Retirement Tag Archive
This is the twelfth in an indeterminate series of entries that provides my “real world” lessons to young adults. It is my conviction that these lessons are rarely taught either at home or in the schools. For those who did not get them growing up you can get them from me for free. This is part of my way of giving back to the universe on the occasion of my 50th birthday.
Way back in Lesson 2, I covered the fundamentals of personal finance. I hope you used the intervening two and a half years to make yourself financially solvent. Good news: if you are not carrying a credit card debt, you are doing better than many Americans. Your net worth may hardly be in the positive numbers but at least it is positive. Even if you have student loans, providing it has helped you get a decent paying job, this is good debt.
You may be young but you might also have the feeling that old age is going to visit you someday. When it arrives, you know you would not prefer living in a cardboard box under a freeway. You know that to avoid this fate you need to start investing money now, although you might not have a whole lot to invest except for the spare change inside your sofa. Most likely you kind of resent having to save anything at all, but you know that like taking vitamins its one of these things that prudent people do. Where to start? Buy a share of Wal-Mart stock? Open a money market account? Buy gold on the assumption that its value will stay steady during inflationary times? There are an infinite number of choices and it’s so darn confusing!
I can make it easy for you: start with your employer’s 401-K plan. Why? Start there because if your employer offers a 401-K plan they will often match your contributions up to a certain percent of your salary. In other words, it’s free money. It’s true that except in cases of dire emergencies you cannot take out the money before retirement, but you still get to invest more money than you can contribute. In short, you should contribute as much money as you possibly can into your 401-K or similar plan, particularly if you get matching contributions.
Start contributing today and never, ever stop until you are fully retired. This is the golden rule of investing: start early and contribute regularly. Do not contribute a fixed dollar amount. Contribute a percentage of your income automatically with every paycheck. Your income should naturally rise as you age so at the very least you want your contributions to rise proportionately. It is never to late to start investing but the multiplicative factor for starting early is mind-boggling. Starting early means that you have more time to invest and your money has more time to grow. Give until it hurts. Give until the financial pain is just short of excruciating. As your income goes up, try your best to put a greater percentage of your income into retirement funds as well. There is an additional piece of good news: the IRS pretends your salary is your actual salary less your 401-K contributions. In other words, you end up paying less in taxes because you “earn” less. The net effect is you have a little more money available to put into your 401-K than if the money was taxed up front.
If your employer does not offer a 401-K, or even if they do, you can still open an Individual Retirement Account (IRA). In 2009, you can contribute up to $4000 and write it off your taxes, at least if you place your money into a “traditional” IRA. You can also choose a Roth IRA. The difference with a Roth IRA is your contribution is not subtracted from your income for tax purposes: you pay the tax upfront but can withdraw it later tax-free. With a traditional IRA, you pay the taxes on the income much later when you retire for the privilege of paying fewer taxes now. If you can swing it, because younger people tend to earn a lot less than older workers, the Roth IRA is the better deal. As you age you might want to open a Traditional IRA because then you are likely to be taxed at a higher rate than you will as a retiree.
The general guidance for investing is tried and true and fairly well known. In the very long term, invest in stocks or stock funds as history shows that overall they will provide higher returns. In the medium term, buy bonds. In the short term, stick with savings, checking and money market accounts for their liquidity and safety.
What else should you save for? Many smart young people find plenty of incentive to save for their own digs. They would prefer being tied down by a mortgage instead of renting a U-Haul every few years and moving all their possessions. They also have expectations that if they own property, it will appreciate, and their net worth will grow. (The mortgage interest deduction is also a nice tax break, although you may find the cost of maintaining your home can eat up the tax break.) Obviously, you don’t invest this sort of money into retirement accounts. Where to put it depends on how long you think it will take you to buy some property. Most likely, you don’t want to put it into some sort of stock-oriented mutual fund because there is likely to be too much volatility in the stock by the time you need the money. The safest bets are savings and money market accounts, but they produce almost no interest. A good choice looking several years out would be a well-rated corporate bond fund. Also consider a fund that buys Ginnie Mae bonds. Ginnie Mae bonds actually help homebuyers like you buy houses. There is risk of losing money, but it is very small, along with decent potential of above average market returns.
Okay, you are thinking. Where do I buy these sorts of funds? In addition, which ones are good and which are bad? Unfortunately, there is a lot of smoke and mirrors among investment firms and brokerage houses, which they gleefully help create. Real return is hard to figure out, given that returns are rarely guaranteed and many funds charge fees to buy and sell funds. Many funds come with certain minimums and contribution requirements. Billions are spent to shape your perception that firms like Vanguard and T. Rowe Price are smart places to put your money. You would be right to be skeptical.
If you want, you can be your own broker. You can in theory send a check to places like Ginnie Mae or the U.S. Treasury and they will send you bond certificates back. This is too much hassle for most people. When in doubt I go to the most trusted and unbiased source I know: Consumer Reports. I think any smart consumer should subscribe to the magazine, but you can also spend a little money to get access to their online web site. Periodically they rate various categories of mutual funds. Their ratings are not necessarily sure things, but they are good, unbiased bets.
Ultimately what you need is a personal financial advisor. Most likely, that will have to wait until you have enough income to also afford a financial advisor. Banks and brokerage firms will want to sell you their financial advice. Be wary because most likely they put their bottom line ahead of yours. When I finally had enough money to get a personal financial advisor and I chose someone local who was listed on the National Association of Personal Financial Advisors web site. My personal financial advisor makes recommendations to me. I do the actual paperwork to make them happen. He never gets a cut of my earnings, only a flat fee for sound and unbiased advice.
Until that time comes, it is probably a sound strategy to be your own financial advisor. You can supplement your knowledge not just by reading my advice but also by reading some of the many popular books on investing available at your local bookstore. By following the established investing rules I outlined, you are likely to do nearly as well as the financially sophisticated anyhow. The truth is there is always risk in investment, as well as rewards, and no financial guru is always right, not even Warren Buffett. Some approaches will prove to be luckier than others in the short term, but time seems to even out the playing field. Sticking to traditional rules should serve you well until you have the time and money to get your own personal financial advisor.
November 13th, 2009 at 08:06pm
Posted by
Mark |
Advice |
no comments
With stocks in some cases at half or less of their value of a year ago, many Americans are wondering if they will ever be able to afford to retire. To retire with a decent standard of living you generally need to have a number of financial ducks lined up. First, you depend on Social Security and Medicare benefits to provide basic subsistence and medical care. Second, if you are lucky enough to have an employer that actually provides a pension, you need to hope that the company does not go belly up before or during your retirement. Third, you have the value of anything in your 401-K or IRAs that you have squirreled away. Fourth, you may have some other savings or some sort of inheritance to draw from. Lastly, and really as a last resort, you may have equity in your house you can draw from, which perhaps you can draw from with a reverse mortgage. With enough of these assets, you can afford to retire when you hit a certain age. How many of us reaching retirement age can honestly say our financial ducks are lined up?
For many of you younger readers retirement may be an abstraction. You are probably far busier trying to hold on to your job and standard of living than to worry about something so far away as retirement. For us middle age Americans, retirement is on our horizon. For example, I am a civil servant who will soon be 52. In theory, I can retire at age 55 with thirty years of service, which will be in May 2012.
Will I retire and begin a life of leisure at 55? Probably not. If I did, certain other expenses would need to be trimmed. Even with my very generous government pension, I would get at best something like 60% of my government salary. However, I still will have bills to pay and I do not particularly want to reduce my lifestyle. Moreover, my mortgage will not be close to being paid off in 2012.
Without some substantial adjustments in my lifestyle, I cannot afford to really retire at 55. Since my investments like yours are in the toilet, it is unlikely I will be able to draw from them in a couple years. So I will still have that 40% gap in income to make up, at least until the mortgage gets paid off. Also, I have many more productive years ahead of me. I am a restless creature too. I simply do not have the constitution to “retire”, at least not at 57, the age when I currently plan to “retire” but when in reality I hope to simply start my next career.
I am betting though that many of you do not have these options. Your “pension” is probably anything in your 401K or IRA, which if you assess it at today’s value might make your heart skip. If you “retire”, your retirement home may be in a trailer park. It is also possible with today’s economy that your “retirement” will be involuntary and you will end up with a fraction of the benefits you were promised. So your “retirement” could simply mean getting one or more new jobs at a fraction of the wages you are used to, perhaps while also working more hours than you do right now. Even with all this, you may end up with a lower standard of living.
In short, for many in the fifty to 60 something age range, retirement, which used to seem almost tangible, is now off the table. We might as well pretend we are twenty or 30 somethings again. If this sounds like your situation, you will have one option: the non-retirement retirement. With this is a retirement you work as long as you are physically capable of working even after you “retire” by collecting social security benefits. You will be likely working at substandard wages perhaps making little more in real dollars than you did as a teenager. However, you will still have Social Security income to draw from and Medicare benefits to cover most of your medical expenses. The combination will not let you really retire, but it will keep you from having your standard of living drop through the floor.
Unless our new President Obama and Congress are able to fix things, and the macro-economic forces work in our favor for a change over the next few decades, “retirement” as our parents knew it may become a luxury most of us can no longer afford. In short, even though the Social Security system will survive the New Deal will have largely unraveled. Social Security and Medicare will provide seniors with a foundation for keeping their financial heads above water, but still not provide enough income to retire.
Many senior citizens are already dealing with this reality. Many retired to discover that they really could not afford to do so. Their actual cost of living exceeded their income and assets. For many, the new model looks like you retire when you absolutely, positively cannot earn money anymore. In other words, when you retire, you will have one foot in the nursing home.
Suppose you are fairly young and headstrong enough to think that you should be able to enjoy a real retirement someday, perhaps when you are in your mid sixties? What do you do? You can invest now while stocks are cheap and hope they will become nice juicy retirement assets by the time you retire. There is no guarantee here, of course, but stocks have tended to provide a higher returns over long periods than other forms of investment. You can also choose not to have children, or if you have children, have just one. (This is what my wife and I did, in part for economic reasons.) Children may be loveable and give purpose to your life, but they suck enormous amounts of money out of your wallet. In addition, you can spend your earning years living frugally while doing your best to climb the income ladder by having a well paying job and specialized skills. Perhaps these things, a resurgence of the American economy relative to the rest of the world, and a government that works for the people, will turn the dynamics around. My gut feeling is that we are sailing into very strong headwinds. We can tack as much as we want but moving forward is likely to be daunting.
For many of us, particularly those of us nearing retirement age, our retirement can be clearly envisioned and it is scary. The vision that we are seeing bears little resemblance to what we envisioned some decades back. The retirement our parents knew is dying from a combination of economic forces and bad government. We are likely to pay the price in an anxious non-retirement retirement.
Let us hope that President-Elect Obama and our new Congress can actually move us in the direction we need to go so we can really retire someday. I sure hope that a real retirement does not become something we lose in the 21st century.
January 17th, 2009 at 08:06pm
Posted by
Mark |
Politics 2009 |
no comments
I returned to work on Monday after a glorious and refreshing sixteen days off. Since Monday, it has been back to the zoo that is working in the Washington metropolitan area. As Calvin (from Calvin & Hobbes) put it, “The days are just packed.” From 6:10 a.m. when the alarm rouses me out of bed until 7 p.m. or so it is go, go, go. On the days I hit the gym after work (generally every other day) it can be 8:30 p.m. or so before I have something resembling leisure.
Once at work it feels like a nonstop circus. It may be sedentary work, but mentally my mind is on adrenaline. Even during my lunch hour, the odds are that important email will be streaming in. While I scarf down soup and a salad and leaf through the day’s Washington Post, I usually keep one eye on my email box and instant messaging program. My work may not be calorie intensive, but juggling the constant influx of email, all of which has to be sorted out for its political implications, while trying to marshal resources to effect meaningful change is actually quite draining. Yet I also find it strangely exhilarating. The days quickly slip by.
For sixteen days, at least I was away from it all. Moreover, it was glorious. My work may often feel exhilarating. As jobs go it is can be a lot of fun. However, it is still work. If I did not have to survive for a living, I would not choose to spend ten hours or so a day in my office reading emails, arranging meetings, counseling employees, listening to customers, monitoring contracts and orchestrating a team’s work. I now have some inkling of the things I would be doing if I did not have to eke out a living.
Most days would be a la carte. Now I do things because I must make other people happy to survive. Over sixteen days I discovered that in my future retired life I could choose to do most of my activities when it pleases me to do so. There will still be chores that need to be done, but the few hours a day they may take can be placed at times that most suit me. If an hour of paying bills is enough, I can do something else. Read my personal email. Surf naughty web sites. Write in my blog. See a movie. Go to the gym. The possibilities are endless.
I was surprised by how much work I ended up actually doing. As readers know, added up I probably spent three days altogether of my vacation playing house. With nothing else on my horizon, two hours a day chasing dust bunnies did not feel like a chore. My largest activity though was not cleaning, but programming. Unable to do it at work, programming computers for no money turned out to be a treat. When I did it for a living, I eventually grew bored with it. In smaller doses and on projects that actually interest me I found it is a great hobby.
While I got to the gym regularly, I did little other exercise. I could have run a couple miles every morning, but I did not want to. Extra exercise felt too much like work. Instead, I often found myself at my computer. I also found myself in front of the TV. I was not watching commercial TV (God forbid), but my wife and I found plenty of entertainment watching the complete set of shows from the Firefly TV DVD collection we gave ourselves for Christmas.
My cat was very happy to have me around. My wife reports that when I am not here he often wanders the house looking for me in vain. For two weeks though, he could have as much of me as he wanted. He could often be found on my lap being cuddled or stroked. At nineteen, though he is definitely slowing down. He ended up at the veterinarians twice during vacation. Fortunately, my schedule was free, so taking him to and from the vet was not a problem.
I found myself actually spending less time engaged in my regular leisure time activities. It was much more difficult to care about politics during my break. I hit sites like DailyKos.com, but only once a day, and I mostly just scanned the headlines.
Long breaks make it easier to meet friends for lunch. For weeks my friend Sokhama and I had been trying to do lunch, but the holiday rush had made it impossible. Finally, we found an hour to meet and catch up with each other at a Chipotle’s restaurant. Afterwards, since I was in my father’s neighborhood, my Dad and I drove to the Patuxent Research Refuge for a hike. I was able to do both activities in the middle of a workweek, and still miss the rush hour.
What was best was that my sixteen days off felt nearly twice as long. Like most busy adults, it seems to me that every year goes quicker than the year before it. The last time I had sixteen days off in a row I was a young adult between semesters at college. During this vacation I found that time actually slowed down. Taking each day at a leisurely pace had a boomerang effect that seemed to lengthen the perceived length of every day. Perhaps when I finally retire my 20-30 years of retirement living will feel like 60 or 90. I certainly hope so.
I see the value of a slower pace of living now. I can see that while work can be rewarding and engaging, it is not an end. A happy retirement itself can be a reason for living.
In a few weeks, I will spend two days in Washington attending my first retirement seminar. While I am there, I will turn 49. I am clearly too young to retire, but I am not too young to start steering my course toward a terrific retirement. For most of my life, retirement has been an abstraction. Now it is looking to be something that will actually happen to me, and that it will be the best time of my life. It might be as little as seven years away. With this taste of retirement in my extended vacation, I can now appreciate its value.
January 12th, 2006 at 09:08pm
Posted by
Mark |
Life 2006 |
no comments
Yesterday evening was covenant group again. Once a month I meet with the same small group of members of the Unitarian Universalist Church that I attend. Six to eight of us commit to meet once a month, share stories, do readings, eat snacks and digress on a topic of some depth. After an hour of us doing a brain dump of the significant things that happened to us during the last month, we discuss a topic that we had agreed to discuss the last time we met. This time it was where we wanted to be five and ten years in the future.
I hated to admit it, but the topic was a stumper. For most of my life, I had a good idea about where I wanted to be ten years out. Now at age 48 I felt clueless.
We all agreed we did not want to be dead. That was easy. We also agreed we wanted to be in good health. I am the youngest member of my covenant group. As I noshed on strawberries, I wondered if I would break out into a cold sweat when it was my turn to speak. What was I to say? At 58 would I still be working? Would I be retired? Would I start playing golf? Would I start a hobby like building train sets in my basement? Would I find my evil side and take delight at exposing myself to unwilling victims on street corners? Would I write that novel I figured I would write eventually someday? Or would I just kick back and lead a wholly unplanned life, flitting from day to day like a bee flits from flower to flower?
I realized that part of the reason I did not want to think too much about it is that I would be a lot older. I hope that I would retain some semblance of my youthfulness but if it did not work for Robert Redford, it probably will not work for me either. At 48, I feel I look a lot better than most my age. I doubt that will be the case at 58. Generally, we Caucasians do not age well. Therefore, I hope I will graceful about my age. If I attract any young babes, it will be because I won the lottery, not because of my charming personality or youthful demeanor.
Sadly, the chances are good that when I am 58 both my parents will be deceased. My daughter will be 25 and presumably out of the house. (There are no guarantees these days. She seems very comfortable in her room and not anxious to start independent living. I suspect that I will need to bring in marshals to evict her.) If the federal government does not change its retirement policies I could be several years into retirement by the time I am 58.
Part of me expects there to be some calamity between now and then. Perhaps a few suitcase nuclear bombs will go off in Northern Virginia. If I survive that then I expect our assets will be gone with the nuclear fallout and I will be eking a living in drainage pipes and pushing a shopping cart. Perhaps my wife’s various medical problems will become persistent and acute. As a result, perhaps I will end up much like my father and spend my days catering to her. However, the odds are good that age 58 will find us comfortable. I hope that the economy will be good enough and my pension will be secure enough that I will not have to work anymore.
What I do not know yet is whether I would start a second career. In this country being age 58 would mean another decade in the workforce. Fifty-eight is now arguably the middle of middle age. Ideally, any second career would be on my time schedule. Most likely, a full time job would seem too burdensome. Economic necessity might require it. Since I currently teach part time (no more than one three-credit course a semester) and usually enjoy it, I can see myself doing that, probably teaching computer courses full time. Teaching has never been a profession to get into because you want big bucks. With a decent pension, forty thousand dollars a year would seem like a lot of money. On the other hand, since I am clearly a political creature perhaps I would run for public office. (Perhaps not. I cannot see myself spending days dialing for dollars.)
Yet I may still be in my present job. Perhaps I would enjoy it too much to retire. Looking five years ahead, it is likely that I will still be in my current position. For the first time in my life, I feel like I am in a job that is rewarding enough where I might want to keep doing it for ten more years. The pay is excellent. The responsibility is challenging but not overwhelming. I like making actual important strategic decisions. In addition, I am blessed with a terrific team. I am doing about the most interesting professional work that I can imagine. It is all right up my alley.
Nevertheless, I have always been one of these people who continually expect the other shoe to drop. Although there is plenty of evidence to the contrary, I figure that I cannot keep a good job like this going indefinitely. Real life has to crash in eventually and make this latest job unrewarding.
Therefore, I am hoping that things will work out well: with my family, my career and financially. If so then I will have a genuine opportunity at 58: the ability to live life without much worry that I will become insolvent. In other words, I will have a real and extended retirement. Just the idea rather boggles my mind. What would I do with all that time? Having spent my life so far scrambling, what would I do with 20 or so years of decent health and no financial worries feel like?
I suspect I will not know the answer unless I experience it. One small nugget of wisdom that I have acquired in 48 years is that life’s journey rarely takes you where you expect. I expect that wherever life takes me in 10 years I will be surprised. Watching my older relatives go through these years, I do expect that much of it will be mundane. I doubt my wife and I will do quite the amount of traveling that we have envisioned. I expect there will still be gardens to weed and trash to take out. The last third of my life may not have many surprises but may feel like being Bill Murray in Groundhog Day. In ten years, blogging will no longer be sexy. I hope though that I will continue to make a habit of recording my thoughts, rambling and incoherent as they doubtless sometimes are, for my enjoyment, and perhaps yours too.
July 19th, 2005 at 10:05pm
Posted by
Mark |
Life 2005 |
one comment
I apologize if this sounds like an advertisement. It was not intended to be this way. But I have seen paradise. And you don’t have to die first to get in. You simply have to be 62 or older and have a few hundred thousand dollars in assets available.
I discovered retirement living because my parents seem inclined to move from their house in Midland, Michigan to a retirement community. The community they are planning to move into is located across the Potomac River from me. It is called Riderwood. Last Friday I joined them and my sister Mary (who did all the research) as they checked out the place. I left amazed, impressed and more than a little jealous.
My mother’s health is clearly declining. She is unsteady on her legs, which is not too surprising for a lady almost 84. As long time readers know she has had some bad falls lately. Their willingness to relocate was prompted by concerns from us children, none of whom live closer than 300 miles from them. They have almost no support structure in place in Michigan should something happen to one of them.
American capitalism has responded. There are lots of retirement communities out there but I doubt none have done so well as this particular Erickson community. It is a gated community full of large residential apartments interconnected to each other and overlooking lovely courtyards and ponds. Each building is between four and a dozen stories tall. All were designed specifically for senior citizens in less than optimal health. The goals at Riderwood are choice, comfort, simplicity and safety.
The buildings are lovely and modern with lots of apartment styles from which to choose. Rents are pretty expensive. I’m not sure exactly what my parents will be paying but I think it is in the $2000 a month range. However, they get a lot for their money. They are not paying property taxes. They get one meal a day at one of the four restaurants on campus. These are good restaurants with fine food; they ate there to make sure. There is plenty of parking but most of the time there is no need to drive anywhere. You name it and they have it: mini-mart, bank, meeting rooms, theater, lounges, chapel, even a bar. For those too old to drive they can take one of the community buses to one of the nearby shopping centers. Riderwood has its own doctors and specialists. But it is not too far from modern hospitals, should they be needed.
The apartments can be fully customized. You can paint it or add to it pretty much as you like. The doors are large enough to accommodate wheelchairs. It goes without saying that there are elevators in every building for residents who need them.
There are also a zillion clubs, a workshop, a TV studio, pool tables and all sorts of innovative security services. They have a gizmo on each door that the security people flip each night. It comes down when you leave your apartment. If they see it remains unflipped the next day they will check up on you, just in case you fell or are incapacitated. If you need some measure of safety beyond this, you can rent a device around your neck. Press a button and help is on its way. Or press the button in any bathroom.
And the place is beautiful, clean and the staff is just tremendously helpful. No one is kicked out of their apartments because they have run out of rent money. This is because to move in you essentially give them a lien on your assets. So I expect the entry fee is something in the neighborhood of a couple hundred thousand dollars. If you don’t keep up the rent your rent is deducted from your lien. If you end up dying there whatever is left over after expenses is given to your heirs.
So clearly this is not a place for a woman living on social security alone. But it is not beyond the reach of most people with good investments or who live in the middle to upper middle class. Since having assets is the key, if you envision something like this in your retirement then now is the time to start paying off those credit card bills.
My parents looked at another community, Charlestown, near Baltimore that they liked just as much. Unfortunately it has a waiting list of up to two years and its apartments are smaller. My parents can move into Riderwood much sooner, if they can sell their house. They have their work cut out for them in the next few months.
My Mom actually looked excited checking out the model apartments. I haven’t seen her genuinely happy in a long time, but I could see her figuring out how she would decorate her kitchen.
The community is not a dictatorship. It has its board of directors chosen by the residents. Certainly Erickson is in charge of developing the properties, but day to day control belongs to the residents.
Erickson is a company very much on the ball. I should probably buy some stock in it; retiring people is a big growth market and I bet no one is doing this business any better. Their business model is very sound too.
My only question is: Why should this model be limited only to senior citizens? I know I am ready to move in. I hate the whole house management business. Right now my wife and I are contemplating $10,000 or more to replace our siding. We also need to replace our stove, do some drainage work, replace carpeting … the expenses and hassle never end!
Something like this would work great for me. Both my wife and I hate cooking dinner. We’d love to traipse downstairs at our leisure for our “free” evening meal. I could use an ATM and a mini-mart in my lobby. Erickson, build it for ordinary people like me and we will come too.
Now I know what I want in retirement. I am ready. I think it’s not too early to get on an Erickson waiting list. After all I just turned 47!
February 10th, 2004 at 02:35pm
Posted by
Mark |
Life 2004 |
one comment
