by Joe Hearn | Sep 7, 2011 | Asset Allocation, Debt, Housing, Insurance, Investing, Retirement
If your kids are grown and moving on to the next stage of their lives, it’s time for you to begin thinking about the next stage of yours. For many, the empty nest years fall in that decade or so just before retirement. Because of that, it’s an ideal time to make adjustments to your finances and make sure you’re on track to meet your retirement goals. Here are 7 financial tips for empty nesters.
Adjust your insurance coverage
With your kids out on their own, it’s time to review your insurance coverage. If they’re no longer driving your cars, ask your insurance agent about removing them from your policy or getting a distant-student credit. Similarly, if they have health coverage provided by their school or a new employer, removing them from your policy will likely reduce your premiums. And don’t forget about life insurance. If your kids are through school and the house is paid for, you probably don’t need as much life insurance, but you may want to consider adding long-term care insurance. Meet with a trusted adviser to evaluate your circumstances and craft a plan that is appropriate for your current stage in life.
Re-focus your finances
Several studies have shown that the cost of raising a child from birth to age eighteen can run anywhere from $250,000 to $500,000. That’s a big chunk of change and causes many people to neglect their planning for things like retirement. With fewer mouths to feed and big expenses like college and braces out of the way, it’s time to re-focus your finances on you.
The good news is that you’re likely in your peak earnings years and retirement plan contribution limits are higher for people over age fifty. Take advantage of those higher limits by putting away as much as possible. The maximum 401(k) contribution for 2019 is $19,000 plus an additional $6,000 if you’re over 50. IRA contribution limits are $6,000 plus an additional $1,000 if you’re over 50. That means that a working, married couple could sock away an additional $320,000 in just five years simply by maximizing their 401(k) and IRA contributions.
Re-do your budget
A budget for a family of five looks drastically different than a budget for two. Take a hard look at your expenses and re-design your budget with your new circumstances in mind. I’ve already talked about insurance and savings, but don’t forget to consider things like cell phone plans, cable tv channels that only junior watched, the grocery bill, and memberships or subscriptions that you were covering for the kids. Once you’ve freed up some extra money each month, see point two.
Go back to work
If you stayed home to raise your kids, consider going back to work at something you really enjoy. Not only can a job replace some of the purpose you derived from raising the kids, but it can also increase the Social Security benefits you’ll be eligible for and provide extra money for savings or meaningful pursuits.
Consider downsizing
Selling the home you raised your family in can be difficult, but it might make sense if you don’t need the space or if you plan on moving when you retire. Even if you don’t initially downsize your house, work at downsizing your stuff, especially those things that you no longer need now that the kids are gone. Paring down your stuff will make the transition easier if you eventually decide to move to a smaller place or retire in a different state.
Downsizing can also help you unlock the value in your home. For many, their home is their biggest asset. If your house made sense for a growing family, but is overkill now that the kids are gone, moving to a smaller place could free up tens or hundreds of thousands of dollars for retirement.
Get out of debt
The typical empty-nester has about ten or fifteen years to go until retirement. That’s plenty of time to make sure your debt retires when you do. Retiring debt free can slash 20-40 percent off the amount you need to save for retirement. For more information, read my earlier post on how (and why) to retire debt free.
Review your asset allocation and retirement plans
As you get closer to retirement, you will likely want to adjust your investments to make your portfolio more conservative. Meet with a trusted financial adviser to make sure your asset allocation is appropriate and to track your progress towards retirement goals. If married, it’s also a good idea to talk with your spouse about your retirement plans and dreams to make sure you’re both on the same page.
As you can see, sending the kids out on their own can be a major transition, both emotionally and financially. By taking a few simple steps and being intentional with your planning, you can enter the next stage of life with confidence and purpose.
Be Intentional,
Joe
by Joe Hearn | Aug 31, 2011 | Retirement, Uncategorized
My primary goal with Intentional Retirement is to help you create a remarkable retirement doing the things you want with the people you love. That is the driving force behind the articles and resources that are currently on the site, as well as those that soon will be.
With that in mind, I’d like to know: How can I help you?
For example, are there any topics you’d like me to cover in future posts? Are there any resources you’d like to see me offer that would be helpful and solve a particular problem that you’re facing? Just email me your thoughts at joe@intentionalretirement.com
To say thanks, anyone who emails me their ideas and/or opinions will receive a free copy of my Retirement Budget Worksheet.
The worksheet is part of a new retirement resource kit that I’m creating. It will be an amazing tool for anyone planning their retirement adventure. If there’s anything you’d like to see included in the kit, be sure to let me know.
Thanks for reading!
Joe
by Joe Hearn | Aug 26, 2011 | Hobbies, Insurance, Pursuits, Retirement
It seems like everything old is new again. Starting with the redesigned Volkswagen Beetle in 1998, there has been a flood of retro styled products that are aimed at helping the baby-boomer generation recapture a piece of their youth. To wit, The Rolling Stones 2005 concert tour was the highest-grossing tour of all time, retro muscle cars are a huge hit, and entire neighborhoods are being designed from the ground up to give them a more “1950’s” feel.
Retro products seem to have one thing in common. While the look harkens back to the “good old days,” the design and features offer decidedly modern elements that appeal to the world we live in today.
With 70 million people hurtling toward retirement, I began to wonder what a “retro” retirement would like. Just like retirees of yesteryear, we all want to be happy, healthy and secure during retirement, but our modern world offers challenges and opportunities that didn’t exist a generation ago. Below are five modern updates to the classic retirement.
Personal savings is the new pension. My grandfather hasn’t punched a time clock in over twenty years and yet, like clockwork, his former employer sends him a pension check every month. The lifetime pension has become the exception rather than the rule. A generation ago, most workers were covered by a pension. Today that number has dwindled to less than a third. Retirement hasn’t gotten any cheaper, so you will still need to get that check every month. If it doesn’t come from your employer, it will need to come from you. As you approach retirement, you are likely in your peak earning years. Make sure to save as much as you can, especially in tax advantaged accounts like your 401(k) or IRA.
College is the new golf. We have always known the benefits of staying physically active. New research is beginning to show the benefits of staying mentally active as well. Because of this, more and more retirees are opting for a book bag over a golf bag.
Many colleges and universities allow people to audit classes—that is, paying a minimal fee to attend the class without receiving college credits. Even better, many universities are now putting class lectures on iTunes for free. Interested in art? Just download Oxford’s drawing classes. Want to study history? Columbia University has a free, twenty-five part lecture series on the history of the world. You can also download classes from Harvard, Yale, UC Berkeley and a number of other great institutions on just about any topic you can think of.
Auditing classes or getting them online is an inexpensive way to learn more about a subject that has always interested you and comes with the added benefit of keeping your mind sharp.
Long-term care is the new Medicaid. It is not unusual, as we age, to rely on others for care. This care can be very expensive (A private room in a nursing home averages $78,000 per year) and more and more people are purchasing long-term care insurance to protect themselves. While Medicaid will pay most nursing home costs, you need to qualify by being both sick and poor. A quality long-term care policy will allow you to preserve your assets for heirs, have peace of mind and get into the facility of your choice. To learn more about long-term care, read this article.
Sixty-five is the new fifty-five. Back when Elvis was king, the average U.S. life expectancy was about sixty-eight years. Today, the average life expectancy is about seventy-eight years. Given that information, you would think that the average retirement age has risen. It has actually declined by about four years to age sixty-two.
Earlier is not always better. Retiring at sixty-two not only means a permanent reduction in your Social Security benefits, but it could mean that you will spend 20-30 percent of your life in retirement. That takes a great deal of savings and planning. If you’re in good health and expect to have a long life, you might want to work a few extra years to bolster your savings. Doing so might actually lengthen your life. A recent study showed that mortality rates were higher for employees that retired at age fifty-five than for those that waited to retire until they were sixty-five.
Prevention is the new cure. Quality of life is just as important as quantity of life. Modern medicine has shown us that eating right and exercising your mind and body can go a long way toward avoiding many of the diseases that are associated with aging. Heart disease, diabetes, hypertension, and many forms of cancer can be directly linked to lifestyle choices. The best way to avoid the negative effects of these diseases is to keep from getting them, rather than trying to treat them once you already have them.
So there are a few ideas on how to put a modern twist on the classic retirement. Make a few updates and you’ll be ready to grab your bell bottoms, hop in your Beetle and head into a long, healthy, secure retirement.
by Joe Hearn | Aug 19, 2011 | Pursuits
Chris Guillebeau, one of my favorite bloggers and all around good guys wrote a post with that title yesterday. After reading it, I thought about the importance of having things on your horizon that you are looking forward to. That’s especially true for those of us planning for retirement. Why?
For many, retirement is one of those things that is waaaayyyy off in the future. The downside of that is that it’s hard to get too excited about something that might happen 10 or 15 years from now. And if you’re not excited about it, it’s hard to be committed to planning for it. It’s hard to be disciplined to save for it. It’s hard to stay the course when the market drops 400 points (like it did yesterday).
How do you get excited about a fuzzy and far-off concept like retirement? One way is to personalize it. Instead of planning for “Retirement,” you need to plan for “Your Retirement.” Another way is to take the distant and make it current. Rather than waiting until “someday” to do the things you’re dreaming about, start working on them now. Maybe that means setting aside the money, acquiring the skills, or doing bite-sized portions now of what you intend to do banquet style in retirement.
Here’s a quick and easy exercise (with a hat tip to Chris) to make your planning both personal and current: List off three things that you’re looking forward to doing when you retire (personal) and outline ways you can begin doing those things now (current).
I’ll start. Retirement is quite a ways off for me, so I’ll list three big goals that I’m excited about, but that will take me the next ten or twenty years to accomplish:
Travel with our daughter to all fifty states before she graduates from high school.—She’s six years old and so far we’ve visited fourteen states plus Washington D.C. (The picture in this post is the two of us in Muir Woods in California). I love to travel and I hope to instill that in her. I want her to understand that it’s big world out there and there are all sorts of things she can do, places she can go, and people she can meet. It won’t be long and she’ll be heading out on her own. Before that happens I want her to have a broad range of life experiences to draw from so she can make an informed decision.
Read 500 books by the time I’m fifty—I haven’t always been a good reader. I credit my wife with convincing me of its merits. Now it feels weird if I don’t have a book or two that I’m working through. Right now I’m reading Keith Richards autobiography Life (a fun read if you like the Rolling Stones) and a book called A Moveable Feast: Life Changing Food Adventures Around the World (a fun read if you like to eat). The lesson here: You don’t have to jump out of an airplane or climb Everest to get enjoyment and satisfaction from life. Some of life’s greatest pleasures are easy and cheap. You just need to be intentional about doing them (Hence the goal to reach 500. I’m about halfway there.).
Become an expert photographer—As we talk about goals or things to look forward to, hobbies are great because it’s something you can start doing right now. You can start small and scale it over time as you acquire the equipment and skills you need. Then when you transition into retirement you can hit the ground running because you’ve already laid the foundation. That is what I hope to do with photography. I’m gradually acquiring the equipment I need. I’ve taken several photo classes, entered a few photo contests, and gotten information on two or three intensive workshops that I plan to participate in down the road. It’s a hobby that fits well with my love of travel and it’s something I can do for the rest of my life.
How about you? What are you looking forward to? Spend some time thinking about it and, if possible, start doing it now. You’ll be glad you did.
Thanks for reading. Feel free to share this article with friends and touch base if I can ever help.
Joe
by Joe Hearn | Aug 11, 2011 | Asset Allocation, Debt, Retirement, Risk, Social Security
It’s understandable if you’re feeling a bit anxious. Not only was the U.S. credit rating just downgraded for the first time in history, but over the last few years we’ve had a housing bubble, a credit bubble, runaway government spending, soaring gas prices, a global recession, high unemployment, the risk of a U.S. debt default, and a fiscal crisis in Europe.
Add to that things like the tsunami and nuclear disaster in Japan or the Arab revolts in the Middle East and you can almost see our national blood pressure rising. This is especially true if you, like 78 million other baby-boomers, are getting close to retiring.
In the face of so much uncertainty, how can you minimize anxiety and head into retirement feeling confident and assured?
Answer: Focus on things you can control.
Legendary basketball coach John Wooden once said: “The more concerned we become over the things we can’t control, the less we will do with the things we can control.”
Here’s an exercise that can help keep the focus on things you can actually do something about:
Take out a piece of paper and divide it into two columns. At the top of the left column, write “Things I can control about retirement.” At the top of the right column, write “Things I can’t control about retirement.” Now start filling in each.
You’ll probably notice that the right column is full of the things we mentioned earlier, like the markets, political uncertainty and unemployment.
The left column will be made up of things like saving, reducing debt, creating a retirement budget, evaluating housing options, creating a distribution plan, deciding when to take Social Security, planning meaningful pursuits and completing your estate plan.
As you look at those two columns, ask yourself this question: “During my typical day, do I spend my time and attention focusing more on the left column or the right column?” If you answered the right column, chances are that your stress level is high and your productivity is low. Focusing on things you can’t control is a recipe for frustration.
If you shift your focus to those things in the left hand column, you’ll notice that your productivity will go up and your anxiety will begin to go down. This is especially true in the area of your finances, because that is what is causing most people to lose sleep.
According to a recent poll by Gallup, the No. 1 retirement fear (held by 53 percent of Americans) is not having enough money. Only about a third of people felt that way when Gallup did the same poll in 2002. Thankfully, this is an area that you can actually do something about. Here are eight things you can do to boost your income security.
Save more
One obvious way to pad your nest egg is to save more. If you are still working, make saving a high priority. Both 401(k)s and IRAs have higher contribution limits for people over 50. Take advantage of those limits by putting away as much as possible. The maximum 401(k) contribution for 2011 is $16,500 plus an additional $5,500 if you’re over 50. IRA contribution limits are $5,000 plus an additional $1,000 if you’re over 50.
That means that a working, married couple could delay retirement by five years and sock away an additional $280,000 simply by maximizing their 401(k) and IRA contributions. The delay also could give markets time to move higher which, when coupled with the new additions to your portfolio, could significantly improve your financial position in retirement.
Pay off debt
Debt adds risk and reduces cash flow. Those things are especially troublesome to someone in retirement. By retiring debt free, you can greatly reduce the amount of savings necessary to fund your retirement. Assuming a 4 percent withdrawal rate, it takes $25,000 in savings to generate $1,000 in income each year (25 to 1).
That means if you’re mortgage is $1,300 per month and you’re able to pay it off before you retire, you could slash $390,000 from the amount you need to save for retirement.
Work longer
Working longer may not sound fun, but neither is running out of money. If you haven’t saved enough, one option is to keep working and earning a paycheck. This strategy has multiple benefits: it allows you to save more, it gives your portfolio more years to recover and grow, it could help boost your potential Social Security benefits and it decreases the overall amount of income you need to draw over the years.
If the amount you need to make up is smaller, you also could consider working part-time. This could mean doing a phased retirement with your current employer or choosing something else entirely. Either way, it could give you increased freedom to begin following your retirement dreams while still providing some income.
Cut retirement expenses
If the idea of working longer doesn’t appeal to you, consider retiring on schedule and make up for any shortfall by reducing your retirement expenses. Examine your retirement budget for items you can reduce or eliminate.
Housing and transportation are often major expenses. Consider downsizing to a smaller home or sharing a car with your spouse. Staying active and healthy can save on health care co-pays and prescription costs. Substituting planned hobbies or activities with less expensive alternatives also can trim costs without significantly changing the quality of your retirement.
Taken cumulatively, these adjustments to your retirement budget can help reduce the strain on your nest egg and still provide a meaningful retirement.
Delay Social Security
If you delay collecting Social Security until after your full retirement age, you will get a permanent increase in your benefits. The increase is based on the year you were born. For example, those born after 1943 will get an 8 percent credit for each year they wait. The increase caps out at age 70, so a person waiting until then could see an increase of 24 percent to their benefits.
Review your asset allocation
The market upheaval of the last several years and investors’ response to that upheaval has wreaked havoc on many people’s asset allocations. Rather than having a balanced, diversified portfolio, many have sought safety by moving everything to cash or bonds. That could cause serious problems in the future if inflation picks up or the bond market stumbles. To protect your assets and maximize your returns over time you should meet with a trusted adviser and make sure the investments you hold are appropriate based on your risk tolerance, goals and time frame.
Protect against sequence risk
Stock and bond returns can be volatile. Sequence risk is simply the risk that you will retire and begin withdrawing money during a period of low (or negative) investment returns. Those early negative returns greatly increase your odds of running out of money.
One way to minimize sequence risk is to have a year or two of withdrawals sitting in cash. If you retire just prior to a bull market, you can pull income from your growing investments. If you retire on the cusp of a bear market, you can take withdrawals from your cash. That way you won’t be forced to sell investments in a down market in order to fund retirement and you will be less likely to run out of money.
Draw a greater percentage from your nest egg
Deciding how much to take from your portfolio each year during retirement is one of the most important decisions you will make. You don’t want to run out of money, but you don’t want to live like Scrooge either. Most experts peg the “safe” withdrawal rate at around 4 percent per year. If 4 percent of your nest egg isn’t enough to meet your needs, you can always take more. Keep in mind, however, that the more you take, the greater the chance that you will outlive your assets.
As you can see, by focusing on those things that you can control, you can minimize anxiety and maximize security as you approach retirement. Statistically speaking, the world doesn’t come to an end very often. Rather than worrying about all the things that make headlines, focus instead on giving your very best to those areas that you can do something about.
Thanks for reading. If you enjoyed this article, use the share buttons on our site to share it with your friends. Touch base if I can ever help.
Joe
I originally published this article at www.fpanet.org.
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