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April 24, 2009


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4% raise last year, will probably give at least half of it back this year. It will be my first pay cut in 19 years on the job.

We currently save about 30% annually.

No credit card debt.

We have health insurance through our jobs.

We both have defined contribution retirement plans that are supplemented by Roth IRAs.

We both have college degrees.

I'm interested in the level of education in Wyoming vs Michigan. My guess is their economies are reflecting their respective current economic strengths and weaknesses. Wyoming has a high level of natural resources...coal, natural gas, oil, minerals etc. Michigan's economy is dominated by the auto industry. A few years ago Wyoming was in recession while the rest of the country, including Michigan was growing.

I'd love to see a breakdown of the stats on credit card debt in the United States. Specifically, I'd like to know what percentage of American's have some form of credit card debt as opposed to the percentage of Americans who pay it off every month. I think that would be more telling than what the average debt is (as depending on what method you use to calculate the average, it could skew the stats).

FYI: 401Ks aren't counted in the "savings rate" (which is one of the reasons I don't like how it's computed). The national savings rate is computed based on "disposable income", which is derived from after-tax income. Pre-tax savings devices aren't figured into the equation.

"non-deductible IRA contributions"

Hey, FMF, can you address why you make non-deductible IRA contributions? I've been trying to figure out what advantages they have over plain old investment accounts, and all I've really been able to come up with is shelter from creditors (which is not insignificant, but might not be worth the inflexibility). I'd be interested to hear your reasoning and learn if I've missed something.

Sarah --

I may write a post on this sometime, but for now, here's the short explanation:

The earnings (dividends, capital gains, etc.) of an investment in an IRA are not taxable. So even though you forego the tax deduction for the initial contribution, earnings generate no taxes. As such, you keep more of your money and it builds up to a larger amount over time.

BTW, I only contribute to a non-deductible IRA after all my other "good" deductions are taken: 401k, SEP IRA, 529s, etc.

FMF, Help me please. I have $225K in savings. I am 38, married, 2 kids under 6. I contribute to my 401k for my company match, current balance there is $100k. What should I do with the $225k. I have it in savings because I am afraid to lose it and I'm afraid not to have it available if I get laid off. The layoff possibility is low but it is still on my mind. I don't know what to do. Should I go to Vanguard? If so, how much and which funds? All in the Total Market Index? Should I get a financial adviser? If so, how do I choose one. It seems like now is the time to invest but I'm nervous and unsure what to do. I also want to consider a 529 for my two kids. Thanks for any help you could give.

FMF --

While the earnings to a non-deductible IRA do not generate taxes, you are basically converting long-term capital gains (15% tax) into taxable income (up to 36% tax) when you withdraw the money. Depending on one's situation (years to retirement, current and est. retirement tax bracket, etc...), a better option would be to invest in tax managed fund (or possibly an index fund) within a taxable account.

A --

1. "depending on one's situation"

2. I do have assets/investments in taxable accounts as well.

A identifies one of the issues I was thinking about. I'm in the irritating situation right now of not being able to contribute to my employer's retirement plan (technically I am a "temporary" employee, though in fact I'll be there for a couple more years), which limits my options. It seems like it's difficult to get a clear answer--too many variables.

FWIW, if your Michigan/education analogy were to hold true, then that would mean that Wyomingites have the best education in the country. But I don't think Wyomingites have the lowest unemployment rate b/c of their education.

Do research gold. Do research analysis of people who did predict the crisis as early as 2005 and earlier: dr Marc Faber, Jim Rogers, Peter Schiff. Natural resources, away from the US dollar, gold. In each and every crisis in the human kind history gold did good. This time is no different. US has currently the biggest debt in the history - if you divide all the private, corporate and state obligations - you end up with over $400k per person! Easy way to get rid of debt as history teaches - inflate your currency. Fed printed so far $13 Trillion to fight recession. They keep printing. Watch out for US currency and US denominated assets. Keep a little bit in physical gold, a little bit in foreign bonds (Chinese bonds rule), resource oriented companies in Asia. I don't know if you travel a lot but US looks like a poor cousing compared to Japan, Taiwan, Honk Kong, Singapore. None of the US airports looks as good as ANY international airport in these countries. None of the US highways is as good as ones in Asia. I mean - if you saved this much, spent some of it to go there for 2 weeks and see - you will know how horribly neglected everything in the US is - education, health care, infrastructure, savings. And USA is getting worse and worse each and every year while Asia is getting better and better. And their growth is based 100% on their savings. They have no debt. US is 100% funded on borrowing from Asia and none of these money have been spent on growth - everything consumed and thrown to the garbage can.

Your money, you will decide. But don't buy into US media and government bias. You worked hard for this money, make sure to see the full picture. Enough people have been listening to Wall St, experts and government already. This is time to do your own thinking. Everybody in this country has something to sell and they will talk their talk to convince you. Educate yourself and shut down TV. You will know what to do.

Kevin --

I'll post your question in a week or so. Stay tuned.

Interest statistics. I'm in California, so it looks like I'm fine ;)

I never expected for Wyoming to have the lowest unemployement rate -- weird. Sad to see that the average weekly income is $600...just shows us how unfortunate many people out there are. I don't think I would be able to live off that. I make that much alone from Finance Advisory Stop, plus income from my job. Nice post!

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