Is Your Attitude Toward Work Killing Your Retirement Dreams?

Originally in ForbesDo you have a generally positive or negative impression of the word “retirement”?

I ask because it dovetails nicely with a series of questions (inspired by Rick Kahler) that I use to begin most speaking engagements. These questions are designed to incite self-awareness, offering us clues about how our life experiences have shaped the (often unarticulated but powerful) beliefs that unavoidably influence the decisions we make with and for money.

Work or retire as a concept of a difficult decision time for working or retirement as a cross roads and road sign with arrows showing a fork in the road representing the concept of direction when facing a challenging life choice.

Regardless of an audience’s homogeneity, their responses are consistently inconsistent. I have, however, seen some generational persistency on the topic of retirement. For example, on average, baby boomers have a generally positive view of retirement—no doubt shaped in part by the incessant financial services commercials that promise a utopian post-career existence with beaches, sailboats, golf and an unlimited supply of vintage Pinot Noir.

On the other hand, the finance and accounting students that I had the privilege of teaching at Towson University—almost all members of the Millennial generation—had a generally negative view of the notion of retirement. This is for two prominent reasons:

  1. They pictured hot, humid, early buffet dinners in rural Florida.
  2. They don’t think that the American dream of retirement is available to them.

Interestingly, according to a new study from AARP’s Life Reimagined focusing on full-time workers 35 and older, this generational pessimism is now creeping up the age ladder to Generation X and baby boomers as well. AARP reports that “while 87% of those surveyed who are working full time say they want to retire someday with nearly 70% of those hoping to retire by 65, just over half don’t expect to retire by 65 or at any age.”

Sheesh. Can I get a ho-hum?

It deserves mentioning that the working set 35 and older does appear to accurately assess their retirement readiness. Corroborating common perception with reality, the National Retirement Risk Index (NRRI) estimates that “52% of households are ‘at risk’ of not having enough to maintain their living standards in retirement.”

Old news, right? But what interests me a great deal more is the following finding in the AARP’s survey: “Although this group acknowledges that they will be working longer, fewer than one in five people across the Gen Xer and Boomer demographics say the thing that motivates them to get up in the morning is going to a job that fulfills them.”

So, more than 80% of the workforce over the age of 34 doesn’t like their work? No wonder they’re so stricken by this distressing conundrum: They desperately want to retire but can’t stand the only vehicle likely to help them reach their destination.

We must acknowledge that our views of retirement and work are inextricably intertwined.

It’s a vicious circle: If you don’t like your work, you’re likely to overvalue retirement. But if you undervalue you’re work, it’s logical to assume your performance will be less than optimal and, therefore, that your wages—your retirement savings engine—will be suppressed.

But there’s a virtuous circle to counter: If you love your work, it’s likely that you undervalue retirement. But ironically, because you love your work, it’s logical to assume your lifetime performance is improved and your lifetime earnings (and savings potential) are increased, better preparing you for retirement.

Yeah, but it’s unrealistic to think that everyone can have their dream job! This is absolutely true, but that doesn’t mean we can’t purposefully and intentionally move toward it, shifting in the direction of a more virtuous cycle.

Or, in the words of career guru Jon Acuff, “Please don’t tell me you’re too busy to look for a new job and then show me your perfectly detailed fantasy football team.… Please don’t tell me you’re too busy to update your resume and then update your social media accounts incessantly.”

And most fascinatingly, the AARP study seems to help point us in the direction of a more fulfilling career: “If money was not a factor, most would volunteer or donate to a cause and travel the world.… The most popular types of ideal jobs for those who would switch are doing something that helps or teaches others and doing something creative or artistic.”

You probably don’t have the same talents that will likely launch 12-year-old Grace VanderWaal into a lifetime of fulfilling work (I still can’t watch this without choking up). But I’d be willing to bet that you could do something to move one step, small or large, in the direction of more fulfilling work, which will likely help you make and save more money over your lifetime while reducing any desperation you might feel about the need to retire.

To help you make the most of this article, please consider these two questions:

  1. Is yours a vicious or virtuous work/retirement circle?
  2. What is the next action you’ll take to move in the right direction?

Save Social Security For When You Need It Most–Later

Originally published CNBCI think we’ve been looking at Social Security retirement benefits all wrong. In the long-running debate about when to take Social Security — as early as age 62 or as late as age 70 — the focus has been on timing your claim to get the most money, in total, out of the social safety net.

Social Security Word Cloud

This is a circular argument that will never be fully decided until the Social Security recipient in question dies. So let’s shift the focus from the question “How do we get the most out of Social Security?” to “How do we get Social Security when we need it most?”

Simply put, you’re more likely to run out of money at the end of retirement than at the beginning.

Congress Eliminates Two Popular (and Profitable) Social Security Claiming Strategies

The Bad News & The Good News

Originally published CNBCLast week, the world of retirement planning experienced the financial equivalent of a deafening record scratch, courtesy of a Congressional move to end two well-used Social Security claiming strategies. In a matter of months, “File-and-Suspend” and “Restricted Application,” which were on the verge of retirement planning rock-star status, will only be referred to in the past tense.

Social Security Claim Denied Stamp Shows Social Unemployment Benefit Refused

“File-and-Suspend” and “Restricted Application” — let’s just call them “FASRA,” because it’s not like there aren’t already enough government-related acronyms — were, Congress argues, unintended consequences of the Senior Citizens Freedom to Work Act.

The Top 10 Places Your Next Dollar Should Go

Originally in ForbesThere is no shortage of receptacles clamoring for your money each day. No matter how much money you have or make, it could never keep up with all the seemingly urgent invitations to part with it.

TOP 10 DOLLAR

Separating true financial priorities from flash impulses is an increasing challenge, even when you’re trying to do the right thing with your moola — like saving for the future, insuring against catastrophic risks and otherwise improving your financial standing. And while every individual and household is in some way unique, the following list of financial priorities for your next available dollar is a reliable guide for most.

Once you’ve spent the money necessary to cover your fixed and variable living expenses (and yes, I realize that’s no easy task for many) consider spending your additional dollars in this order: 

Pogo Stick Retirement Planning for Younger Generations

Originally in ForbesHistorically, retirement planning has been likened to a three-legged stool — consisting of a corporate pension, Social Security and personal savings. Baby boomers saw the pension fade from existence, leaving them to balance on retirement planning stilts. For younger generations, however, the retirement situation can seem even worse. Sometimes, it feels like it’s all on us. We’re left with only a retirement planning pogo stick.

three legged stool

Further complicating matters, doctors suggest that the length of life Generations X, Y and Millennials can expect may exceed that of our parents and grandparents. We’re likely to live a long time, but our quality of life — to the degree that it is improved by cash flow — is in question because of the heightened savings burden.

Last week, I shared two “silver bullets” — MOVE and WORK— for hopeful boomer retirees who may fear that a 14-year stretch of economic uncertainty has put their goal for a comfortable retirement out of reach. Here’s how these two concepts can be applied to younger generations:

Is A Million Bucks Enough To Retire?

Originally in Forbes“Wow, those guys must be millionaires!” I can recall uttering those words as a child, driving by the nicest house in our neighborhood—you know, the one with four garage bays filled with cars from Europe.

The innocent presumption, of course, was that our neighbors’ visible affluence was an expression of apparent financial independence, and that $1 million would certainly be enough to qualify as Enough.

Now, as an adult—and especially as a financial planner—I’m more aware of a few million-dollar realities:

Retirement Stress Test Graphic - v3-01

1)   Visible affluence doesn’t necessarily equate to actual wealth.  Thomas Stanley and William Danko, in their fascinating behavioral finance book, The Millionaire Next Door, surprised many of us with their research suggesting that visible affluence may actually be a sign of lesser net worth, with the average American millionaire exhibiting surprisingly few outward displays of wealth. Big hat, no cattle.

2)   A million dollars ain’t what it used to be. In 1984, a million bucks would have felt like about $2.4 million in today’s dollars. But while it’s quite possible that our neighbors were genuinely wealthy—financially independent, even—I doubt they had just barely crossed the seven-digit threshold, comfortably maintaining their apparent standard of living. To do so comfortably would likely take more than a million, even in the ’80s.

3)   Wealth is one of the most relative, misused terms in the world.  Relatively speaking, if you’re reading this article, you’re already among the world’s most wealthy, simply because you have a device capable of reading it. Most of the world’s inhabitants don’t have a car, much less two. But even among those blessed to have enough money to require help managing it, I have clients who are comfortably retired on half a million and millionaires who need to quadruple their nest egg in order to retire with their current standard of living.

The teacher couple, trained by reality to live frugally most of their lives, don’t even dip into their $400,000 retirement nest egg or their $250,000 home equity because they have two pensions and Social Security that more than covers their income needs.  Their retirement savings is just a bonus.

But the lawyer couple, trained by reality to live a more visibly wealthy existence, aren’t even close to retiring with their million-dollar retirement savings. In order to be comfortable, they’ll need to have at least $4 million.

A million bucks, then, may be more than enough for some and woefully insufficient for others.

Study Reveals Investing Is Hazardous To Your Health

Investing Hazard-01I don’t need to inform you that investing is dangerous business.  You already know in your gut what Joseph Engelberg and Christopher Parsons at U.C. San Diego found in their new study, that there is a noticeable correlation between market gyrations and our mental and physical health.

But when do you think the financial industry will get the point?

Shortly after I became a financial advisor, I was given a book to commit to memory.  It told me what my role in life would be: To make a very good living helping approximately 250 families stay in the stock market.

The text insisted that regardless of my client’s age or risk temperament, it would be in their best interest to be—and stay—in stocks, exclusively and forevermore.  I was the doctor; they were the patients.  I was the ark-builder; they were the—you get the point.

The book might even be right.

But…

The Behavior Gap

My friend and New York Times contributor, Carl Richards, has been drawing a particular picture for years.  He’s struck by the research acknowledging the noticeable difference between investment rates of return and what investors actually make in the markets.  (Investors make materially less.)

Investors, it appears, allow emotions to drive their investing decisions.  A desire to make more money causes them to choose aggressive portfolios when times are good, but a gripping fear leads them to abandon the cause in down markets, missing the next upward cycle.

Investors buy high and sell low.

Well-meaning advisors, then, including the author of the book I referenced, have claimed their collective calling to be the buffer between their clients’ money and their emotions.  Unfortunately, it’s not working.

Maybe it’s because the intangible elements of life are so tightly woven into the tangible that we can’t optimally segregate them.

Maybe it’s because we’re not actually supposed to forcibly detach our emotions from our rational thought.

Maybe it’s because financial advisors and investing gurus should focus less on blowing the doors off the benchmark du jour and more on generating solid long-term gains from portfolios designed to be lived with.

Livable portfolios.

Portfolios designed to help clients stay in the game.

Portfolios designed to help clients (and advisors) avoid falling prey to the behavior gap.

Portfolios calibrated with a higher emphasis on capital preservation.

How much less money do you make, anyway, when you dial up a portfolio’s conservatism?

The Same Return With Less Risk

In his book, How to Think, Act, and Invest Like Warren Buffett, index-investing aficionado, Larry Swedroe, writes, “Instead of trying to increase returns without proportionally increasing risk, we can try to achieve the same return while lowering the risk of the portfolio.”

Using indexing data from 1975 to 2011, Swedroe begins with a standard 60/40 model—60% S&P 500 Index and 40% Five-Year Treasury Notes.  It has an annualized rate of return of 10.6% over that stretch and a standard deviation (a measurement of volatility—portfolio ups and downs.) of 10.8%.

Next, Swedroe begins stealing from the S&P 500 slice of the pie to diversify the portfolio with a bias toward small cap, value and international exposure (with a pinch of commodities).  The annualized return is boosted to 12.1% while the standard deviation rises proportionately less, to 11.2%.  (Remember, this is still a 60/40 portfolio with 40% in five-year treasuries.)

But here’s where Swedroe pulls the rabbit out of the hat:  He re-engineers the portfolio, flipping to a 40/60 portfolio, proportionately reducing all of his equity allocations and boosting his T-notes to 60% of the portfolio.  The net result is a portfolio with a 10.9% annualized rate of return—slightly higher than the original 60/40 portfolio—with a drastically lower standard deviation of 7.9%

Same return.  Less Risk.

This, of course, is all hypothetical.  This happened in the past, and for many reasons, it may not happen again.  These illustrations are not a recommended course of action for you or your advisor, but instead a demonstration that it is possible—and worth the effort—to work to this end.

Because we can’t keep hiding from the following logical thread:

1)   Volatile markets increase investor stress (even to the point of physical illness).

2)   Heightened investor stress leads to bad decisions—by both investors and advisors—that reduce investor returns.

3)   Market analysis suggests that portfolios can be engineered to maintain healthy long-term gains, while at the same time dramatically reducing the intensity of market gyrations.

How could we not, then, conclude that more investors would suffer less stress, thereby reducing (hopefully eliminating) their behavior gap, thereby allowing investors to hold on to more of their returns?

Isn’t that the point?

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Retire Like These Guys…Not These Guys

Executive Summary2While most of the commentary these days regarding retirement is about the math and “science” of cash flow and portfolio management, there is also an art to retiring well.  Making a graceful transition from the vocation that marks your life into whatever follows helps form your legacy—for better and worse.

Led Zeppelin was the best rock band of all time—at least in their time, and for many of us, still. Jimmy Page was the musical mastermind behind this super-group of savants, but it’s hard to imagine that they could’ve reached legendary status without Robert Plant.  Every generation since has attempted to replicate Plant’s voice and stage presence.  Although the band’s retirement was unplanned after drummer John Bonham’s death in 1980, Plant and Page’s work since is a fascinating case study in retirement.

Retire like Robert Plant…not like Jimmy Page

pageplantRobert Plant has explored, experimented and remade himself several times since retiring from Led Zeppelin.  As I write, I’m listening to one of my favorite albums, Raising Sand, a Grammy-award winning collaboration between Robert Plant and Alison Krauss, a legend herself in the realm of bluegrass.

Maybe since it was his baby, Jimmy Page has struggled to ever let go of Zeppelin, a fact that was evident in his 2012 Rolling Stone interview.  He’s struggled to retire well.  He seems to have lived between a handful of attempted (and certifiably mediocre) Led Zeppelin reunion gigs, and implies Robert Plant is at fault for resisting a full-out remarriage.

It’s not easy to retire from the best gig you’ve ever had, but unwillingness to acknowledge that it’s over can be even more painful.  Loosening your grip on the past, however, can free you up for a fulfilling and rewarding second act.

Retire like Michael Strahan…not like Brett Favre

07-1t107-kelly-300x450I had to recuse myself from using my beloved Ravens’ Ray Lewis as the favorable example in this gridiron comparison to preserve objectivity, but objectively speaking, Michael Strahan’s exit from the winning New York Giants in Super Bowl XLII may indeed be a better example of one of the very few NFL players who managed to truly go out on top.  Strahan capitalized on the Giant’s surprise win over the New England Patriots to position himself for a second and third career that now pits him against the less-than-menacing Kelly Ripa.

Brett Favre, on the other hand, who was the most exciting quarterback of a generation, couldn’t let go.  He leads the NFL in retirement threats, retirements and comebacks, finally ending his career in a concussive fog as a Minnesota Viking.  Favre wisely turned down a request from the St. Louis Rams just this week to replace injured Sam Bradford, citing his many concussions and subsequent memory loss.  He can only hope to forget the sexting scandal that marred his good-old-boy reputation at the end of his career.

When you excel at your craft and you’re competitive, it’s hard to let go, but holding on too long can destroy your reputation, damage your legacy and hamstring the team you leave behind.

Retire like Sallie Krawcheck…not like John Thain

Sallie Krawcheck’s retirement was involuntary—she was fired from her position at Bank of America—but she still managed to do it gracefully.  Krawcheck is the former lots-of-things Wall Street, having been at the helm of major divisions at Citi and more recently Bank of America, as the head of Global Wealth and Investment Management (including Merrill Lynch and U.S. Trust).  But she doesn’t talk or act like most Wall Street execs, and not just because she’s a woman.  She’s taken surprisingly principled stances on conflicts of interest, like the “cross-selling” mandate pushing Merrill brokers to sell banking products, and the touchy topic of regulatory reform within the industry.   While maintaining her principles may have led (in part) to her forced departure from Wall Street, in retirement her striking combination of competency and transparency have earned her respect that few of her scandal-ridden colleagues enjoy.

John Thain has handled himself, well, differently.  He’s the former Merrill Lynch head who infamously gave his office a $1.22 million dollar upgrade and paid out billions in bonuses to country club cronies as the American financial system came crashing down.  Even the financial industry couldn’t stomach him and he was “tossed out on his ear” by then CEO of Bank of America, Ken Lewis.  Thain is Wall Street excess personified and an easy target for the 99%, but don’t feel too bad for him; while he may have traded a $35,000 in-office toilet for “plastic and Formica,” he’s back on the scene with the $2 billion bailout beneficiary, CIT.

It’s much better to make a graceful early departure than to be thrown out in disgrace.

Three Keys To A Successful Retirement

What retirement lessons do Robert Plant, Michael Strahan and Sallie Krawchek teach us?  Three keys to a successful retirement are to know when to leave, leave well and retire to something meaningful.  You don’t have to be a rock star, a professional athlete or Wall Street royalty to model and benefit from these practices.

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Face-Off: Comparing The Impact Of The Shutdown vs. The Debt Ceiling Crisis

1_photoThe government shutdown is to the debt ceiling threat as political squabbling is to political suicide.  I mean no disrespect to the many individuals who are negatively impacted by the shutdown—you are being unjustly abused like the single shovel in a sandbox argument—but I can only muster so much sympathy for the campers holed-up outside of the Grand Canyon waiting to begin their rafting trip.  All of us, however, and the full faith and credit of the world’s currency reserve nation, are being held hostage in a high stakes game of political chicken regarding the newly dubbed Debt Ceiling Debacle of 2013.

Okay, now I’ll drop the SAT logic, metaphors and hyperbole to explain the fundamental differences between the government shutdown and the debt ceiling threat, the two dominant news headlines of the day:

Government Shutdown

The government shutdown occurred because of disagreements in Congress over the proposed budget for the coming (now current) fiscal year, beginning on October 1, 2013.  It’s as if you and your spouse can’t agree on how your household income should be spent.  We haven’t actually had a budget passed by Congress for years, but continuing resolutions were passed each time the moment of truth arrived [read can kicking] to maintain the levels of preceding budgets.  This time, they didn’t agree on a continuing resolution.

The resulting government shutdown has a very meaningful and noticeable impact for those working directly for the government, doing contract work for the government or availing themselves of government resources.  Non-essential government employees are furloughed, but have been promised back pay.  Many government contractors are also idle and are not expected to receive pay for time off.  As for the many government services—from federally subsidized mortgages to national parks—USA Today did a good job answering 66 questions about the shutdown on October 1, and followed up with another 27 a day later.  If you’d prefer a more visual and humorous description of what precipitated the shutdown, check out The Atlantic’s explanation—in Legos.

In short, the government shutdown may not show DC’s best side and is an annoyance to those of us not receiving the government services that come out of our paychecks, but it’s likely to be forgotten a couple days after it’s over.  The same can’t be said regarding the debt ceiling issue.

Debt Ceiling

The debt ceiling issue is not a direct consequence of the government shutdown, although it certainly is tangentially related to our inability to pass balanced budgets that actually take in the amount of income required to pay all of the government’s bills.  Since we spend more than we make as a country, we must go further into debt to meet our expenses.  The debt ceiling, then, is our credit limit set by Congress, which currently stands at $17.3 trillion (with a “t”).  It’s the equivalent of you maxing out your credit cards and going back to the credit card company asking for an increase of your limit.

We’ve had a debt ceiling in place since 1917, but Congress has continually raised it.  “Since 1960,” writes Mark Koba at CNBC, “Congress has acted 78 times to permanently raise, temporarily extend or revise the definition of the debt limit—49 times under Republican presidents and 29 times under Democrats.”

The biggest threat if we sail through October 17th without an agreement, when it is estimated that the U.S. Treasury will run out of necessary funding and lack the power to borrow anything more, is that our worldwide creditworthiness would come seriously into question, which could precipitate a demotion from our long-standing as the world’s currency reserve.

What does that mean?  Currently, international business is conducted in U.S. dollars.  When foreign countries buy oil, soy beans or steel, their currencies are exchanged into dollars to complete the transaction.  This has given the U.S. dollar more strength than it likely deserves, as foreign countries stockpile our cash to spend as needed.

Not raising the debt ceiling at this time could even mean not paying interest to those who hold our U.S. debt obligations the world over—for the first time.  Ever.  The corresponding lack of confidence in our political process and uncertainty of our financial capabilities could very well pull us back into the recession that many feel like we haven’t left yet, and the longer-term implications are even worse.

Worst of all?  We—you and I—can’t do anything about it.  Unless, that is, any of our elected representatives are checking their Twitter accounts as they sit with arms folded, legs crossed and brows furrowed.  In that case, consider tweeting this post—they might just receive an education.

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Don’t Forget To Update Your Financial Operating System (OS)

ios-7

Android die-hards can tell you everything that is wrong with iOS7, Apple’s recently released operating system for iPhones, iPads and iPods.  Those who gripe every time something changes are also among the early detractors.  Everyone else—that is, those of us who’ve gone back for a second or third helping of tasty iKool-Aid—loves it.  The exclamation that I hear most often regarding the new iOS is, “It’s the same phone, but it seems like it’s brand new!”  What struck me even harder than iWorship last week, however, was recounting the number of individuals who, with unchanged exteriors, have undergone noticeable overhauls in their Personal Operating System (POS)—for the better.

“I’m bad with money.”

Don’t you love the way we label ourselves as predestined for failure?  “I have a bad temper.”  “I have no willpower.”  “Exercise and I don’t mix.”  “Oh, I have ADD.”  “I’m not a good listener.”  “I have a sweet tooth.”  Or the one I hear often as a financial planner and educator, “I’m just bad with money.”

It sounds like self-deprecation—even humility—but it’s actually self-justification.  We’re giving ourselves permission to behave badly in the future.  Before you get angry with me for hurling accusations, let me confess that I am one of those people who have used this tactic, unknowingly and sadly, knowingly, at times.

What all of these expressions of inability or ignorance have in common is that they’re simply inexcusable.  Not only are they not rocket science, they are not even changing the oil in your car.  They are more like brushing your teeth or putting gas in the tank.  Even if you’re predisposed to flying off the handle, it’s no excuse for being mean.  Even if you’re prone to indulgent spontaneity, you must own your decisions.  Even if you’re not a gym rat or naturally fit, as a human you weren’t designed to be sedentary.  Even if your attention migrates easily, you can’t use it as an excuse for intellectual laziness.  Just because you like chocolate, it doesn’t excuse gluttony.  Lastly, you don’t have to understand the Alternative Minimum Tax or be able to articulate Modern Portfolio Theory to spend less than you earn and plan for the unknown, the two categories into which the vast majority of financial planning recommendations fall.

“Completely new and instantly familiar”

The great news about overcoming self-deception is that we can turn on a dime once we recognize it.  While some of us may need to do a deep dive with a counselor to target more systemic self-denial, many are free to simply choose the alternative path of wisdom and act accordingly, almost immediately.  Especially regarding our dealings with money, we can upgrade our financial operating systems right now.  Like our phone updates, it may take a little time to install the new mindset, but in dealing with behavior that is not tied to a compulsive diagnosis, we can look the same on the outside with a completely new perspective internally in a very short period of time.  Two of the life-changing tools that I’ve seen dramatically reboot people’s financial programming are Dave Ramsey’s book, The Total Money Makeover, and You Need A Budget, cash flow software created by former accountant, Jesse Mecham.

Jony Ive, Apple’s SVP of Design describes the new iOS as “completely new and instantly familiar.”  The best part about acquiescing to our own personal evolution is that it too will feel oddly familiar, because it’s how it ought to be.  Adults aren’t supposed to throw temper tantrums.  We’re designed to overrule our basest instincts with self-control.  It feels great when we expend the calories we take in through physical activity.  We’re capable of being present in a world full of distractions and applying our attention to those who most deserve and need it.  Sweets taste better as treats than as main courses.  And with a little guidance—but primarily common sense and intellectual honesty—we can choose to be good managers of money, and then do so.

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