Getting back in control of my retirement funds

One of my major financial goals for February is to get back in control of my retirement planning. I had never really felt like I grasped anything but the very basics: 1) max the 401(k) and 2) diversify (whatever that meant) and as a result my retirement planning efforts had languished.

I have three major "chunks" of retirement savings:

• 401(k) at a previous employer that I had stopped receiving statements for three years ago (they moved their 401k, I moved to a new address...poof)
  
• Rollover IRA consisting of all B shares (to compensate a financial advisor sigh) in "socially responsible" mutual funds
  
• My current 401(k), 1 year old, 100% allocated to an S&P index fund because I was rushed to choose

I had intended to consolidate everything into my current 401(k) thinking that I'd be better at managing a single account. But then I happened to hear Suze Orman recommend a rollover IRA because of the flexibility in choices available.

I also realized I wanted to allocate my current 401(k) and didn't really know how best to do that, so last week I invited a friend over who is good with finances and put her to work ;) By the end of the evening, I understood how to allocate across different types of "stock" funds and I had a burning desire to get on with my action list:

1. Call the previous employer to get access to my 401(k) information and obtain rollover forms
2. Open a new rollover account and initiate the 401(k) transfer
3. Get web access to my current 401(k) to access fund research and allocation tools

The experience of really looking at these neglected accounts was eye-opening for me. They *looked* neglected. Boy did I feel silly for not doing it sooner...but I suppose I wasn't ready until now.

January Paycheck Tune-up

Back in January it became clear to me that I needed to up my 401(k) contribution to allow for the new maximum and adjust my federal witholding so that I'd have more cash in my paycheck each month instead of a huge refund at the end of the year.

Maximize my 401(k) contribution
For the year 2004, the contribution limit was $13,000 and I get paid twice a month. So my payroll deduction was set for $542. Now that the limit is $14,000 I upped it to $584 (before my first pay period on 1/15). And I entered a reminder on my calendar for Jan 2, 2006 - to increase that deduction to $625. Hopefully by that point that amount will not seem like it will pinch.

Update my federal withholding allowances
As much as I enjoy the thrill of a huge tax return, I hate the thought of giving the government an interest free loan while I carry credit card debt even more. Even before I entered my non-cash charitable donations into my tax software I could see the feds owed me big. This was not a good sign. Because I own a home, and I had recently refinanced, I had a large amount of itemized deductions...not all of which had been accounted for when predicting my 2004 witholding allowances (or did I only do that when I got the job in 9/2003? sigh).

I've always used the IRS's withholding calculator but I did recently see that there are several more out there (H&R Block for one, but the TurboTax one wasn't even available for 2004 let alone 2005). Also, I think most tax software has this type of feature under "planning".

Before starting, it's helpful to gather what you paid last year in taxes so I had my 2004 YTD state taxes from my 12/31 paystub and I estimated my total year of property tax will be four times the single quarter payment included on a recent mortgage statement. The hardest part for me is knowing what I will pay in mortgage interest for the new year.

Any amortization table that helps you do the math for each year of interest will work, but I used a calculator at Bankrate.com to locate each of the 12 amounts of interest I'd pay in 2005. This year I didn't actually add them up - I just ballparked it based on what I saw - but next year I'm going to take the time to do the actual math. I calculated my new withholding allowance and submitted a new W-4 (PDF) form to my employer.

With my first paycheck of the year, I noted an increase of about $500 a month in my take-home pay. In January and February it's gone straight to the credit card debt and I don't even miss it. I e-filed my taxes on 2/15 and eagerly await the refund that will wipe the rest of the credit card debt clean. Starting in March that money goes into an actual, for real, savings account and the climb begins.

2005...The Year of Finances

Clutter takes many forms: a basement packed with unused furniture, a computer desktop littered with icons, too many finance related accounts to track, a mind filled with so many things to do that nothing gets done, an extra 30-odd pounds... I'm familiar with all of that and more, which is why I'm "here".

I've been working on the physical clutter for a few years now and I've got a ways to go. At least the clutter that's left is banished to the far reaches of the home: the basement, the attic, the unused bedroom and a few small nether regions. I'm still plugging away...sometimes donating, sometimes selling and contantly amazed at how much is left to do.

In seemingly unrelated events, my partner and I had a financial scare at the end of last year. We had let our credit card debt get a little out of hand (buying mostly things we truly needed and currently treasure) that we expected to wipe out with my year end cash bonus. We had been about $1500 (= on month) away from paying off all our credit card debt when we went on vacation in the summer. We could have been credit card debt free by August, but instead were approximately $12,000 in the hole by the end of the December. When we saw that the net cash of my bonus would barely cover a third of that, the clue-phone rang with our wakeup call.

2005 was declared the year we "get our finances in order".

Suze Orman was the person who made the connection between clutter and (bad) debt for me. A few weeks ago, I heard her mention that a cluttered house is a sign of credit card debt and it just made sense to me. I don't want either in my life, but it's a struggle sometimes. I was inspired by making some of my goals finally visible over at 43Things and coming across Brian's Personal Finance for the New Age since he's thinking through a lot of the same things as I am.

Here goes....