10 resolutions that will keep you on track for a secure retirement

10 resolutions that will keep you on track for a secure retirement

Most New Year’s resolutions relate to either fitness or finances.  I’m not a real authority on fitness, but I do have a few thoughts on finances.  Below are 10 ideas to make sure your retirement planning is on track for the New Year.

1.  Automate your saving—Make sure you stick to your savings goals by having money deducted each month from your paycheck or checking account.

2.  Increase your contributions—Getting a raise in 2012?  Rather than spending it, commit to setting it aside for retirement.  Those over 50 can contribute $22,500 to a 401(k) and $6,000 to an IRA in 2012.

3.  Create a debt payoff plan—Set a goal to enter retirement debt free.  Read this article for help in putting together a plan.

4.  Schedule an annual review with your financial adviser—Review how your investments performed and whether or not any changes or rebalancing are in order.

5.  Talk with your spouse about retirement—Make sure you’re on the same page with your spouse about retirement.  Here are 10 questions to get the conversation started.

6.  Test drive your retirement budget—Want to know if your retirement budget is realistic?  Try living on it for six months and then use what you learn to refine and improve your plan.

7.  Take a mini-retirement—A mini-retirement is longer than a vacation, but shorter than, well, retirement.  It’s a great way to learn more about a place or an activity that you are considering for retirement.

8.  If close to retirement, set aside one year of retirement expenses in cash—A major risk in the early years of retirement is that you will begin withdrawing money at a time when your investments are performing poorly.  Avoid this sequence risk by having a year of withdrawals set aside in cash.

9.  Check your insurance coverage—As you age and the kids move out, your insurance needs change.  You may want to consider adding a long-term care policy or making changes to your other insurance coverage.

10.  Update your estate plan—Everyone needs an estate plan that is current and clearly spells out their wishes.  Meet with a trusted adviser to get your affairs in order.

Hopefully a few of those ideas struck a chord with you.  If you’d like more information on planning for the New Year, be sure to read this.

Thanks for reading.  Touch base if I can ever help.


My brain made me do it: How to avoid bad investment decisions.

My brain made me do it: How to avoid bad investment decisions.

So far during 2011, the Dow Jones Industrial Average has had moves of 100 points or more on 97 trading days.  That’s 23 more than during all of 2010 and the year isn’t even over yet.  With so much volatility and uncertainty, it would be easy to panic and make decisions you’ll later regret.  Unfortunately, your mind isn’t always wired to help.  In fact, it can actively work against you.  Below are seven cognitive biases that could cause you to make bad investment or retirement planning decisions, as well as suggestions for overcoming them.

Attention bias

This is the tendency for emotionally dominant stimuli to monopolize our attention.  CNBC, I’m looking at you.  Spending too much time watching the ups and downs in the market is likely to fray your nerves and cause you to sell low and buy high.  Remember the words of Warren Buffett: “The market exists to serve you, not instruct you.”

Bandwagon effect

This one is pretty self explanatory and was the primary driver in such spectacular failures as the internet, telecommunication and housing bubbles.  When trades get completely one-sided (gold?), it’s time to ask yourself if you’re just buying or selling because that’s what everyone else is doing.

Action bias

In times of stress or danger, it sometimes makes us feel better to act, even if it would be better for us to sit on our hands.  A great example I heard of this recently relates to soccer.  During a penalty kick the ball is kicked to the center of the net 30 percent of the time, but the goalie only stays put 6 percent of the time because he doesn’t want to look like he’s not trying.  Sometimes the best thing you can do is nothing.

Recency bias

This is our tendency to give more weight to recent events than past events.  The 2008 global financial meltdown is still pretty fresh in everyone’s mind.  Eager to avoid a repeat, many are ready to move to the sidelines at a moments notice.  Keep in mind, though, that during the lifetime of the baby-boomers, the S&P 500 has gone from about 17 to 1,250.  That’s 73 times higher now than when the first baby-boomer was born.  Don’t let the emotion of recent headlines completely overshadow the historical record.

Hyperbolic discounting

This is our tendency for immediate gratification at the expense of the future.  In a nutshell, Current You doesn’t care much for Future You Current You wants to stop making 401(k) contributions and put the money under the mattress so he can sleep better at night.  Future You needs that money saved and invested so he can afford to retire.  If you want Future You to be happy, you need to convince Current You to make some decisions that are uncomfortable.

Negativity bias

This is our tendency to give greater weight to negative information over positive.  Yes, there are a lot of things wrong with the world, but there is a lot that is right.  Pick any vintage from the wine cellar of history and you’re likely to find some sort of man-made or natural disaster.  And yet, the economic and technological progress we’ve made over the last many decades is amazing.  Admittedly, it sometimes feels like a yo-yo, but if you step back you can see that the general progression has been up and to the right.

Illusion of control

Finally, we arrive at our tendency to assume that we have more control over events than we actually do.  None of us can control the debt crisis in Europe, but we can control our personal debt.  We have little influence over Washington’s spending, but we can make sure our own budgets are in order.  Few of us have the ear of the Social Security commissioner, but all of us can make sure that our own retirement investments are allocated properly and that we have a logical distribution strategy.  In short, focus on those things you can control.

Will Rogers once said “It’s not what you don’t know that hurts you.  It’s what you know that isn’t so.”  The way our brains are wired, as well as the ups and downs in the markets during the last few years, have caused many to make regrettable decisions based on “what they know that isn’t so.”  Hopefully understanding your brain’s natural tendencies can help you make better long-term decisions that result in a secure, meaningful retirement.

Thanks for reading.  If you enjoyed this article, scan the “Related Posts” section below for others like it.


Hurry up.  You have plenty of time.

Hurry up. You have plenty of time.

“You’re going to die in 48 hours.”  If a doctor gave you that diagnosis, would your plans change for the next two days?  Absolutely, right?  You would be racing around like a madman (or woman) saying goodbye to family and friends and tying up as many loose ends as possible.

Now imagine that the diagnosis changed from 48 hours to 48 years.  My guess is that your sense of urgency just evaporated.  No need to rush.  There’s plenty of time to live life, spend time with family and work through your “To do” list.  That’s because for most things, time and urgency or inversely correlated.  That’s just a fancy way of saying that a whole lot of time equals not much urgency and vice versa.

That equation is true in sports, life, deadlines at the office and just about everything else you can think of.  Where it doesn’t always hold true, however, is with your money, where less time often translates into less urgency.  Given 48 hours to live, I’m guessing money would be the last thing on your mind.  You certainly wouldn’t swing by the HR department and increase your monthly 401(k) contributions.  But that is exactly the kind of response you should have after learning that you have 48 years to live.  The more time you have (i.e. the longer your life expectancy), the more money you will need and the more urgent it becomes to be saving as much as possible.  So if you plan on living for awhile, hurry up!  You have a lot of time and there isn’t a minute to waste.

A few practical applications:

  • Automate your savings in 2012 by having money automatically taken from your paycheck or checking account each month.
  • Calculate what you saved this year and increase it by 1% next year.  If possible, do the same every year after.
  • If older than 50, take advantage of the catch-up contributions allowed on your 401(k) and IRA.
The glass is half full

The glass is half full

I received an email the other day from a friend who had just finished reading an article of mine in the newspaper.  His email said:

“I awoke this morning feeling at peace with my future; thinking I had everything under control and that my family’s needs were completely taken care of.  Then I read your article.  I broke out into a frantic sweat and [expletive deleted] my pants.  Thanks a lot for the reality check.  Much like the rest of America I prefer to operate in a delusional universe where I don’t need to think about those things.”

I’m not going to lie to you; I laughed pretty hard at that.  But his point was a good one.  Sometimes the coverage devoted to retirement planning can seem kind of negative (either by design to draw attention or simply because the reader feels convicted).

Because of that, it’s easy to lose site of all the things that are right with the world, great about retirement and amazing about the opportunities available to each of us.  So as penance to my friend and as a reminder to us all, I give you some reasons to look at the glass as half full.

Peace, love and understanding

According to Harvard Professor Steven Pinker, we’re living during the most peaceful time in our species’ existence.  Yes, we still have wars (I suspect those will always be with us), but the average number of violent deaths per 100,000 people has dropped from 15 percent during prehistoric times, to 3 percent during the 20th century, to a fraction of 1 percent now.  True, I have sometimes felt nervous on the subway when traveling in a strange city, but at least I don’t have to worry about being thrown to the lions in the Coliseum or being used in an elaborate human sacrifice to appease the volcano god.

Medicine and life expectancy

I take Lipitor to lower my cholesterol and reduce my risk of heart disease.  My sister had a cancerous tumor the size of a grapefruit in her neck, but after treatment she has been cancer free for years.  My grandfather was cutting firewood when a tree fell on him and shattered his hip.  His doctors replaced it with a new one made out of titanium and he’s been getting around great for the last decade.  Modern medicine has been enormously successful at increasing both the quantity and quality of our lives.  As life expectancy has increased, retirement has changed dramatically.  Rather than being a time to wind down, it is now viewed as a new chapter in life that is active and can last for decades.  Be thankful for your health and use all that extra time wisely.


If asked, I would have to put my iPad in the same category as such worthwhile inventions as the wheel, penicillin and the printing press.  That might be a bit of an overstatement, but you get my point: Technology is pretty remarkable.  More than just cool, however, it is useful and helps us live fuller, more productive lives.  It’s hard to imagine life without things like computers, the Internet, email, cell phones, digital cameras, ATM machines, MRIs, global positioning satellites, iPads, iPods, Kindles, and cloud computing.  The other night our daughter was using FaceTime to video chat with her grandparents in Alaska.  That’s the kind of invention that was imagined for the 23rd century in old Star Trek episodes!  After looking at how technology has advanced in the last 30 years, imagine what the next 30 years will look like (especially since the pace of advancement is accelerating).  It should be pretty amazing.


All that technology has greatly expanded our avenues for learning.  Gone are the days when you need to spend $100,000 and four years of your life just to learn about something you’re interested in. With iTunesU you can sit in on history classes at Oxford or take photography classes from National Geographic (all free).  Search engines like Google can answer any question you put to it.  You can bring subjects into focus with SquidooWikipedia can give you a basic understanding of almost anything.  You can take guitar lessons on You Tube, learn to simplify your life on Zen Habits, or learn how to mix a martini like James Bond (or any number of other things) on Expert Enough. With so many resources, it’s easy to channel your inner Jefferson and make learning a broad and lifelong endeavor.

Social interaction

Yes, there are negatives to sites like Facebook and Twitter, but used properly they do an amazing job at connecting you to the people you care about.  Social interaction is a critical element to human happiness and we have more ways than ever to experience community and connect with friends and family.

Doing good

Even with everything that is right with the world, there is still a lot that is wrong.  Thankfully, there are some amazing people trying to do something about that and they’re looking for people like you and me to jump in and help. Charity is no longer limited to just writing a check or dropping a few bucks in the offering plate.  Volunteering locally or getting involved with organizations like charity: water, International Justice Mission, and World Vision allow us to reach beyond ourselves and do work that not only helps others, but gives us a deep sense of satisfaction, fulfillment and purpose.

Traveling the world

There hasn’t been a more exciting time in travel since Kitty Hawk.  The triumvirate of jetliners, online travel resources, and countries clamoring for tourist dollars have combined to make global travel accessible to almost anyone.  A hundred years ago, most people lived their entire lives within walking distance of their house.  Now you can hop on a plane and be hiking in the Andes or walking down the Champs Elysees by breakfast.  For a little inspiration visit Everything Everywhere or Lonely Planet.  And don’t let money hold you back.  There are sites like travelhacking.org that can teach you how to search out deals and rack up frequent flyer miles.  Then you can spend those miles on a round-the-world plane ticket and take off in search of adventure.  As Saint Augustine said, “The World is a book, and those who do not travel read only a page.”

Well, there you have it.  While certainly not a complete list, I’ve given you a few reasons to look on the bright side.  Sure, there are still a lot of people unemployed, the housing market is still a mess and the stock market is just as bipolar as ever, but resist the temptation to focus on the negative.  It sounds trite, but you only live once.  None of us should let fear and uncertainty keep us from pursuing our dreams or living a rewarding and meaningful life.  To paraphrase Oliver Wendell Holmes, don’t die with your music still inside you.  Look at the glass as half full and live a life you can be proud of.

Thanks for reading.  Have a great week!


A little pre-weekend inspiration

A little pre-weekend inspiration

I saw a great post today by Tyler Tervooren at Advanced Riskology.  I thought it was timely inspiration as you work on your plan for the New Year, so I asked him if I could share it with you (see below).  Hope you enjoy it.  Check out Tyler’s website for more “get out of your comfort zone” goodness.  Have a great weekend!


How to run 26 miles

How to run 26 miles: run 25.
How to run 25 miles: run 24.
How to run 24 miles: run 23.
How to run 23 miles: run 22.
How to run 22 miles: run 21.
How to run 21 miles: run 20.
How to run 20 miles: run 19.
How to run 19 miles: run 18.
How to run 18 miles: run 17.
How to run 17 miles: run 16.
How to run 16 miles: run 15.
How to run 15 miles: run 14.
How to run 14 miles: run 13.
How to run 13 miles: run 12.
How to run 12 miles: run 11.
How to run 11 miles: run 10.
How to run 10 miles: run 9.
How to run 9 miles: run 8.
How to run 8 miles: run 7.
How to run 7 miles: run 6.
How to run 6 miles: run 5.
How to run 5 miles: run 4.
How to run 4 miles: run 3.
How to run 3 miles: run 2.
How to run 2 miles: run 1.
How to run 1 mile: Walk out the door.
How to walk out the door: Put your shoes on and stand up.
How to put your shoes and stand up: Get off the couch.
How to get off the couch: Have some respect for yourself.
How to have some respect for yourself: Decide that you’re worth the effort.