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My Home Heating Cost Comparison

Last fall, I completed a series of energy efficiency upgrades to my home – most significantly I added insulation to the attic. I’ve been curious to see if the touted claims of energy savings were reflective of my actual experience. It may be too soon to tell, but my initial results are quite promising.

My first step was to calculate how much colder this winter was compared to last winter. I found a website that could help me calculate Heating Degree Days. It’s the difference between the cold outside temperature and the desired indoor temperature. The chart below shows the cumulative heating degrees needed to reach my desired indoor temperature. In total, this past winter was about 12% colder than the winter before based on these calculations.

heating degree days


If I were to have done nothing to the house, I would expect my energy usage to have increased by 12% or more since more heat loss occurs the colder it is outside.

After comparing the fuel purchased during the winter and adjusted for what was in the tank at the start and end of the season, I discovered that I used exactly the same amount of oil per month as I did the year before, not 12% more.

If my assumptions are correct and the insulation reduced my heating expenses by 12%, then I would recoup my investment in less than 2 years.  That beats the rules of thumb I’ve seen of 5 years.

This gives me a warm feeling.


The Danger of Taking Too Much

One of the most frequently asked questions regarding retirement income deals with the withdrawal rate.  “ How much can I take out?”. Below is the best chart I’ve seen that illustrates the damage that can be done if a retiree takes out more than 4% per year.

withdrawal rate



Disclaimer: * Hypothetical value of assets held in a tax-deferred account after adjusting for monthly withdrawals and performance. Initial investment of $500,000 invested in a portfolio of 50% stocks, 40% bonds, and 10% short-term investments. Hypothetical illustration uses historical monthly performance from January 1972 through the most recent year from Ibbotson Associates: stocks, bonds, and short-term investments are represented by the S&P 500® Index, U.S. intermediate-term government bond, and U.S. 30-day T-Bills, respectively. Initial withdrawal amount based on 1/12 of applicable withdrawal rate multiplied by $500,000. Withdrawals are inflation adjusted. Subsequent

Tips for Do-It-Yourself Investors

If you manage your own investments, even if it’s only a portion of a larger portfolio, you should have a plan in place.  All too often we see situations where a loved one passed away unexpectedly and left a messy situation for the spouse to deal with.  The following points, summarized from a Morningstar article, explain what the DIY investor should have ready.

Create a Master Directory:

create a list of all accounts and include account numbers, passwords, etc.  It is very easy for some small account to fall to the wayside and disappear.

Draft a short form Investment Policy Statement:

include these bullet points – from Morningstar:

  • How much you can safely spend each year without running out of money
  • Which accounts to tap for living expenses on an ongoing basis
  • The basics of required minimum distributions and which accounts require them
  • Which accounts to tap as a last resort or that you have earmarked for heirs
  • An outline of the three or four most important financial-planning tasks you handle each quarter and each year (Forget anything that’s in the category of “nice to do”; stick to the basics.)
Automate what you can:

Whenever possible, automate processes.  Make sure RMDs go automatically and directly to the bank account.


This step involves consolidation of accounts with similar registrations and reducing the number of holdings.  Accounts with 30-40 holdings can create a lot of confusion.

Tip: Include these notes in the 25 documents you need before you die.

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Maxed Out your 401(k) and your ROTH? Here’s What to Do:

If you maxed out your 401(k) savings for the year ($17,500) and contributed to your ROTH ($5,500) you may be wondering what the next best place is to save for the future.  Here are a few places to look:

  1. Open a taxable accounts.  You can open a regular brokerage account using your after tax dollars.  Every year, you’ll have to pay taxes on realized gains (dividends, capital gains, profits from the sale of anything you sold during that year), but the tax rate on these long term capital gains and qualified dividends are 15%.  That’s why Buffets effective tax rate is lower than his secretary’s effective tax rate.
  2. Self Employed? Consider a SEP IRA which can allow you contribute up to $52,000 or 20% of your self-employment income.  It operates like a traditional IRA, just with higher limits.
  3. Over the age of 50? The IRS allows you to make “catch up” contributions if you are 50 or older.  You can contribute up to $6,500 to your ROTH.


Is Your Career More Like a Stock Or a Bond?

A recent article argues that investors in steady jobs (government, teachers, etc) should balance out their steady & predictable “bond-like” pay check by buying more stocks in their retirement accounts, while investors in risky jobs (entrepreneurs, sales, etc.) should load up on more stable investments like bonds to lower their overall risk.

Maybe on paper this concept seems like a good idea. If an investor could check emotion at the door, maybe a concept like this could work. But it fails to incorporate the investors goals and risk tolerance. And investors can’t check emotion at the door. Most investors keep salary and investment performance in separate buckets.

The only time we’ve used this approach is to developing income distribution strategies for retirees with part-time jobs, second careers, or owning a small business.

I’m interested in your thoughts? Do you like the concept? Send me your thoughts and I will post them.