Links for Friday

This Week's Links: CNN Money Addition!

• I was digging through my links repository a bit when I found CNN Money's Be a Millionare: 5 Ways to Get There, an simple article with supporting calculators.
• Sick of fees? Consult CNN Money's list of the 35 Most Outrageous Fees (and How to Avoid Them) to recognize and reduce common fees.
  

A Post from the Past:

• Understanding that stock price is determined not only by a firm's financial success, but also investor sediment. The intuition behind using of both of these factors is explained in June's Use Behavioral Finance When Picking Stocks.
  

It's Really All About Asset Allocation: Part 2 of 2

I negotiated the CNN tool with the following known variables (well some are assumed because I don't really have a job yet):

• Current Age: 22 (My age when I start full time employment)
• Desired Retirement Age: 65
• Life Expectancy: 85
• Current Income: 65,000 (I hope that is somewhere around my potential starting salary)
• Typical Annual Raise: 4% (I believe that is a fair average)
• Desired Annual Income @ Retirement: 65% of current income --> I figure I already will be saving 20% toward retirement and 10% toward housing expenses
• Expected Benefits from Social Security: $0 --> Social Security will fail
• Age Payments Begin: 65
• 401k Balance: $0
• Contribution %: 10%
• Company Match: 25%
• IRAs: $10,000 in my Roth
• Annual Contribution: I plan on maxing it out $4,000
• Tax Rates: Whatever CNN said
• Portfolio: Aggressive ---> But this is the unknown!

The results were great! In order to achieve my goals, I only need to yield 5.06% on my investments throughout retirement, which suggests I can be pretty conservative if I maintain my current contribution rate!

It's Really All About Asset Allocation: Part 1 of 2

One thing I learned at Merrill Lynch was a great system for retirement planning. The system is much like any Algebra course where you simply solve for the unknown. There are several main variables that go into the retirement planning equation: current age, desired retirement age, life expectancy, current income, expected annual raise, desired annual income in retirement, current retirement savings, and retirement portfolio. At Merrill Lynch our clients new their desired end of the retirement equation (desired retirement income). What they wanted to know was how to make the retirement variables achieve their goals. In order to do this, we simply established the rest of the knowns and found what mix of investments would allow them to reach their goals.

I have a beef with Fidelity's myPlan because it simplifies the retirement equation too much and gives no advice on an investment direction. The calculator asked what my desired investment style was, and I thought to myself, well that depends how close to my retirement goal I was. See this is how most people should think we planning their retirement investments; what asset mix gets me to my goal.

CNNMoney's retirement calculator is far superior to Fidelity's because it takes out all assumptions and offers an appropriate asset mix. I will share my retirement check in Part 2 of the series!

What You Can Do Today To Be Rich in the Future

I was looking in the archives of one of my favorite blogs, The Simple Dollar, and I came across a great post detailing 18 tips that can save the average person over $4,000 a year! A great deal of these suggestions are new to me so I thought I would share the link.

To take this post one step furthur, I calcuated the benefits of living by these tips and depositing the average savings into a Roth IRA retirement account and assumed a 10% return on the account. The results are outstanding:

You would have almost $2,607,000 in your account when you retire at 65. This value is created simply by depositing the money you saved through the years.

Some Thoughts for Students Entering the Job Market

As some of you may already know, I am going to be a Senior this fall at the University of Michigan, Ross School of Business. While technically my concentration is in Finance, I have had really great experiences with my current summer employer, Electronic Data Systems (EDS). This summer is my fourth summer working a project management role with the technical consulting firm and I really enjoy the leadership opportunities that a full time position would offer.

I thought I would use some nifty calculators to find the financial benefits of a full-time Project Management job with EDS in the Detroit area, verses working as a Financial Analyst in a big city. I used CNN's Cost of Living calculator to analyze the expenses associated with living in a particular city. After speaking with some of my co-workers, they suggested that I could maybe get a starting salary of almost $70,000 in Detroit. For my calculations I assumed a salary of $65,000 with a 5% bonus, totaling a true salary of $68,250. The calculations below suggest I would need a salary of at least $137,085.56 in New York City, and $90,761.44 in Boston, to maintain the same lifestyle as offered by the EDS position in Detroit.

I also explored what my true hourly wage would be given my two potential career paths: a Financial Analyst of some sort and a IT project manager. I used instacalc's Salary to Hourly Wage calculator to find how much I would need to make as a Financial Analyst to match the hourly wage offered from the Project Management position. I used the same base salary and bonus for the Project Management wage and from my conversations with co-workers, I learned that the typical workweek is 40 hours and entry level positions are allowed three weeks paid vacation. After some brief research on a typical Financial Analyst position, I discovered that these positions usually only get two weeks or so of paid vacation and average 60-hour workweeks. The data also suggests the average bonus for these Analysts is a bit higher, let's say 10%. From the calculator I found that in order for the Analyst to match the hourly wage of the Project Manager, the Analyst would need a base salary of $95,000!

Have fun with these calculators.

Financial Calculators Galore

I stumbled across yet another financial calculator website today. Hugh's Mortgage and Financial Calculators is a great site offering traditional finance calculators (IRA and house one can afford), as well as several really unique calculators (sack lunch savings, gas savings and beverage savings). After picking through Hugh's site a bit, I thought I would share other great financial calculators I found on the web:

• TCalc Financial Calculators - re-finance benefits, rent/buy, car affordability, college savings, loan rate, investment yield, retirement, and lease
• My 1st Million At 33 has a great Rent vs. Buy calculator
• Fidelity offers a user-friendly retirement website with a couple different retirement goal calculators
• I really like All Financial Matters comparison of starting retirement savings now or waiting

I ran the beverage savings calculator and found that I could save $208/year and $3,315 after 10 years if I order water every time I go out to eat, assuming that my beverage usually costs $2 and I go out to eat twice a week. I also ran the retirement savings now vs. later and found that a person my age would have to pay $254 more each year to have the same ending balance if they choose to wait a year to fund a retirement account, assuming a $2,500/year contribution.

Feel free to share your favorite calculators...