Know Yourself: Conscious Retirement Planning

So you’re old enough to have finally purchased the house and made it a home.  You’ve molded your children into fine readers and artists as well as piano, soccer and lacrosse players.  You’re on the board of the local Y, you support the PTA and normally make a contribution to the offering plate when it’s passed.

How about your retirement plan—how is that coming along?  Do you have an inherent tendency making saving easy for you, or is it more difficult? Each of us has a saving personality on a continuum spanning a wide spectrum.  Are you a Spendthrift, a Spender, a Saver or a Hoarder (or somewhere in between)?  Your optimal retirement savings methodology depends on that answer.



Most educators in the realm of personal finance take aim solely at those who find themselves on the left side of this continuum as if more is always better, so I’ll first address those predisposed to over-saving.   Hoarding is warehousing money simply for the sake of seeing it collect, not for a specific use or purpose.  This practice is idolized by far too many in the realm of money management, but hoarding is actually a financial disorder.  I’ve written recommendations for mandatory vacations in financial plans for hoarders to help break their addiction to stockpiling, and I don’t presume it’s a fault simply driven by greed—for many, it’s fear.

Those who lived through or felt the effects of the Great Depression saw such vast amounts of wealth decimated that many developed a scarcity complex.  A client I was blessed to call a friend passed away last year at the age of 87 with no lineal descendants and over three million dollars in liquid cash and investments.  The good news is that three worthy charities benefited from her generosity; the bad news is that she worked until she was 70, she never took a vacation (not once!) and she lived in a bad neighborhood in which she was burglarized and assaulted (but thought she couldn’t afford to move).

Conversely, a good friend and financial planning colleague of mine is living and battling with Cystic Fibrosis, a disease attacking the lungs which leaves its afflicted with a life expectancy of 37.4 years.  My buddy is married with two beautiful children and turns 37 this year.  He’s forced to be focused both on the future for his family’s sake (and hopefully for his sake as advances in medicine push towards a cure for CF), but he also recognizes the absolute necessity of getting the most out of every single day.  Tomorrow is promised for none of us, and our retirement plan should reflect that.

Am I, a financial planner, suggesting you could actually save too much for retirement?   

Absolutely!  I’m not demonizing any particular level of net worth, but you may be socking away as much as humanly possible for your future even to the detriment of your (and your family’s) present.    Many advisors will, driven by their economic bias to manage your money, use the save-for-your-family’s-future guilt trip to wrench more of your dollars into accounts they can oversee.

It is also important for me to acknowledge most of us are actually more inclined to lean in the direction of the spendthrift than the hoarder.  It’s easy to over-value the present because we can see, touch and feel it today.  And many of us have so many pressing concerns demanding attention and funding, it’s only natural for deferred gratification to take a back seat.  So my calls for balance between your future and present plans should not be received as a blessing to underestimate the importance of saving for the future.

The key, therefore, is to know yourself and be honest about your strengths and weaknesses pertaining to saving and spending tendencies and patterns.  

If you’re a spendthrift, you may likely need some form of intervention.  You may need to institute personal austerity measures—like the governments of Greece and Ireland—or introduce some level of accountability with a mentor of sorts.  If you’re a spender, it is likely you can effectively train yourself by setting up automatic savings mechanisms, diverting funds directly from your checking account (or paycheck) to the buckets you’re filling for the short-, mid- and long-term.

A sign you’re a natural saver would be that extra cash piles up each month—seemingly effortlessly—but you may also judge and condescend to family and friends without the same innate advantage.  If you’re a hoarder, you too may need intervention…to force yourself to spend!  One of the best ways to redirect in this regard is first to offer your services—not your money (at least initially)—to a worthy charitable organization, like a homeless shelter.  Or go on a mission trip to a third-world country and see how people live with nothing.  I’m not trying to guilt you into giving your money away, but to demonstrate how people with absolutely nothing may experience more happiness than you.  You’ll have to experience it to believe it.

Retirement planning is not a science, but behavior management is.  By better understanding yourself and controlling the only economic assumption over which you have absolute control—YOU—you’re likely to better enjoy your retirement, and all the days leading up to it.

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Pogo Stick Retirement Planning (for Younger Generations)

Pogo stick
While most of my career has been spent advising the Depression Baby and Baby Boomer generations, I have a real heart for younger generations… which, for those of you who know me personally, should come as no surprise.  After all, I’m a Gen-Xer myself.  I’m married (ten years this April) with two energetic boys, ages 5 and almost 7, so I’m right in the thick of it with many of my peers who have built their careers and financial lives in a decade that has delivered the highest level of stock market and real estate volatility since the Great Depression.  And while the complexity in planning for 30- and 40-somethings is often not as great as those who’ve traveled further down life’s winding path, there is no denying that our planning needs range the broadest spectrum imaginable in personal finance.

Some of these topics, such as retirement, appear almost beyond the grasp of younger generations because the variables are so many and the timeline so long.  Indeed, for those closer to the front-end of our retirement journey, we’re faced with a daunting task indeed.  The retirement planning “three-legged stool”—once consisting of a corporate pension, a Social Security retirement benefit and personal savings (savings, 401ks & IRAs) is now the retirement pogo stick!  It’s on us—you and me—to fund our own retirements.  Further complicating matters, doctors suggest that the quantity of life for Gen X and Yer's may far exceed that of our parents and grandparents.  We’re likely to live a long time, but the quality of life—to the degree that it is improved by cash flow—is in question because of the burden of saving.

Last week, I focused on two retirement planning “silver bullets” for hopeful Boomer retirees (Part I & Part II) who may fear that a decade of economic uncertainty has put their goal for a comfortable retirement out of reach.  Here’s how the two concepts I shared are applied to younger generations:

MOVE: The disparity in cost of living across our great country is so vast that it’s almost unfathomable.  I encouraged those on the home stretch of retirement that one could take a failing financial scenario in Parkton, MD—a typical northeast suburban environment—and transplant it in Knoxville, TN, where the same exact home equity and retirement savings would allow them to live happily ever after… financially speaking.  The advantage YOU have is that you can make a decision NOW to take advantage of this geographic arbitrage in advance.  You can CHOOSE to live in a higher cost-of-living area now while keeping an eye on another area to which you might like to transition later in life to give your plan for financial independence a turbo boost.  (Check out the cost-of-living in your area and dream about others with this tool: 

WORK: The second silver bullet for near retirees is to transition from a higher-paying job that feels like a grind to a job that they love for less pay, fully recognizing that both medically and financially speaking, we’re really all better off working indefinitely.  The bad news for Baby Boomersis that many grew up with a more utopian view of retirement… that they’d work for “X” number of years and then cast off the chains of employment to spend their latter years in the lap of leisure, if not luxury.  We, however, should simply never buy this lie propagated by the behemoth financial industry, preferring to dangle the carrot of unencumbered bliss on our horizon so that we’d stay on the hamster wheel of hording in the accounts they manage for fees and commissions.  We should EXPECT that we’ll be working indefinitely, and, facing that reality, we should work tirelessly to seek and find that career that doesn’t feel like work.  We can be financially independent as early as our 30s, not because we’ve saved a few million bucks by then (although that wouldn’t hurt), but because we’re working because we WANT to, not because we HAVE to.

What younger generations have lost is the hope that we’ll be able to rely on someone or something else to take care of us financially in our later phases of life.  What we have gained is the freedom and flexibility to pursue a life that is uniquely ours.  Enjoy every minute of it!


Retirement Planning Silver Bullets, Part Deux

4609495055_4bf73981e6 In Part One of this two part blog series, we discussed the amazing leverage that can be gained, even in the case of an apparently floundering retirement scenario, when moving from a higher cost-of-living area to one that is lower.  But I fully recognize that while many will see this as an exciting retirement adventure, some would view it as a life-ending transition due to their attachment to their current geography, especially if they’re near family.  You do still have another option, and much as silver bullet #1 was summed up in one word—MOVE—so too is #2—WORK.

It’s not what you think.  If you’re one of the many who’ve dutifully labored for a lifetime, largely motivated by the vision of a day at some point in the future when you’d be able to dance your way out of your office, never to return, I’m not intending to obliterate that daydream.  In fact, the only way this second silver bullet will work is if you’re able to find—or create—a vocation that gives you as much or more joy than being fully retired.  And this isn’t just advice coming from your financial planner, but also your doctor, as Anne Tergesen discovered in her 2005 BusinessWeek cover story entitled, “Live Long and Prosper. Seriously.”  She quotes Dr. Jochanan Stessman, head of the geriatric and rehabilitation department of Hadassah-Hebrew University Medical Center as saying, “There’s a strong argument for continuing to work throughout life.”  

This doesn’t mean you have to work full-time; nor does it mean that you should be doing work that drains you.  This is your license to create your dream job and begin to plan a phase of life we’ll call pseudo-retirement.  You’re working enough to keep your mind and body functioning at high levels with enough income to reduce your need to tap your nest egg.  Let’s look at this in the context of our hypothetical retiree from Bullets, Part One:

  • Age of couple:                  62
  • Assets
    • Home:                    $500,000o
    • Nest Egg:               $800,000
  • Liabilities
    • Mortgage:              $200,000
  • Income need:                    $100,000
  • Income
    • Social Security:    $18,000
    • Nest Egg @ 4%:     $32,000o
    • Total:                      $50,000

This couple is currently making $175,000 of income, but they’re burned out and want to retire ASAP.  Unfortunately, if they take their early Social Security Benefit at their current ages and rely on their nest egg to fund the remainder of their $100,000 income need, they’ll be pulling 10.3% out of their nest egg—an unsustainable withdrawal amount that could sink their retirement ship before it even sets sail.  Here’s the recommended course of action:

  1. At Age 62…
  • Begin a plan the dream job, while adding $50,000 of their $75,000 of excess income to their nest egg
  • Pay down mortgage with $15,000/year of excess annual incomec. Ensure that nest egg is invested with capital preservation as the primary objective—assume 5% rate of return

        2.  At age 66…

  •  Transition to dream job, accepting lower pay—$100,000—for full-time jobs they fully enjoy
  • Stop saving for retirement, but allow Social Security to continue to grow
  • Mortgage has been paid down to $94,093. Cease extra principal payments
  • Allow the nest egg—now $1,187,911—to grow, conservatively invested to earn 5% per year

         3.  At age 70…

  •  Scale back to part-time work at dream job
  • Mortgage balance now $31,062
  • Take Social Security benefit = $30,927; income $50,000 (Total = $80,927)
  • Nest egg = $1,436,620; Addt’l income need = $19,073 or 1.3%

         4.  At age 72…

  •  Mortgage paid off, reducing income need by $19,000/year
  • Social Security benefit = $32,176 (2% inflation/ year)
  • Nest egg = $1,583,873 (4% = $63,354)
  • Income need = $81,000
  • Current income (SS + 4% nest egg) = $95,530 ($14,530 surplus to be re-invested)

The purpose of retirement is not necessarily to NOT work, but to work because you want to, not because you have to.  For Baby Boomers fearful that their dreams for a fulfilling retirement have been dashed by the market and faulty assumptions, these two Retirement Planning Silver Bullets can be made to work… but it requires YOU to take this analysis from the hypothetical realm to reality.  This analysis has been largely focused on those either in retirement or headed in that direction within the next 10 years.  My next post will show younger generations how to apply these concepts to create a fulfillment plan that begins today!

Retirement Planning Silver Bullets, Part I (of 2)

Moving truck A recent Wall Street Journal article by Karen Damato entitled, “Retiring in 10 years? Uh-Oh,” addressed a justified fear striking the hearts of millions of prospective retirees: that they won’t be able to afford to retire.  The article is well founded and focuses largely on the investment aspects of retirement planning—the schizophrenic battle in retirement nest eggs to seek growth to make up for past losses while attempting to adequately ensure capital preservation.  The focus of this first of two posts is to provide you with one of the most powerful things you can do, OUTSIDE of your investment portfolio, to improve your retirement plan: MOVE.

If you are already retired or planning to be so within the next 10 years, as the WSJ article clearly articulates, you cannot solely rely on compounded portfolio growth to save you.  Additionally, you may find yourself on the wrong end of the real estate bubble with substantially diminished equity in your home and more debt than can be floated without a salary (and a dwindling desire to perpetuate that salary).  What’s left? MOVE, to a lower cost of living area.

This maneuver is especially compelling when contrasting the highest cost of living areas with the lowest.  According to, an online resource estimating the cost of living in areas across the country, the median home price in Chevy Chase Village, a DC suburb in Maryland, is $1,022,570 and the cost of living is 166% higher than the U.S. average!  Whereas, the median home price in the Great Recession bludgeoned, Detroit, is $65,440, with a cost of living 23.30% lower than the U.S. average.

But if that comparison appears all too convenient and unrealistic, consider this contrast: Baltimore suburb, Parkton, MD, boasts a median home price of $444,350 and a cost of living 54% higher than the U.S. average.  Meanwhile, Knoxville, TN, the engaging home of the University of Tennessee, has a median home price of $125,930 and a cost of living 15% lower than the national average… and it doesn’t snow as much.

Let’s picture a prospective couple in Parkton, trying to figure out their plan for retirement:

In Parkton

  • Home now worth $500,000o
  • $200,000 — mortgage (from college costs and home improvements when house was worth $600,000 and rising)
  • Need $100,000 of income to cover annual expenses
    • Mortgage principal and interest payment ($200k loan @ 5% for 15years) = $19k per year
    • Income need less mortgage = $81,000o
  • Took pension lump-sum offer, invested in 401k, total retirement assets of $800,000o
  • Social Security plus 4% withdrawal from retirement accounts = $50,000 (50% of estimated need)

In Knoxville

  • Comparable home purchased for $200,000—mortgage free
  • $100,000 additional net proceeds from home sale added to retirement nest egg, now $900,000
  • According to cost of living ratio, $45,360 income in Knoxville would feel like $81,000 in Parkton
  • Social Security plus 4% withdrawal from retirement accounts = $54,000 (119% of estimated need)

If you find yourself in a retirement planning pickle, I’m not suggesting you read this and put a for sale sign in your yard.  COST of living should not be confused with QUALITY of living, and if your geography and proximity to friends and family is where you derive the most joy, it’s not my suggestion that you have a financial duty to uproot.  But, if you’ve reached a retirement plan dead-end and find yourself without options and a yearning for a refreshing change of pace, there is no question that transplanting your financial life to a lower cost of living area can transform a bleak retirement plan into one that is quite comfortable.

Part Two (of two) of Retirement Planning Silver Bullets will be released on Friday, December 10th.

You Need To Know…A Dead Pig In The Sunshine Is Quite Happy

Listen to Tim deliver this YNTK!  Click below:

You Need To Know – Dead Pig


YOU NEED TO KNOW… that a “dead pig in the sunshine” is actually quite happy.

I’m sure you’re quite convinced at this moment that I’ve finally lost whatever marbles I previously possessed, but if you’re from the south, you might know EXACTLY what I’m talking about.  I was on the phone recently with a great client who lives in another state that is decidedly below the Mason-Dixon line, and at one point, he mentioned that he was, “Happier than a dead pig in the sunshine.”  Since I’m a big fan of the use of uncommon metaphors, I asked him how that could possibly be… he didn’t know, so I looked it up on Google.  And believe it or not, even Google was not able to tell me why a pig that was dead could be happy regardless of where he lies.

Do you ever feel this way when people in the financial world start talking?  These days, everybody is throwing around a good bit of gross domestic product, core inflation, and if you’re lucky, maybe you can have some credit crunch… (is that an ice cream topping?)  At tax time, you’re sure to hear about adjusted gross income, maybe modified adjusted gross income, and the rightly scorned alternative minimum tax.  In estate planning, you have a federal estate tax exclusion which may or may not be impacted by your annual gift exclusion or your lifetime gift exclusion.  But, if you’re looking for the most common “dead pig in the sunshine” style rule that could never be explained, why is it that the two primary ages for IRA distributions are stipulated in half years (59 ½ and 70 ½)??

Do you ever think that the phrases that are thrown around in the financial realm are actually used to make you think that you don’t know enough and thereby need to buy something from the person who’s doing the phrase dropping?  Next time, just tell them that “you’re happier than a dead pig in sunshine”… they’ll understand… and that is something YOU NEED TO KNOW.


Annuities are Not Bought…They’re Sold!

For those working as financial planners, that we will eventually be humbled by the recognition of a faulty thought process is not just likely, but a foregone conclusion.  One of the financial products that I was trained on intensely was annuities—fixed annuities, variable annuities, equity indexed annuities and immediate annuities.  And it wasn’t until I was in the industry over seven years that my continued research began to reveal that the benefits of annuities to consumers were exaggerated and the drawbacks, downplayed.  As that truth began to settle in, I had to acknowledge that I was wrong.  That was humbling, but I wouldn’t trade my initially faulty thought process for anything, because learning “the hard way” has helped me grow through experience and it makes me a better planner today.  Here’s my confession, which kicks off Chapter Twelve in The Financial Crossroads:

From Chapter Twelve, The “A” Word:

Funny_Sales_Cartoon_sales_callrememberingnames  In the realm of personal finance, no word has been dragged through the mud more times than The “A” Word—Annuities.  Yet, annuities still survive and even thrive.  How they do is not a mystery.  

There is not an outcry on the part of consumers demanding annuity products.  The reason for the continued vibrancy of annuity products and sales is that they pay a big honkin’ commission to the selling broker or agent.  (There, I’ve said it.)  And, as most of the financial sales tactics exposed in this book, I’m especially qualified to make such a statement, because I have sold them myself.  I wasn’t a bad person in those days, conniving to separate prospects from their hard-earned money for my own selfish benefit.  Conversely, every time in years past when I sold an investment product to a client for a commission, I did so thinking it was best for the client.  My recommendations met all the legal requirements of suitability that are required of a broker, but I declare to you now that in hindsight there is no question that my judgment was partly influenced by the amount of money that I could make (or not make) in the sale.  

And how could it not be?  Let’s say you, as a salesperson, had three different products to sell with the following characteristics: one would pay you 1% for every year that the investment continued to be held by the client, one would pay you 5.75% up front followed by .25% each additional year, and another would pay you 12%—all up front.  Which one would you be likely to pick, all things being considered equal?  Hmmmm.  Let’s add to the scenario the assumption that you were selling in the midst of an economic downturn which had resulted in a significant loss of revenue for you and your family.  Is it possible that in that circumstance you may be inclined to favor the product that pays 12% up front over the one that pays 5.75% up front?  And forget about the one that pays 1%, because in tough times, that simply isn’t going to butter the bread.  These aren’t imaginary numbers that I’m using. One percent is a slightly below average amount that a financial advisor may charge for discretionary management of your investment assets; 5.75% is the average commission paid to a broker who sells a mutual fund (A share); and annuity products pay up to—and in some cases over—12%!

The sale of annuities is justified entirely too often because of the massive commissions that go to the broker or agent selling the product.  Powerful organizations have made it their lives’ work to decry this very notion and have built elaborate systems designed to convince themselves, their brokers and agents, and the consuming public to believe in the justness of their actions.  I was a part of one such group and was encouraged—along with a room full of other financial folks who had been invited to San Diego for an all-expense paid trip to hear what this organization had to say—to join the ranks of the “Safe Money Specialists.”  Other people were selling products.  We were selling peace of mind and getting paid 10 times as much!

I repeat: people who sell annuities aren’t bad people.  But, they are sales people.  You expect timeshare salespeople to have an economic bias to sell you a timeshare.  You expect a phone solicitor who interrupts your dinner to keep you on the phone to convince you to buy something before you hang up the phone.  You don’t, however, expect someone who refers to themselves as a financial planner or advisor or professional to have the primary aim to sell you something.  Unfortunately, many of them do.  Your broker or agent may have drank the company Kool-Aid and genuinely believe that he or she is doing the best thing for you, so treat them with respect when you tell them you’ll be moving your business.  As I learned growing up in the Baptist church, we should, “Hate the sin, not the sinner.”  We will be discussing in much greater detail the ways that financial services employees and financial advisors are compensated and what you should look for in Chapter Seventeen.