Category Archives: Retirement

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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.

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:

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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.

There’s no magic to a million in retirement, but as the Baby Boomer generation begins making the transition, it’s a question oft posed. In this Nightly Business Report clip, Sharon Epperson (CNBC) and I answer the big question: Is a million enough?

Date: June 5, 2014
Appearance: Is a million dollars enough to retire?
Outlet: Nightly Business Report on PBS
Format: Television
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How to Make The Most of Your 401(k)

Originally in ForbesWe need not look far to learn that 401(k) plans are imperfect or worse, so instead of lumping on more criticism about how you and your employer have botched your 401(k), let’s discuss how to make the most of a not-so-great situation.

Step 1: Don’t blame shift. There is a time for criticism, so keep reading, but too many people use the imperfections in, or a lack of understanding of, their retirement plan to feed the self-deceptive siren’s call to inaction.

401k-Plan-300x246Yes, it’s true that there is systemic as well as plan-specific dysfunction in many 401(k)s—and 403(b)s, TSAs, TSPs, SIMPLEs, 457s and whatever other “defined contribution” retirement plan you might have at work.

Yes, it’s true that 401(k) plans are often needlessly complex and confusing, often filled with a seemingly endless array of choices, designed more for plan sponsors than for participants.

Yes, it’s true that 401(k) investment options are notoriously poor and over-weighted with fees.

Yes, it’s true that defined benefit pension plans—when the company you dedicated yourself to for many years would continue to pay a stream of income through your retirement—were helpful but are now largely extinct.

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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.

If you enjoyed this post, please let me know on Twitter at @TimMaurer, and if you’d like to receive my weekly post via email, click HERE.

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Unloc(k) The Mystery Of Your 401(k)

401k Lock-01Last week, in my review of the Frontline program, “The Retirement Gamble,” I promised to follow-up with a short blog series giving concise direction on how to demystify some of the more confounding elements of personal finance, beginning with the foremost culprit of “The Gamble” (aside from J.P. Morgan Chase, of course)—the 401(k):

Recent action by the Labor Department requires more transparency in the reporting of fees in 401(k)s.  “While the intent and spirit of the legislation was good, I’ve found the implementation was pretty ineffective,” says Josh Itzoe, author of Fixing the 401(k).  “It’s possible to be compliant from a regulatory standpoint and still make the information totally confusing and unclear.  I think that is where we are.”  While you’re overcoming your shock that the government has failed to simplify the regulation of [anything] to a satisfactory degree, consider taking these three steps to unlock the mystery of your 401(k) or other employer sponsored retirement savings plan:

1. Educate yourself on the structure of your 401(k) and the associated fees.  Yes, I know this likely falls just below rolling in poison ivy on the totem pole of ways that most of us would like to spend our time, but we sacrifice the privilege of voicing our displeasure with the state of our primary retirement savings vehicle when we don’t even understand its basic structure.  Start with what you already likely know: Do you get a company match, and if so, how much do you have to contribute to reap its full benefit?  Then, move on to the fine print describing your company’s requirement to actually follow-through on its match (they can likely skip matching in certain circumstances) and when it is paid.  Review your investment options and their short-, mid- and long-term performance.

If you’re not satisfied with the amount of information provided, plug your mutual fund options into the “Quote” box in the top-center of Morningstar.com to see what they think of the fund.  Theirs is not the last word, but their findings can add to the context of your decision-making.  And while I believe that it can be worth it to pay truly gifted fund managers for outstanding work, 401(k) mutual fund options are notoriously mediocre.  This means that finding the lowest cost funds in your composition of a diversified portfolio is of paramount importance.  Emily Brandon’s article, “What You Need to Know About 401(k) Fee Reports,” offers a process designed to enlighten us on making the most of the new fee disclosures, which unfortunately are cryptic enough to render them nearly useless without guidance.  If you end this journey of discovery just as (if not more) confused as when you began, get some help; preferably from someone who won’t turn your confusion into a sales opportunity.

2. Speak up!  It’s a tiny minority of us who can go into the office the next day and restructure our employer-sponsored retirement plan, but wheels don’t squeak unless you turn them and we all know which wheels typically receive oil and in what order.  “You may not have the power to change the plan, but you can and should provide feedback to your employer about the plan,” says Roger Bair, director of retirement plan services at the Financial Consulate, Inc.  The chances are also good that your employer would benefit just as much from improving your 401(k) as you would, but it won’t be easy to affect change for numerous reasons.  (Among those reasons, your boss might lose a golf buddy if the plan is replaced!)  I wouldn’t necessarily recommend going quite as far as Maya in Zero Dark Thirty, writing the aggregate number of days you’ve been waiting for action on your boss’s office wall every morning, but pleasant persistence can go a long way.

3. Control what you can.  My biggest concern with Frontline’s “The Retirement Gamble,” as well as other notable critiques of the financial industry’s retirement plan mismanagement, is the less-than-subtle implication that the financial industry is so bad and 401(k)s are so complex and the effort of saving enough is so monumental that the majority of Regular Joes can do little more than raise the white flag and give up on retirement savings.  I agree with almost all of the criticism, but I’m unwilling to concede that the battle is lost.  Bair guides that “you should use the best investments and make the best asset allocation you can given the tools that you have.”  Itzoe encourages that the primary determinants of successful nest egg building—the amount saved, being globally diversified and choosing the best available funds with the lowest possible costs—still fall within our control.

In the 401(k), we see the mess created when corporate self-interest, profit motive in the financial industry and regulatory bungling collide, but for most of us, the 401(k) is still the best gig going for increasing the probability of a comfortable retirement.  So get to know your plan.  Better.

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Retirement Doesn’t Have To Be A ‘Gamble’

Retirement Gamble-01If you missed the well-documented, artfully produced PBS Frontline program, “The Retirement Gamble,” here’s the nutshell version: You’re screwed and it’s the financial industry’s fault.  This is a piece that is absolutely worth your time to watch if you haven’t yet, but I will warn you that it takes on a bit more of a sensationalistic tone than I’d hoped for from PBS (maybe because the chief correspondent is also one of the protagonists in the story?).

Yes, it’s true that the financial industry deserves the vast majority of the criticism it receives, but I’m pretty sure that if you watch the video in reverse, you hear the words, “J.P. Morgan Chase is Beelzebub.”  Outright demonization is a stretch, even if only a tiny one.  And Jack Bogle, the father of passive investing, may be the closest thing to a saint in the financial industry, but he’s so deified in this program that by the end I thought I was watching a Vanguard commercial.  And most importantly, if you’re going to take an hour to scare the crap out of people—telling them what’s broken and what doesn’t work—I’d like to see a bit more on what works and how we can mend what’s broken.  And yes, PBS, that’s an implicit challenge to follow-up “The Retirement Gamble” (TRG) with a part two: “Retirement Doesn’t Have To Be A Gamble.”  But just in case they’re not already filming and don’t read this post, let me attempt to paint a slightly more balanced, if not hopeful, scenario:

YOU still play the primary role in the success of your retirement planning.  You still choose how to spend your income and how much to save.  I can’t have been the only one to notice that one of the aggrieved “nobodies” featured in TRG is shown working on an Apple laptop at her kitchen table equipped with a flat-screen TV, sitting in front of stainless appliances.  I’m not judging her and I’m not sermonizing you, but most of us have limitations placed on our income that require us to make decisions to endure some form of sacrifice today in order to provide for tomorrow.  While compounding gains may be the engine propelling us toward a comfortable retirement, it’s not going anywhere without the fuel—our contributions.

YOURS is not as hopeless a situation as TRG makes you feel.  Crystal Mendez is one of the regular Janes featured in the program.  She’s 32 years old and making $70,000 per year, decent money for a teacher, and she’s saved $115,000 already for retirement.  According to a recent Fidelity study that judges our retirement readiness based on multiples of current earnings at different phases of life, Crystal is well ahead of the curve.  The study suggests she should have approximately 70% of her current salary saved—and she’s already at 164%.  (Nice job, Crystal!)  Furthermore, if she saves 10% per year until she’s 67 years old (when she’ll be eligible for full Social Security benefits), she’d then have $2,442,544—17 times her salary if we estimate she earns a 7% annual average rate of return and her salary increases only 2% each year.  According to Fidelity, she’d only need eight times her salary for a comfortable retirement at the age of 67.

Crystal's Path

YOU don’t really want the good ol’ days anyway.  We have a habit of painting the days of yore as an idyllic time, when everyone joyfully punched a time clock for the same benevolent company for 40 years straight; the same company that then subsidized a blissful 20 year retirement spent golfing and sipping lemonade on a wrap-around porch attached to a Cape Cod house unencumbered by debt.  But guess what, even if that sweetheart deal existed then, and more importantly today, we wouldn’t want it!  According to CNNMoney, “…by the time they reached their forties, the boomers worked about 11 jobs—equivalent to a job change roughly every two years.”  Generations X and younger hop jobs slightly more.  And is it possible that the employers of former generations weren’t solely offering pensions out of the kindness of their hearts, but also because they wanted to make it very difficult for employees to consider leaving their job—and their pension?  It is true that the once fabled “three-legged stool” of retirement—pension, Social Security and personal savings—is now down to a pair of stilts for most baby boomers and likely no more than a pogo stick for Gen X and younger; but a minority of us would trade a lifetime of occupational freedom for the continuation of a portion of our paycheck in retirement.

Yes, the odds are stacked against us.  And no, the financial industry does not exist for the benefit of its customers.  Yes, that’s a shame.  And no, despite a movement of well-intended zealots and justified outrage in the media, we’re not likely to see the Masters of the Universe unseated in less than a generation (although that won’t keep us from trying).  BUT, your chances for a comfortable retirement are still better than a roll of the dice, as seemingly purported in “The Retirement Gamble.”

Over the course of the coming weeks, I’ll be bringing you a collective of wisdom from numerous sources on how you can demystify decisions regarding not only your retirement, but specifically your 401(k) or other retirement plan, mutual fund selections and a couple of the most complex personal insurance products.  That way, regardless of whether or not the fallen angels of the financial industry clean up their act, you’ll be able to make informed decisions.

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The Most Stressful Event Of Your Financial Life: RETIREMENT

I don’t mean to strip you (or anyone else) of your idealized view of retirement that may have helped you overcome Lord knows how many miserable days—or years—of perpetual, slave-to-the-grind ladder climbing throughout your career.  But, the first stretch of your much anticipated retirement is likely to be one of the most stressful events of your life.

I admit that this phenomenon was a surprise to me, initially.  I began my career with a partial mission to help clients reach and enjoy financial independence, so it wasn’t until I began walking some of them into and through the transition that I realized how nearly-traumatic it can be for so many.  But if you doubt my hypothesis on its face, please consider this reasoning:

Most of us Americans, fortunate enough to enjoy a middle-class or higher upbringing, are born into environments—households, churches, schools, sports teams and other associations—that breed into us a sense of independence and empowerment.  We are set on a trajectory of productivity and accomplishment, aiming less toward our vocation or calling—more toward our occupation.  We may hear or read, “You can do anything you want to do!” and “You’re special.” and “Dream big!” but by the time we enter the work force, many of us realize we have been set on a course designed to capitalize financially on our most marketable skills.

We are trained to be do-ers, but not, so much, be-ers.

And for many (although not most), it works.  We become “productive members of society,” producing enough income to reach the penultimate goal of financial independence, a visual snapshot nicely captured for us in the high-def, beach-front commercial renderings lathered on by banks, brokerage firms and insurance companies.

It’s our lives’ work to be voracious do-ers until we can afford to be aristocratic be-ers.

So even if we are financially prepared for retirement by every tangible measure—certified by the most certified of financial planners—the transition from do-er to be-er is an exceedingly difficult one, and most of us don’t entirely understand why because the rhythms of our lives have become part of us.  The real difficulty is not in dealing with the visible, but the invisible.

What, then, would life, work and retirement look like if we:

  • Placed a greater emphasis on be-ing, prior to retirement?
  • Were more deliberate about do-ing, in retirement?

We might cultivate ourselves more as individuals who are part of a community and less as employees who are part of a company.  We may allow the question “Who am I?” to precede “What am I going to do?” and certainly “How much am I going to make?”  This self-analysis might lead to a path more akin to finding a calling than a job and would be more relational than transactional.  It would be more others-oriented than individualistic, ensuring that those we labor with and for would remain a priority over the work itself.  Instead of establishing, arriving, cashing-in and checking-out, we might see our progression as perpetually evolving, even into and through retirement.

“That sounds great,” you say, “but it wasn’t my path…so what should I do now?”

Don’t retire from something; retire to something.  Even if you conceded the last 20 to 40 years of your life to the big hamster wheel, it doesn’t mean you’re relegated to settling into a meaningless, unproductive retirement.  Ask the questions you wish you’d have asked yourself at the onset of your education or career and answer them.  Envision your transition into retirement less as an encore and more as act two of a three act play.

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Retirement STRESS Test, in 90 Seconds

If you think that a comprehensive analysis of your retirement plan readiness is complex enough to require more than 90 seconds—you’re right.  Considerations of spending patterns, flexible withdrawal rates, increased healthcare costs, tax preference and investing style require a bit more time.  But a Retirement Stress Test, to give you an indication of whether or not you’re in the ballpark?  That we can handle in under 90 seconds.  Take a look!

[youtuber youtube=’http://www.youtube.com/watch?v=TdKO5ljseHc&feature=youtu.be’]