a government-run system that can't even beat 8% returns, or in the market by myself. If that causes older generations to have a funding problem, they have only themselves to blame.

One thing is clear, the fair solution is to adopt a "you broke it, you should fix it" solution. Baby Boomers and those who enabled the politicians to allow the system to go bankrupt, should now shoulder the burden of ensuring that future generations aren't vastly screwed over.

Will I be Bored in Early Retirement?

I read all of these articles about people who having worked all their lives don't know what to do in retirement. Many of them go back into the work force because they just don't know what to do with their lives. So much of who they are as a person and what they occupy themselves is about their work.

The person that they were (independent of work) has become irreperably damaged, and they have become their work selves. My dad is still working in his seventies; not because he has to, but because he wants to. I want to avoid this fate at all cost.

This will not be me. Work is a means to an end, never an end in itself. Once I achieve financial freedom, my ends will have been achieved, and work will serve no more purpose for me.

One difficulty I face: how to enjoy the work that I do, while still remembering that my work self is not me? This seems like it may be very difficult to accomplish, but possibly can be accomplished by:

1. Developing my non-work life, making friends, developing hobbies and fun things to do to the extent that my non-work life outshines any enjoyment I derive from work.
2. Not over-obsess about money, so that when I finally have enough, I will recognize that fact, and let go my obsession.
3. Realize that I should do work that I enjoy, but that the most enjoyable thing is to not have to work at all.
4. Have a family that I can love and spend time with.

It is an awful prison that shackles you, even after you have left its confines.

Should You Be Fleeing the Country?

If you are young, lazy and desperate to retire young, you are pretty much consigned to a life of hard financial sacrifice, number obsessing, soulless work drudgery, and mandatory mutton-chomping. Unless . . . .you flee the country.

Fleeing the country for your retirement has many advantages:

1. Taxes- A U.S. Citizen living abroad does not have to pay taxes on his first $84,000, assuming he meets the other criteria. If you plan on making more, you could voluntary give up your citizenship if you want to avoid double taxation.


2. Nicer Weather- Sunny, beautiful and lovely, sure beats cloudy, polluted, and depressing. Studies show that the levels of sunshine can have a positive effect on your level of happiness.


3. Cheaper Standard of Living- Depending on where and how you live you could live a lot cheaper. Housing, food, and other staples can be had for a lot cheaper.


4. Retire Earlier- With all of the money saved from taxes and cheaper housing and food, there is no reason you can't retire earlier. If you could comfortably retire on $40K a year you could easily retire once you'd saved $750K. You could write Fidelity to tell them to go bleep themselves for telling you you need $5 Million.


5. Comparable Services- Depending on where you retire you might be able to get comparable schools, hospitals, etc. Or you could use your extra money to pay for private services.

I'm not saying you definitely should flee the country, but given the advantages, I'm surprised more personal finance bloggers don't consider the option.

Retire Young or Die?

According to this internet site I found, the average person who works until age 65, dies 18 months after retiring, while the person retiring at age 50 lives to be 86 years old. For those contemplating working another few years before retiring, realize you are losing two years of your life for each year you work beyond age 55."

I am not sure if this unbelievable claim is true or not and in fact the website itself states that the data is old, but the principle might still be true, and it is all the more reason to retire as young as I possibly can.

I can't think of anything more depressing than the thought of working all of your life until you hit 65, never relaxing and enjoying your freedom, and then promptly dying 18 months later.

I intend to live a life of freedom.

Should You Be Making Non-Deductible Contributions to an IRA?

Crazy talk, you say? Maybe Not....

If you are above a certain income ($103K for joint income) you are not allowed to claim any tax deduction for contributions made to an IRA. Similarly, if you are above $166K for joint income, you can not make contributions into a Roth IRA.....

But, tax loophole time! Starting in 2010, you can convert your IRA into a Roth IRA, no matter what your income is! You would normally have to pay taxes on the amount of money in your IRA which you claimed a tax deduction for....

But not if you didn't receive a tax deduction for that money!

This means that if you are above the limits for a Roth IRA eligibility, you can sneak in, by making a bunch of crazy non-deductible IRA contributions from 2007-2010, and then converting your IRA balance into a Roth at no charge.

Risks: Congress could always change the laws. Disclaimer: Verify this w/ tax professional to make sure I am right.

Breaking Through The Ceiling

In examining my retirement goals, and running the numbers, one thing strikes me as really interesting.

The larger the amount of your money invested in the market, the easier it is to rapidly accumulate wealth through compounding and interest rates.

If you invested $6K a year into your 401K, and earned an average of 10% on it, it would take you 15.4 years to earn your first $200K, yet it would take you only another 6 years after that to earn your next $200K.

The lesson from this is striking: If you can find a way to break through the difficulty of accumulating that first $200K, you can set yourself up to the point where your ability to rapidly accumulate wealth benefits exponentially.

This is what I am trying to do: I am trying to find every possible way I can to accumulate "investing fodder" to break through that ceiling. From saving money to bouncing my money around internet savings accounts. Right now, my wife and I have $57K in the market (entirely in 401Ks), my goal is to try to increase that to $200K in the next couple of years.