Another month, another update. A few random comments.
Good Reads/Listens/Watches
- The Mitchells vs the Machines (link).
- Pretty entertaining family movie.
- I’ve recently become addicted to the music of Ben Rector (link).
Life
- Due to Tesla’s massive price drops, a colleague bought a Model Y for $55k.
- Congress’ recent $1.7T spending bill paid for $7,500 of his Tesla, bringing the net-of-tax-credit price to $47,500 (plus sales tax + registration).
- I don’t understand the logic of $7,500 Tesla subsidies for couples making up to $300k AGI. It seems like the demand for Teslas was quite robust pre-subsidy.
- I helped my friend take delivery of the car.
- We drove 3.5 hours one-way to pick it up out of state.
- It was a foreign and enjoyable experience bypassing sleazy dealers who tack on unexpected fees (anti-rust spray, $500 floor mats, etc). The whole process could have taken as little as 5 minutes had we really known what we were doing.
- He let another colleague, Mrs FP, and me test drive it. It was my second Tesla I’d driven (the first was a Model S a year or two back). It was a really nice ride (it’s an Austin-built 4680 version).
- I’m tempted to pull the trigger on the car, but the two beaters we own are perfectly functional and relatively cheap to maintain, insure, and register.
- A potentially confounding factor is that FC1 is getting her license next month, which means we’ll soon have 3 drivers in the house.
- A related public service announcement: stay off the roads!!!!
- A potentially confounding factor is that FC1 is getting her license next month, which means we’ll soon have 3 drivers in the house.
- Any Tesla owners out there? Any thoughts on joining the cult?
- Congress’ recent $1.7T spending bill paid for $7,500 of his Tesla, bringing the net-of-tax-credit price to $47,500 (plus sales tax + registration).
- Mrs FP left town for a few days, so the responsibility fell solely on me to keep the kids alive in her absence.
- It’s a harder task than it sounds given their desire to murder each other.
- On a particularly cold Saturday, I brainstormed potential activities with my three youngest kids (the two oldest were busy). For an inexplicable reason, I offered to take them to the local children’s museum, which has historically provided many fun memories to us through the years. Overtaken with nostalgia, the three kids and I drove to the museum, paid the $132 annual membership fee, and entered the museum. After about 5 minutes of walking through the entirety of the museum surrounded by near-infants, I came to the obvious realization that I’d made a grievous mistake. My kids (aged 8, 10, 12) were each about 5 years too old for the museum. Mercifully, we eventually found an exhibit or two that entertained them for a few minutes. I don’t think that we’ll be back.
- At the age of 39, Mrs FP discovered a new hair care routine called “the curly girl method.” Apparently, she has curly hair and didn’t know it until now. I’m unsure of the details, but here’s what happened:
- We got rid of our old shampoo and bought special shampoos and conditioner at Costco.
- It went on clearance, so we bought A LOT of it (that was my idea). Hopefully we use it before it goes rancid.
- We bought a $140 hair dryer from Costco.
- We bought a bunch of random hair accessories (hair ties, shower cap, silk bonnet/pillowcase, hair gel).
- We got rid of our old shampoo and bought special shampoos and conditioner at Costco.
- In a former life, I started my (short-lived) engineering career at Boeing in 2006. I was among the very last cohorts to be offered a pension since Boeing, like pretty much all employers, was getting out of the pension business. Long story short, Boeing had a 5 year vesting period for the pension and there was ambiguity on whether I qualified for it given my two stints on educational leave (first leave was to finish BS post-internship, second leave was to pursue MBA). At one point, the online system used to show that I was vested but this status was subsequently rescinded. When logging into Fidelity recently, however, I saw this pension show up on my home page, implying that Fidelity is now the recordkeeper/administrator of the pension. When I called Fidelity to inquire about my vesting status, they told me they’d have to investigate further. A month or two later, I got a letter from them saying I’m vested and I now see the (small) pension benefit on my Fidelity portal. Woot? I’m certainly not turning it down!
Friend #2 test-driving Friend #1’s Model Y. More specifically, he’s testing out the basic (free) autopilot functionality.
My giant kids in a children’s museum designed for kids 10 years younger than them.
I hugged a cow, then took this picture afterwards. I marvel at the public’s appetite for fried chicken at 8am. We were there for a stuffed animal sleepover for the kids.
The special conditioner went on sale. We bought Costco out. 32 bottles in all.
About 2/3 of our conditioner haul.
A non-zero pension coming my way in 2046!!! I’ll surely be drowning in money as a result.
This Month’s Finances
- The good:
- Still employed.
- I liquidated $21k of our brokerage account to max our our 529 (up to state deduction limit) + backdoor Roths.
- As usual, I frontloaded some retirement contributions.
- The bad/abnormal:
- $700 in prescription expenses (we’ll hit our deductible in a few months, as always).
- $500(?) on curly hair.
- $200 dental bills.
- $200 orthodontia bills.
- $186 for two TI-84 Plus CE calculators.
- It was a blast from the past buying these for FC1 & FC2! What a rite of passage!
- $117 on spelling software for the two youngest kids (worth it to keep our sanity).
Full version downloadable here (link).
Footnotes:
- Fidelity unambiguously has the best HSA on the market. $0 admin fees + $0 expense ratio funds.
- I lazily approximate home value as my historical purchase price.
- I have a 15Y mortgage which results in much larger principal payments than a 30Y mortgage. Since principal payments are simply transfers from one pocket (assets) to another (debt reduction), I treat such cash flows as savings.
- ~$0 cell phones described here.
- All expenditures at Costco & Walmart are classified as “Food at home” for simplicity (even if it’s laundry detergent, clothing, medicine, toys, etc).
- Nobody knows the perfect asset allocation. Just pick one and run with it. Use a target date retirement fund as a benchmark if you want some guidance (link). If you prefer to DIY (as I do), then a three-fund portfolio is great (link).
- My low portfolio expense ratio is the primary reason why I don’t hold target-date funds, which have expense ratios anywhere from 0.16% to 1%. I can achieve a much lower expense ratio on my own due to Admiral shares, etc. And it’s not hard. Plus, a DIY portfolio allows one to tax-loss-harvest more easily.
- ETF’s are slightly more annoying to hold relative to index funds. With ETF’s, you must deal with bid-ask spreads
as well as the inability to buy partial shares(Fidelity now offers fractional shares). With a simple index fund, you don’t have to deal with either of these issues. Bogleheads discussion here (link). - I continue to own VTSAX rather than FZROX and in my taxable brokerage account because it is more tax efficient due to lower capital gains distributions. Bogleheads discussion here (link).
- CA’s 529 plan has the lowest expense ratio US equity index fund of any in the US (link). I’d have 100% of our 529 money there if not for the state tax deduction we receive in our own state.
- My Collective Investment Trust (CIT) version of Vanguard’s Total Int’l Stock Index has a 0.059% expense ratio, yet produces 0.15% of “tax alpha” due to reduced foreign tax withholdings. Vanguard implemented this change around 2019. Therefore, I report the effective expense ratio of negative 0.091% for this holding (=0.059%-0.15%). The “tax alpha” shows up in the performance differential in the fact sheets here (CIT vs MF) and is more thoroughly explained here. Unfortunately, this 0.15% of “tax alpha” is not available in the mutual fund version.
Disclaimer: This site is for entertainment purposes only, as disclosed here: https://frugalprofessor.com/disclaimers/
I’d see if you can roll that pension over to an IRA. Your market return will likely be higher than any increases in your plan.
Thanks for the suggestion! I hadn’t thought of that!
Here’s a link to the current IRS prescribed interest rates for converting a pension into a lump sum: https://www.irs.gov/retirement-plans/minimum-present-value-segment-rates
Your plan may use different rates, but the lump sum has to be at least as large as if these rates were used.
They rates have increased pretty significantly recently (which means a lower lump sum) as they are based on the rates of high quality corporate bonds, but they are still lower than expected total market returns.
Thanks for sharing the IRS link! Too bad I didn’t look into this earlier when interest rates were zero.
I can think of two arguments against taking the lump sum:
* The pension (albeit a small one) has an obvious longevity insurance component to it. If I live to 120, then perhaps I come out ahead with the pension.
* Rolling over to a Trad IRA will screw up my ability to do a backdoor Roth unless I can roll that money into my current workplace plans. I’ll look into the viability of this.
Fair points. I would add that the mortality table used to convert has generational mortality improvements baked into it. You could still outlive them, but I don’t think it would be a huge opportunity. The payments at the end of the annuity have the smallest present value.
I think a bigger risk is inflation, unless your plan pays a cola.
Thanks again! This has been really helpful!
I just checked out my options on Fidelity’s website. Here’s what my options are for a distribution date of the 1st of next month:
Lump Sum: $16,167.89
Single Life Annuity: $67.56/mo
50% Joint & Survivor Annuity with Pop-Up: $65.80/mo (surviving beneficiary $32.90)
75% Joint & Survivor Annuity with Pop-Up: $64.95/mo (surviving beneficiary $48.71)
I guess I could do the math to back out what kind of discount rates and/or longevity assumptions they’re making. I’ll play around with some pension calculators to see whether the lump sum today makes sense.
Thanks again for helping me think through this.
That’s quite a bit of conditioner! Before too long you’re going to be running your own warehouse of sorts.
This year my work introduced a health plan option with an HDHP and HSA. Of course the HSA provider is terrible. My next research project is to see if it’s possible to roll over money in it to a Fidelity HSA from time to time. I think it still makes sense to pass all of my contribution through the workplace HSA to ensure I get the full tax benefits.
We’re indeed inadvertent boarders. But it seemed semi-rational given the hair care regime change. Many hair care ingredients are now forbidden, forcing us to higher-priced specialty products. The first purchase was on Amazon and was super expensive. Then we found this “approved” product at Costco and went all-in. With 3 daughters at home, I think we made the right decision to hoard; we’re already making a dent in our inventory.
On the HSA front, here are some thoughts:
* Crummy HSAs are unfortunately the norm, not the exception.
* Fidelity’s HSA is the best, as you know.
* If you can roll over your crummy HSA balance to Fidelity, that’s great. If not, see below.
* If you circumvent your employer’s HSA, you’re still entitled to a full federal + state deduction (same as if you’d contributed via your employer). The difference is that the accounting is settled when you file your tax refunds. In other words, your W2 won’t reflect your HSA contributions, but all of this is easily reconciled when filing your taxes.
* What you do lose, however, is the payroll tax deductions (SS + Medicare). You can’t recoup these when filing your taxes. BUT, if you make above the social security cap ($160k in 2023), then you weren’t shielding any HSA money from SS anyway. That said, you would unambiguously be forfeiting the Medicare deduction (either 1.45% or 2.35%(=1.45%+0.9%), depending on whether you hit the Obamacare surcharge level).
* If the penalty is only 1.45% for Medicare, that’s not bad. I’d probably take that haircut over investing in a crappy plan. But you could easily do the math to compare the sum of HSA fees in your crappy plan and compare that to 1.45% (or whatever your true number is).
FP, thank you for the Ben Rector Old Friends link. In the mid 1970’s I lived in a small town called Carrollton Ga. No cell phones, cable TV, internet, social media, etc. Only bike riding around town and jumping homemade ramps, go carts, trampoline, exploring in the woods from sunup to sundown, building a treehouse, etc. It would be nice if this generation of kids could experience the joy of the simplicity of life back then. I hope you continue to write these monthly posts, as there are some of us out here who really appreciate it.
Had you heard of Ben Rector before? He was totally off of my radar until recently, but he is by far my favorite musician these days. His lyrics are so profound.
As a child of the 80s myself, I also lament the complexity of the world in which we’re raising our kids. The world got busy in a hurry, and many of the simple joys of childhood are now lost in the chaos of social media / the internet / etc. I’m not sure what the exact culprit is, but it definitely feels a lot different now.
The exact culprit is advertising motivated by profit. Imagine if corporations didn’t have freedom of “speech” and could only say and imply things that were objectively and demonstrably true. What a relief that would be! The world would be calmer and more trusting, and we could all begin to take back our own thoughts and emotions.
The profit motive was there when I was a kid in the 80s. At the age of 41, I can still recite verbatim many commercials from my childhood. My wife and I occasionally look up these commercials (Toys are Us, Big Red, Juicy Fruit, Chia Pet, etc) on YouTube and have a good laugh at how brainwashed we are/were.
I had never heard of Ben Rector before, but you now have me going through his YouTube video list. Some of them are really hitting home like the song/video Paris. I have been blessed to have been able to travel in France and Italy and Paris is such a beautiful city. Thanks again for introducing me to him. Social media is a serious problem for both youth and adults. I cringe when sitting in a restaurant next to tables full of adults with their faces buried in their phones not talking to each other. I guess I am out of touch with the times – only email (ancient Hotmail account), no twitter, facebook, instagram, etc, and rarely use a cell phone. Learned to program on punch cards.
https://www.computerhope.com/jargon/p/punccard.htm
I have no idea how I hadn’t heard of Ben Rector before. Glad we discovered him.
Social media + smart phones can indeed be terrible, but I’m a hypocrite because I use them (albeit, my goal is pretty much zero social media / smart phone usage).
Regarding that hair care purchase: Condition = $500; Happy wife, happy life: Priceless!
True!
Oof, Children’s Museum. My ear drums and my psyche still haven’t recovered from my last visit. You’re a brave man.
Just wondering, from a former 100% equities guy – I see you still have no bond exposure, even at 4.5%? Would be curious to know you’re thoughts on this. I’ve moved a very substantial portion of my assets to bonds recently … first time in my life and just wondering if I made a cowardly decision.
It’s funny you mention the noise of a children’s museum. I’ve spent a lot of time in them through the years, and they generally are no louder than my house with 5 kids and a dog. I’m sure that I’ll have permanent hearing loss later in life.
On the topic of fixed income, it’s a good question. Now that nominal bond yields are above 0%, it certainly makes them more attractive than they were for the past many years. But the expected after-tax & after-inflation returns are still close enough to zero for me to not get too excited about them. Until I pull the trigger on retirement, or become very close to it, I think I’m quite comfortable riding out the volatility of the 100% equity wave. But my employment situation is a bit unique so I certainly wouldn’t advise that broadly. Hence the giant disclaimers of my site that the slow-moving-train-wreck of my financial life is on full display as a source of entertainment. Hopefully others can avoid my easily avoidable mistakes.
My wife actually does have curly hair, and periodically goes through straightening phases. One of these phases included a $350 vacuum cleaner hair dryer straightener contraption. Of course there is all the giant Costco bottles of product to go with it.
Didn’t know shampoo can go rancid? I have a giant bottle from Amazon from over 7 years ago which I’m finally getting to the bottom of. It still smells the same as it originally did.
$350 vacuum cleaner sounds intense! I guess I’ll consider myself lucky to have gotten off easy at $140 for the dryer + $??? for a lifetime supply of shampoo/conditioner. Not sure it will go rancid; I hope not!
The new hair care routine has been good for the 4 females in the house. Money well spent. If only I had hair to spend money on….