by Joe Hearn | May 16, 2011 | Pursuits, Retirement
In his wildly popular book The 4-Hour Workweek, Timothy Ferris told the story of Vilfredo Pareto, an economist who lived from 1848 to 1923. Unless you’ve read that book, you’ve probably never heard of Pareto, but you’re probably familiar with his most famous economic theory, the “80/20 Principle.” Also known as “Pareto’s Law,” it basically says that 80 percent of the outputs result from 20 percent of the inputs. It can be applied almost anywhere. 80 percent of the people produce 20 percent of the wealth. 80 percent of the profits come from 20 percent of the customers. Basically, 80 percent of the results flow from 20 percent of the effort.
How can we apply this to retirement? After working a 9 to 5 job for the better part of forty years, there is a real temptation to measure your daily progress by hours spent as opposed to tasks completed. If you don’t have a “full day” there is a latent guilt that is carried over from your days of trading time for money (I give my boss forty hours and he gives me a paycheck.). To avoid that feeling many retirees fill their days with busywork.
If you’re going to have a meaningful retirement, you need to embrace the idea that your goal is not to have a busy day or a full day, but a day spent on things that produce results (e.g. meaning, fulfillment, purpose, fun, happiness). In other words, don’t focus on time. Focus on tasks. Ask yourself, what part of your day is done simply to busy yourself and what part is actually going to get you closer to your goals and give you a sense of accomplishment and purpose. If Pareto’s law holds true, you should be able to cut about 80 percent of the busywork from your retirement schedule and focus on the 20 percent of tasks that are actually worthwhile. The payoff comes not only in the form of a more relaxing retirement, but a more meaningful one as well.
by Joe Hearn | May 14, 2011 | Hobbies, Pursuits, Retirement
No matter what exciting plans you have for retirement, you will still have a good many maintenance type activities that pop up on your calendar every day or every week; things like sleeping, eating, paying bills, going to the doctor, getting groceries, mowing the yard, and cleaning the house. While important, these things don’t really add much significance to your life.
To find meaning and significance, you will want to focus on milestones. Those are the things that, when done, give you a sense of purpose and accomplishment. Milestones tend to fall in areas like family, relationships, education, adventure, community, hobbies, travel, and health. When reflecting on your life, the milestones will be the things that stick out. They will be the things that you are most proud of. The maintenance will just fade into the background. Because of that, do everything you can to condense, consolidate, minimize, or outsource the maintenance so you can be free to spend more of each day focusing on milestones.
by Joe Hearn | May 14, 2011 | Pursuits, Retirement
As you move toward retirement, consider the merits of building a life that is light on fixed assets and heavy on experiences. When younger, most people want a bigger house to fit the kids and keep up with the Joneses. They want to live in a great neighborhood with great schools. The same logic is used when purchasing cars. Bigger and more expensive is better, safer, etc.
Unless you have enough money to fund both, retirement should be focused on the experience, not the asset. The wisdom of age should have taught you that life isn’t all about who has the most square footage or the biggest car collection. Contrary to popular belief, he who dies with the most toys does not, indeed, win. In all likelihood, he who dies with the most toys is a bit of a jackass. A life spent in dogged pursuit of rich experiences and meaningful relationships can be infinitely more rewarding than one spent focused on the acquisition of more stuff.
by Joe Hearn | May 10, 2011 | Social Security
If you are eligible to receive Social Security benefits, you can begin collecting reduced benefits as early as age sixty-two. As you can see from the chart below, however, most people (all 78 million baby boomers included), will need to be on the downhill slide to seventy before becoming eligible for full benefits.
| Year of Birth | Full Retirement Age |
| 1937 or earlier | 65 |
| 1938 | 65 and 2 months |
| 1939 | 65 and 4 months |
| 1940 | 65 and 6 months |
| 1941 | 65 and 8 months |
| 1942 | 65 and 10 months |
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
| |
*Source: Social Security Administration |
by Joe Hearn | May 10, 2011 | Retirement
Deciding when to retire is not always easy. Many people simply base the decision on their birthday, but there are a whole host of other factors that should weigh into your thinking as well. Here are seven signs it’s time to retire:
1. Your bank account
When you retire, your portfolio takes over the job that the payroll department handled while you were working. If you have to cut yourself a paycheck each month, it makes sense to be sure that your bank account is up to the task. A common rule of thumb puts a sustainable withdrawal rate at about 4 percent. Another way to look at that would be to shoot for retirement savings that are twenty-five times larger than your expected annual withdrawal. If you are not quite there yet, it might make sense to work a little longer (or work part-time), save more, or make cuts to your anticipated spending during retirement.
2. Your bucket list
Before retiring, you should know the answer to three key questions: What do I want to do? Where do I want to do it? Who do I want to do it with? Knowing answers to those questions will help give you purpose and a plan for how to spend your time. If your key reason for retiring is to escape your job, don’t pull the trigger just yet. Wait until you have a plan in place for meaningful pursuits. Doing so will likely help you avoid a bad case of retirement “buyer’s remorse.”
3. Your health
If you are in excellent health and have longevity in your family, working a little longer may not significantly cut into your plans. Not so if you or your spouse are in poor health. In that instance, delaying retirement could mean your chances to do certain things are gone for good. This is especially true if you are planning an active retirement. Take an honest look at your health and life expectancy and weigh that into your decision about when to retire.
4. The markets
Investment returns during the first decade of retirement are extremely important. Retire on the cusp of a bull market and your portfolio will likely build enough padding to withstand future downturns and withdrawals. Retire and begin taking withdrawals at the beginning of a bear market, however, and those early losses will greatly increase your odds of running out of money. Experts refer to this as sequence risk, but it could just as easily be referred to as luck. No one has a crystal ball, but if the economy appears poised for a downturn, you might want to delay retirement (and withdrawals) until things rebound. The same is true if your portfolio has significant losses in the years leading up to retirement. In that case it might make sense to keep working until your investments have a chance to recover.
5. Health care benefits
Recent studies by Fidelity and others estimate that a sixty-five year old couple retiring today will need between $200,000 and $400,000 to cover health care costs during retirement. That is in addition to what Medicare already covers. Having a plan to cover those costs—whether by savings, private insurance, or a Medicare supplement policy—is an important consideration when deciding when to retire.
6. Social Security benefits
Retiring at sixty-two would mean a permanent reduction of almost 30 percent to your Social Security benefits compared to what they would be if you waited until your full retirement age. Just like retiring early reduces benefits, retiring later increases them. Those born after 1943 can expect an 8 percent increase for each year they wait to claim benefits after full retirement age. This increase goes away at age seventy, so working until then will result in maximum benefits.
7. Your spouse
You would be surprised at the number of couples who are blindsided by differences over retirement dreams, plans, and expectations. One wants to keep working while the other is ready to be done. One wants to move to the beach and the other wants stay close to the kids. Are you on the same page with your spouse when it comes to retirement? Make sure you do your planning together so you can work through any differences early and enter retirement as a team.
As you can see, deciding when to retire is a complex decision with many moving parts. By giving it the time and attention it deserves, you can help ensure that your retirement gets off on the right foot.
~ Joe
