Claiming Social Security benefits is often talked about in formulas, as if it’s always straightforward. Nonmathematical factors—and feelings—should be given their due weight, it turns out. More in this week’s chat.
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A pen, some paper, the kitchen table. Those got me here, sure. But this work is truly all about you.
Your retirement goals are a huge part of this enterprise. Your goals are what got us this far: is it time to enjoy the fruits of your labor? It’s why we own the orchard, after all.
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Decades ago, when Louisville, Nebraska, even more closely resembled Mayberry, the old-fashioned service station was run by a gentle soul. His old hound dog was a regular fixture there.
One day a customer pulled in to the station, eager to get to the gas pump. They were delayed by the dog, ambling across the drive, pausing to look at the impatient driver… before continuing slowly on his way.
When the customer finally got to the pump, they jumped out to yell at the proprietor. “That is the laziest dog in all of creation!”
The proprietor offered a different explanation: “He ain’t lazy, he’s just got nothing to do.” Neither person convinced the other, of course.
I was reminded of this story in talking to recent retirees. Most have full days and weeks. This one travels extensively and gardens in between trips; that one helps with younger generations; another is busy improving the country acreage that is home. One says going to the gym is the new job. Some work part-time at hobby jobs.
But a small fraction of people are at loose ends—out of sorts—often after retiring from long careers. Like the hound dog, they get the sense they’ve got nothing to do.
Perhaps those who retired to something more specific do better with this than those whose focus is on getting away from that job or career. Those who are getting away are focused on the past, while those who are retiring to do other things are ready for the future. (No judgment from us: sometimes we must make changes for the sake of our mental or emotional health and can sort out the future later.)
The lesson, if there is one, is to think about the best way to invest our hours and days when we anticipate gaining more control over them. When we are intentional about what we are doing, boredom has less of an opportunity to take root, and there’s more space for whatever is about to begin.
Clients, if you would like to talk about this or anything else, please email us or call.
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Play the audio version of this post below:
Half our staff here at 228Main.com is under 40 years of age, and as you may realize, I’m… not 40.
And I plan to work to 92.
Suffice to say, my “retirement” plan won’t be the right model for everyone. But that doesn’t mean these younger staffers—and many clients their age—aren’t working on their own plans and planning.
A client’s age or generation matter to a certain extent in our line of work. What we’ve noticed, however, is that the most important part is how each person relates to their age.
Think about my goals again. Of course my age is a factor in my planning, but my intention to continue working changes things more. If I were only working for 2 more years, my strategy would require a totally different gear than my plan to earn an income for 20 more years!
Clients, I don’t mean to suggest you need to know your retirement date now—or even have an exact vision of your retirement lifestyle. In fact, what I want to suggest is that it’s okay if it feels like you’re saving for a fuzzy future self.
“But how do I know whether I’m track? I should’ve started years ago, right?” We’ve heard this before.
No guarantees, but if you’ve made it into a conversation where you’re asking someone you trust this question, you’re on your way. From here, it’s about working toward your goals. How your parents retired, how the plan goes in a chart in a pamphlet that gets stuffed into your hand… if you compare your plan to those examples, they can add more anxiety than applicability.
Reframe. Retirement planning is about your goals, your timeline, your lifestyle. No external marker.
Feeling behind? Arianna Huffington calls this sense of a ticking clock being in a “time famine,” a state where “your feeling is that it must be later than you think it is.” Feeling starved for time to do what you need to do is no foundation for a strong plan.
“Yeah but how will I…”
Ooh, good question! That’s where we come in, and we’d be honored to help you shape this vision. Reach out when you’re ready.
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They say you can’t have your cake and eat it, too. Once you eat the cake, the cake is gone. No surprise, right?
The same thing might be said of your retirement fund. It is there for you to spend as you see fit—but once you spend it, it is gone.
How quickly you go through your retirement savings is a much bigger decision than how quickly you go through a cake. No one can tell you what the right answer is. Your retirement lifestyle might look very different from your neighbor’s retirement lifestyle.
Some people hope to leave as much possible in their estate to provide a legacy for children and grandchildren. Others plan on spending as much as possible to enjoy the fruits of their own labors.
Some people might plan to save the lion’s share of their savings to offset the healthcare costs they anticipate in their later years. Others plan to spend a big chunk up front, while they still have the good health to enjoy some options.
None of these plans are inherently superior to any of the others. It is your money, after all. For many of you, retirement savings are the sum of an entire lifetime of work, and you alone get to decide how to direct them.
What’s our wish for you? That you navigate these choices with your eyes open to the consequences.
So here’s one important difference between your retirement savings and a cake: when you set aside a certain amount of cake for later, you will have exactly that much cake in the future: no more, no less. When you invest your nest egg, over time it may generate extra income and potentially appreciate in value, giving you more to spend in the future.
There are no guarantees, of course. Depending on how aggressively you invest, you risk losing some of your value. This is just another tradeoff you need to weigh in planning your retirement.
When we make our retirement choices carefully, the consequences are never a surprise. You can have your cake. You can eat your cake. Your call.
Clients, when you have questions about this or anything else, please call or email. Let’s talk.
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What a year! The events of 2020 have reached into every facet of our lives. Many careers have been changed or upended.
People working happily at advanced ages have told us they are leery of workplace exposures, so many are on leave or have retired. Others have been displaced from jobs they would have preferred to keep. And some are helping descendants cope with “distance learning” or a loss of childcare options instead of working at jobs.
One friend retired just before the pandemic, planning an ambitious travel schedule. That isn’t happening. And another, who had planned to retire, now works from home: they figure they might as well keep working, since they cannot travel or engage in activities they had planned for retirement.
No matter what 2020 has thrown at you, the basics of retirement planning have not changed. It is a five-step process. We need to figure out…
There are nuances to each step—options to analyze, lifestyle decision to make. Retirement planning works out best when it is a process over time. We have noticed that people learn more about their objectives and their finances as time goes on, and things change. So your retirement plan adapts and changes over time, too.
If the pandemic has shaken things up for you as it has for others—or if it has just gotten to be that time—call or email us when you are ready to work on your plans and planning. Clients, if changes need to be incorporated in your plans, let’s keep talking.
We’re glad to help.
A client came in, hat in hand, apologizing profusely for requesting the withdrawal of a few thousand dollars. He seemed sure the request would upset me.
I’m opposed to clients giving their hard-earned money away to scammers or nephews buying bars, so I inquired as to the use of the funds. It turns out that his home needed a modification to accommodate his wife’s changing health.
Of course, I told him that I would be upset if he didn’t use his wealth to make the home improvement. Relieved, he told me that his previous advisor would get agitated about any withdrawals from his investment accounts. It sounded as if that advisor forgot whose money it was.
We devote most of our time and attention and thoughts and words to our version of investing wisely. But what is it all for? There is no reason to be the richest person in the cemetery.
A more balanced view is captured in the short phrase, ‘invest wisely, spend well.’ We aren’t suggesting that you chop down the orchard to sell it as firewood. But it is OK to use the fruit crop to make life better for you and people you care about.
The same lesson was driven home by other friends. In their 70’s, this couple took their extended family on a vacation to a fabulous destination. In the telling, she raved about how great it was while he silently shook his head. I asked him if he had a different opinion. He said they should have started those trips twenty years before.
Many of us need to be diligent about saving and cautious about spending in our working years. Building toward financial independence in the face of everyday expenses can be a struggle. If we do it right, the struggle fades away as the years go by. At a certain point, we may need to warm up more to the idea of spending well.
Clients, we are always thinking about your long term financial position. Your situation seven or fourteen years from now matters—we plan on being here, and we plan on you being here too. But the idea isn’t to pile up the most money you can—it is to strive to have the resources to do what you want and need to do.
Invest wisely. Spend well. If you would like to discuss how this applies to you, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Perhaps the biggest financial issue people try to understand is their own retirement situation. Will you have enough cash flow to live as you would like in retirement? Will you be able to retire at an acceptable age? Are you on track to retire when you want to?
We use a straightforward process to help people answer these questions. It isn’t rocket science, but it does take some thought. Our process has some fine points, but the basics are simple:
First, how much cash coming in every month will it take for you to feel like you have what you need?
Second, what will your sources of monthly income in retirement add up to? We are talking about Social Security or Railroad Retirement, pensions, rent, and other recurring monthly payments. This step does not include money from your portfolios or 401(k) type accounts.
Third, what is the monthly gap between your needs in Step One and your sources from Step Two?
Fourth, multiply that monthly gap from Step Three by twelve to get the annual shortfall. Then multiply that by twenty to understand how much permanent lump sum capital you will need in order to retire. For example, if you are short $18,000 per year, you’ll need $360,000 (which is $18,000 times twenty).
We like to estimate that you can probably earn about 5% of your investment capital each year in income and gains. So if you have capital equal to twenty times your desired income, you can potentially afford to take out 5% (one-twentieth) per year without having to spend down your capital.
About those fine points: we factor in the rising cost of living, we make estimates about future changes in Social Security and other monthly benefits, we make assumptions about rates of return. There are no guarantees on any of these things. But it always pays to take your best shot at it and plan accordingly. As retirement gets closer, your estimates will get better and better.
There are other factors as well. Sometimes spouses do not retire at the same time. Often there are plans to change residences or move. Retirement may trigger a lump sum purchase of a boat, RV, or second home. We strive to understand all the pieces of your puzzle, and plan for your specific objectives.
Clients, if we may help you improve your understanding of your retirement plans and planning, please email us or call. We love to work on this topic.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
No strategy assures success or protects against loss.
This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
Investing involves risk, including possible loss of principal.
Quite a few clients are reaching the twentieth anniversary of starting in business with us. So the sixty year olds then are eighty now. A lot can happen in those twenty years!
Mr. and Mrs. Q retired successfully a few years into our relationship, a major transition that ended up well. Then they surprised themselves and me when they decided to build a home in a suburban community and leave their city home of more than forty years.
After thoughtfully considering what they wanted, the Q’s built a beautiful new home and never looked back. It was a great move for them.
A dozen years later, the home may not make the most sense for them. Senior living apartments with some services and meals may be a better option in the near future.
In every transition, we look at four kinds of numbers: lump sums coming in, lump sums going out, recurring monthly income, recurring monthly outgo. And we do the arithmetic to sort out how much invested capital will be available after the transition. Then we can figure out the size of ‘the fruit crop from the orchard.’ (By which we mean the cash flow from invested capital, of course.)
We have gone through this process three times for Mr. and Mrs. Q. First they needed to determine if they could afford to retire. Later, the home-building idea had to be framed up so they could make a good decision. Now, we are working on the next move.
One of the interesting parts of our work is that we never make decisions for you. Usually, the key part of a major decision is feelings, not arithmetic. We strongly believe in doing all the arithmetic that can be done. But no computer can decide where you want to wake up every day, or if you sense that maintaining a home has become too great of an effort.
Just as we never forget whose money it is, we never forget whose life it is, either. We will never kid anybody about the arithmetic, nor kid ourselves by thinking we can make better life decisions than you.
Clients, if you face a transition and want to begin framing up a better understanding of it, please email or call us.
Securities offered through LPL Financial, Member FINRA/SIPC.
This is a hypothetical example and is not representative of any specific investment. Your results may vary.
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