Devoted to understanding the basics and fundamentals of investing

Where is the print key...I want to print this out so that my wife and I can go over it.

Thanks a bundle for the homework. You can be sure we will go through it.

Question: How many blogs do I need to write each year to make $32K so that I can sock it away?

BTW, Mrs. Bill = Samantha.

Thanks again for these numbers.

Bill, you are welcome. 4,297 blogs should get you there.

You can reduce your needed annual savings by increasing your risk. You could target 10% return instead of 8%. Then you would only need $27,540 per year instead of the $32,225 you need at 8%. That would only be 3,672 blogs per year or a little more than 10 per day.

Yes, Bill. Go out there and make a LOT more money! In fact, one heck of a lot more.

Come on, Larry, get real! Write more than 10 separate blogs per day, each and every day, faithfully for the next 15 years? How on earth can anyone save over $32k net per year, each and every year for the next 15 years, making $100k gross per year? Could YOU do it, after tithing, college expenditures for the kids, travel expenses to visit family and friends, fishing and other vacation costs, and those unanticipated outlays which keep cropping up more and more frequently, as we get older? Especially working uninterrupted in a perpetual state of good health from age 50 straight through to age 65? After taxes alone, you just can't get there from here, unless you plan to eat the furniture and farm out the kids to the neighbors.

In fact, the odds of Bill successfully saving anything close to $875k within the next 15 years are probably roughly equivalent to his hitting a big lottery payout over the same period of time. Under those circumstances, buying a lottery ticket occasionally might not be such a bad idea. After all, if you aren't going to have a chance to realistically meet your financial goals, you might as well have a little fun in life before you die broke!

Actually, I believe you would agree that a more reasonable answer here is for Bill to modify his retirement plans by extending his earnings capacity beyond the next 15 years (perhaps by partially relying upon his wife to supplement the family wages, if possible) or by lowering his savings target to a more practical amount which can be met without living in a cardboard box on the street under a bridge, or a combination of both.

As regards my next suggestion, I know you won't agree because you don't advocate this kind of thinking, but I still believe that it is just not critically necessary to have amassed enough savings to invest it ALL by age 65 (or whenever) and have the PRINCIPAL ALONE throw off sufficient income to cover all your future living expenses in a well-planned retirement. It is NOT A SIN to gradually INVADE the principal, as you get older and older in your retirement, even to the extent that this REDUCTION in principal invested limits the amount of future interest income or capital gains accrual available to contribute to your retirement expenses, and burns up your children's inheritance.

And there are other ways to develop additional and potentially significant source funds for retirement (besides baby-sitting), including the use of reverse-mortgage loans (a cash-out) from your hidden home equity, for instance, or liquidation on eBay of that junk lying around your house, including those really old stamp, coin, Lionel train, and baseball card collections stored away for years down in the basement or up in the attic. (You might simply be AMAZED at how much unanticipated money their sale can generate). Stuff like that.

Generally, retirement planning requires a little creative thinking to make it really happen, realistically that is, for most people. And most people need to be able to cling to a little HOPE, when they are facing an imminent or unplanned retirement, which is something they are not likely to get today from consultation with their CPA, CFA, CFC, ChFC, CFP, private banker, or stock broker.

As a follow-up to your advice to Bill to open a Roth IRA, about a month ago President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). That date is not a typo. The title of the act alludes to just how long it takes for Congress to agree on anything, and ultimately submit it to the President for his signature into law. This new law enacts a number of important tax changes which have a high probability of applying to this blog's readership, including Bill and Roth IRA conversions. Some of the tax changes incorporated into this act apply this year, while others do not take effect for several years. Most of the changes (such as those affecting the AMT and capital gains and Roth IRA conversions) are tax-savers, but a few (such as the new "kiddie tax" rules) could negatively affect you and your family. The following is a brief summary of the act's key provisions, starting with Roth IRA conversions. Please understand that this information is offered only to help understand how TIPRA might help you reduce your tax liability, but you should consult a CPA or other tax professional before acting upon any advice or counsel involving tax matters of any kind. Having said that, here are the significant new provisions:

Roth IRA Conversions
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TIPRA removes entirely the $100,000 adjusted gross income cap on individuals qualified to convert a traditional IRA to a Roth IRA account. Although this provision will not be fully effective until 2010, it will then allow an individual of ANY income level to make a Roth conversion. As Martha Stewart might say, "This is a very good thing." By paying current income tax on the conversion, the IRA owner can avoid income tax on all future income and appreciation in a Roth IRA account.

Alternative Minimum Tax Relief
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Although the consensus seems to be that the AMT should be generally overhauled, Congress has been reluctant to take such action because it could reduce federal revenues by something like $1 trillion. The White House wants repeal coupled with overall tax reform, but has not indicated what direction such reform should take. None of this is surprising.

In the interim, however, Congress has provided a "temporary and limited fix" for taxpayers caught in the AMT trap, which has increasingly snared more and more investors in recent years, when they have filed their tax returns. This is a particularly insiduous tax. (If you are NOT subject to the AMT, you've still got to file the appropriate AMT tax form, and go through the motions of proving to the IRS that you are aren't subject to AMT).

Now TIPRA increases the AMT exemption to $62,550 for married couples filing jointly and to $42,500 for single filers, but only through the end of 2006.

In addition, nonrefundable personal tax credits, such as the dependent care credit, the credit for elderly and disabled, the credit for interest on certain home mortgages, the Hope credit for college expenses, and the Lifetime Learning credit can all now be claimed against the AMT, thus offsetting both regular and AMT tax liability.

Investor Tax Breaks Extended
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Current law taxes most long-term capital gains at a 15% rate. This provision was scheduled to sunset at the end of 2008. TIPRA extends this lower tax rate two more years, so the provision now expires at the end of 2010. Further, qualified dividends are currently taxed at a maximum 15% rate, under a provision that was set to expire at the end of 2008. Like the capital gains rate extension, this provision also has been extended through 2010.

Small Business Capital Expenditure Deductions Extended
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Under present law, small businesses may deduct up to $100,000 of investments in depreciable assets in the year they are placed into service. Currently, the deduction phases out dollar-for-dollar for annual investments exceeding $400,000.

This provision was due to sunset at the end of 2007. But under TIPRA, the effective date is extended to Dec. 30, 2009, thereby allowing small businesses more time to plan their purchases.

Because the limits involved are adjusted for inflation, the deduction cap is $108,000 for 2006, and the phaseout threshold is $430,000. Had this provision not been adopted, the expensing limit would have dropped back to $25,000, and the phaseout threshold would have decreased to $200,000 after 2007.

Capital Gains Treatment For Self-Created Musical Works
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Before the new law came along, literary, musical or artistic compositions, letters or other such memoranda, or similar property held by a taxpayer whose personal efforts created the property were not treated as capital assets. As a result, when a taxpayer sold copyrights he owned in songs he created, gain from the sale was treated as high-taxed ordinary income, rather than low-taxed capital gain.

Under the new law, at the election of a taxpayer, the sale or exchange of musical compositions or copyrights in musical works created by the taxpayer's personal efforts is treated as the sale or exchange of a capital asset. This law applies to sales and exchanges in tax years beginning after May 17, 2006 and before January 1, 2011.

Expansion of Kiddie Tax
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Previously, only children under the age of 14 were taxed on unearned income at their parents' tax rate. The new law changes the age threshold to 18 (with a few exceptions), effective RETROACTIVELY for all of 2006. The child is still entitled to $850 of tax-free income in 2006 (whoop-de-do!), and the next $850 is taxed at the child's rate before the "kiddie tax" applies.

Foreign Earned Income Exclusion & Housing Allowance for U.S. Citizens Working Abroad
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Finally, the new law makes three changes to the foreign earned income exclusion and housing allowance. First, the income exclusion is indexed for inflation starting in 2006 (rather than in 2008, under current law). Second, the base housing amount used in calculating the foreign housing cost exclusion in a taxable year is modified (the new base amount is 16% of the amount of the foreign earned income exclusion limitation). Reasonable foreign housing expenses in excess of the base housing amount remain excluded from gross income, but the amount of the housing exclusion in excess of the base housing amount is limited to 30% of the taxpayer's foreign earned income exclusion. (You got that?)... Third, income excluded as either foreign earned income or as a housing allowance is included for purposes of determining the marginal tax rates applicable to non-excluded income. Oh heck, this is way too complicated. Just make sure you do your Mormon missionary work assignments state-side, from now on.