I had the following text message exchange about a month ago with a friend of mine:
Him: Call me when you have a second.
Me: Will do. I’ll call you when I leave my nephew’s birthday party.
Him: I am buying a Volvo SUV and I can save 6% if I go to Sweden and pick it up. They cover the flights for 2 people and some hotel cost. We could stay from 1 night up to a week. Window April 15-May 30th.
How would you respond? We’re all presented with situations like this in life. OK, maybe not this exact one, but we all face situations where opportunity knocks and we need to decide whether or not to answer the door.
When responding, I’ve found that people usually focus on one of two things: either the opportunity or the obstacles. Those who focus on the opportunity say “Sounds great. Let’s make it happen.” Those who focus on the obstacles say “I’d love to, but <insert excuse here>” (e.g. I need to work, I don’t have the money, my spouse won’t let me, I don’t know how, etc.).
So how did I respond? It took me about five seconds (mostly because I type slowly):
Me: I’m in.
Him: Awesome! I need your Social Security number and date of birth to send to the Volvo travel office.
No one wants to get to the end of life and have a long list of things that they wish they’d done. Unfortunately, human nature is such that we tend to reach for excuses when presented with something (even a good something) that might take effort, be a risk, or take us out of our comfort zone. Not surprisingly, everything in life that’s worth doing takes effort, is somewhat risky and takes you out of your comfort zone. If you constantly say no to those things, your “yes” muscles atrophy and you end up living a pretty unsatisfying life.
So how can we do a better job at embracing adventure and living a life that provides meaning and purpose?
Decide what’s important to you. As I have said on this site before, each of us needs to decide what we really want out of life and then take those things very seriously. For my family, travel is a key priority. I didn’t even ask my wife before texting back about the Sweden thing, because I knew the answer would be yes. When you have a clear understanding of what you want out of life, decision making becomes pretty easy.
Be willing to make things happen. Saying no is easy because that’s the end of it. Saying yes means that you will need to put forth effort and overcome obstacles. It means having to plan, practice, take risks and make sacrifices. No is easy, but it has no payoff. Yes takes effort, but it is an investment that produces a return.
Time and money will never be perfect. Time and money are the “go to” excuses for most of us. Looking at it honestly, however, we have more of both than just about any civilization in the history of the world. Time and money are almost always red herrings. You can find a way around both if you really want something. Our true obstacles are things like inertia, fear, laziness, and being unwilling to sacrifice or put forth the effort required.
Get comfortable with risk. One of my all time favorite advertisements is Michael Jordan reciting a huge list of his failures. At the end of the commercial he says “I’ve failed over and over and over again in my life. And that is why I succeed.” (Watch the ad on YouTube here). Be like Mike. Don’t be afraid to take calculated risks in pursuit of meaningful goals.
Thanks for reading! I’ll give you an update on Sweden in a later post. In the meantime, be on the lookout for opportunity.
(Note: This is Part 3 in a 3 part series that I did for the Omaha World Herald on retirement planning for different life stages.)
To state the obvious, farming and cooking are two different things. One is about creating. The other is about consuming. A similar relationship exists between preparing for retirement and being retired. One is about filling the barn—your 401(k), IRA, pension, Social Security credits, etc.—and the other is about emptying it by using what you created to provide for your needs.
That transition—from accumulation to distribution—has a lot of moving parts. Any missteps can impact your retirement for years to come. Taking too much too soon from the wrong accounts or in the wrong markets can be the difference between retirement bliss and retirement blunder. So what can you do to improve your odds of success and get your retirement off on the right foot? Begin by asking yourself the following four questions.
How much do I need?
Before you can begin drawing income, you need to figure out how much you’re going to need. Your costs will largely depend on the lifestyle you choose to live, so start by thinking about what you have planned for retirement. Do you want to travel? Are you planning on moving? Is there a particular hobby you want to focus on? Once those decisions come into focus, it will be easier to craft a detailed retirement budget. To help with this process, you can download a free Retirement Budget Worksheet at www.intentionalretirement.com/resources/.
Where is it going to come from?
Once you have a good handle on your expenses, determine what percentage of them will be your responsibility. Start by making a list of all of your potential income sources. Social Security and Medicare will likely do some of the heavy lifting. If you are lucky enough to have a pension, it will cover another portion of your expenses. If you plan on working part-time or have some other source of income, list that as well. Using this information, fill in the blanks to the equation below. The difference between your total need and the income provided by things like Social Security and your pension is the amount that you will need to draw from your nest egg each year to fund your retirement.
Is my nest egg up to the task?
Now that you know how much you need and where it’s going to come from, you can determine if your nest egg is up to the task. When you retire, your portfolio takes over the job that the payroll department handled during your working years. If you retire at 65 and live until you’re 85, it needs to cut you 240 monthly paychecks. There is no foolproof answer for how much you can safely draw from your portfolio each year, but much of the research points to around 4 percent.
With that in mind, grab a calculator and divide the number you came up with in the previous question by your total retirement assets. If the result is less than or equal to .04 (4 percent), you’re in pretty good shape. If it is greater than .04, it should raise a red flag. All is not lost, but some changes are likely in order. To avoid running out of money, you may need to save more, work longer, work part-time, or cut retirement expenses.
What is my withdrawal strategy?
The last piece of the puzzle is to decide on a withdrawal strategy that is right for you. There are a number of ways to draw from your accounts. You can take dividends only, convert all or a portion of your accounts to guaranteed payments by purchasing an annuity, or structure the accounts to self-liquidate over your lifetime, to name a few.
The strategy that I prefer is often referred to as the bucket strategy. Done correctly, it gives you the most flexibility and greatly increases your chances of outliving your money. It involves structuring your investments into different “buckets” that you can pull from at different times or under different conditions.
For example, you would have one bucket that contained several years of needed distributions in a very safe investment like a money market or certificate of deposit. In another bucket you would have riskier investments like your stocks and bonds. In still another bucket, you would have your tax advantaged investments like your IRA or an annuity.
The idea is to pull your distribution each year from the most appropriate bucket. 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. The safe bucket keeps you from being forced to sell your riskier assets in a declining market. The risk bucket increases your odds of outpacing inflation. The tax-advantaged bucket allows you greater control over your tax bill.
The primary advantage of this strategy is that it gives you options. If you, your spouse, and your advisers are able to evaluate those options and make distribution decisions each year that accrue maximum benefit to you, you are likely to see a significant increase in the amount of money you can draw from your portfolio over the years without a commensurate increase in your risk of running out of money.
Monitor and adjust
No matter which distribution strategy you choose, you should never “set it and forget it.” Take time each year to meet with a trusted adviser for a periodic portfolio check-up. This is especially critical during the early years of retirement when your sequence risk (the risk that you will retire and begin withdrawing money during a period of low or negative investment returns) is highest. Some questions you should consider during your annual review:
Is your withdrawal rate sustainable?
Is your income still sufficient and keeping pace with inflation?
Is your asset allocation still appropriate?
Is the amount of risk you’re taking still suitable?
Has the value of your assets changed significantly?
Has your life expectancy changed?
Your answers will help determine if you can keep your withdrawals the same or if a change is in order.
Keep in mind that anyone can retire. Staying retired is the challenge. By crafting a well thought out distribution strategy you can help ensure that your resources will see you through your retirement years.
Happy President’s Day! I learned recently that President Lincoln’s favorite poem was “Mortality” by William Knox. For me, the poem is a great reminder for how quickly life goes by. As Knox says: “’Tis the twink of an eye, ‘tis the draught of a breath, From the blossom of health to the paleness of death.”
In my book The Bell Lap, I introduced a concept I call the “Someday Window.” Retirement is often viewed as a time when you will do everything you didn’t have time to do while you were working, raising kids, and generally focusing on other priorities. Year after year, you tell yourself “someday” this and “someday” that. If a person retires at sixty-five and lives until seventy-five, he or she has a ten year Someday Window. The clock is ticking.
The takeaway from that concept is simple: We should all begin treating today like the someday we were planning for yesterday. So in memory of Honest Abe on this President’s Day and as a reminder to live your life to the full, I give you “Mortality” by William Knox.
(P.S. I drew twenty names from the Valentine’s contest entries. I will email the winners later today and the books will go out in the mail tomorrow. Thanks to everyone who participated!)
Mortality by William Knox
O why should the spirit of mortal be proud! Like a fast flitting meteor, a fast flying cloud, A flash of the lightning, a break of the wave – He passes from life to his rest in the grave.
The leaves of the oak and the willows shall fade, Be scattered around, and together be laid; And the young and the old, and the low and the high, Shall moulder to dust, and together shall lie.
The child that a mother attended and loved, The mother that infant’s affection that proved, The husband that mother and infant that blest, Each — all are away to their dwelling of rest.
The maid on whose cheek, on whose brow, in whose eye, Shone beauty and pleasure — her triumphs are by: And the memory of those that beloved her and praised, Are alike from the minds of the living erased.
The hand of the king that the sceptre hath borne, The brow of the priest that the mitre hath worn, The eye of the sage, and the heart of the brave, Are hidden and lost in the depths of the grave.
The peasant whose lot was to sow and to reap, The herdsman who climbed with his goats to the steep, The beggar that wandered in search of his bread, Have faded away like the grass that we tread.
The saint that enjoyed the communion of Heaven, The sinner that dared to remain unforgiven, The wise and the foolish, the guilty and just, Have quietly mingled their bones in the dust.
So the multitude goes — like the flower and the weed That wither away to let others succeed; So the multitude comes — even those we behold, To repeat every tale that hath often been told.
For we are the same things that our fathers have been, We see the same sights that our fathers have seen, We drink the same stream, and we feel the same sun, And we run the same course that our fathers have run.
The thoughts we are thinking our fathers would think, From the death we are shrinking from they too would shrink, To the life we are clinging to they too would cling — But it speeds from the earth like a bird on the wing.
They loved — but their story we cannot unfold; They scorned — but the heart of the haughty is cold; They grieved — but no wail from their slumbers may come; They joyed — but the voice of their gladness is dumb.
They died — ay, they died! and we, things that are now, Who walk on the turf that lies over their brow, Who make in their dwellings a transient abode, Meet the change they met on their pilgrimage road.
Yea, hope and despondence, and pleasure and pain, Are mingled together like sunshine and rain; And the smile and the tear, and the song and the dirge, Still follow each other like surge upon surge.
‘Tis the twink of an eye, ’tis the draught of a breath, From the blossom of health to the paleness of death, From the gilded saloon to the bier and the shroud – O why should the spirit of mortal be proud!
Good morning all. Happy Valentine’s Day! Have I told you lately how grateful I am for each of you? Well, I am. To say thanks for being a loyal reader and to have a little fun, I thought I’d do an impromptu Valentine’s Day Contest.
The prize? I’m giving away 20 signed copies of my book The Bell Lap: The 8 Biggest Mistakes to Avoid as You Approach Retirement.
How to enter? Simple. Just email your name and mailing address to email@example.com. I’ll randomly draw 20 emails from those I receive by this Friday at 10 am and mail those 20 people a signed copy of my book.
Legal mumbo jumbo: Your contact information will never be sold or shared. No purchase necessary. Void where prohibited. Etc., etc.
Delayed gratification is great if it’s allowing you to work toward something. For example, saving for that trip you’ve always wanted to take or giving up that extra hour of sleep so you can make it to the gym. You’re giving up something good now in order to get something better later.
Where delayed gratification becomes a problem is when it is used as an excuse for life avoidance. Rather than allowing you to work toward something, it is keeping you from something. Sure, it’s hard to decide what you really want out of life. It’s risky to pursue big goals. Rather than rising to the challenge, we tell ourselves we need a little more time or a little more money. Not yet, but soon. Someday.
Here’s the thing. The longer you wait, the less you believe yourself when you say “Someday.” Your dreams begin to atrophy. Your opportunities begin to vanish. You aim lower. You talk yourself out of things. Before you know it, it’s too late.
If you’ve been around Intentional Retirement for awhile, you’ve seen the quote from Mark Twain below. Your biggest regrets in life will be the things you didn’t do. So don’t delay. Decide what you really want out of life and get after it. Start small if necessary, but start.