by Joe Hearn | May 24, 2012 | Pursuits, Retirement
I had lunch with a client last week who was just diagnosed with Leukemia. Unfortunately, there has been a lot of that lately. Maybe it’s just the stage of life that I’m in. During my 20s it seemed like every other week I got invited to a wedding. Now it seems like every other week I hear of another client, friend or family member who is facing a physical, emotional, or financial challenge that they hadn’t expected when they got out of bed that morning.
This has been a good reminder for me that you don’t always get to choose your path in life. Sometimes our well laid plans and best intentions are derailed by the unexpected.
My wish for you is that you live a long, healthy, happy life, but what if it doesn’t work out that way? Rather than saving the best for last and deferring your dreams to a far off date (i.e. retirement), what are you doing to live a full life right now? My advice to you is to be intentional with each new day. Do meaningful work. Spend quality time with friends and family. Repair broken relationships. Seek out fun and adventure. Learn new things. Visit new places. Take risks.
Yes, you should save, invest and plan. That will allow you to continue to live life to the full for as many days as you’re given. But what a tragedy it would be if all that planning was in vain. As Dr. Wayne Dyer once said, “Don’t die with your music still inside you.” Take this one life that you’ve been given and use it to do what brings you joy and purpose. You don’t need to wait until 65 to start. Start today.
Enjoy the holiday weekend!
Joe
Photo courtesy of Shannon K. Used under Creative Commons License.
by Joe Hearn | May 21, 2012 | Retirement
I used to think that frugality was only spending money on the very basics in life. Don’t eat out. Don’t drink expensive coffee. Pinch pennies where you can. As I’ve gotten older my position has evolved. Rather than living like Scrooge, I spend extravagantly on things that are important to me and miserly on things that aren’t.
That kind of budgeting meant that my wife and I spent more on travel last year than we did on house payments. I spent more on coffee than I did on car payments (not difficult since we drive older cars and don’t have car payments). We still saved for retirement, ate out once in awhile and added to the wardrobe now and then, but for the most part we chose to allocate our limited resources in very intentional ways. Call it our extravagantly modest lifestyle.
When deciding where to allocate money, it helps to think like an investor. Investors allocate capital and expect a Return on Investment (ROI). For me, travel has a high ROI. I get time with my family and friends. We make memories that will last a lifetime. I get to practice my photography hobby, see new places and experience new things.
Alternatively, the type of car I drive has a low ROI. I drive a Honda Accord that’s a few years old. Trading up to a BMW would give me a small bump in my ROI, but it wouldn’t be worth it to me if it meant giving up the travel. If I could afford both, I’d probably do it, but for now I’m happy to drive a modest car if it means I can get the family on the road four or five times a year.
How about you? Are there line items in your budget that are eating up your paycheck without providing much ROI? Are there things you’d love to do (now or in retirement) that are stuck on the drawing board for wont of capital? Think through your budget and align your spending with your priorities. Be frugal, but don’t be afraid to spend like a drunken sailor on shore leave on those things that really matter to you.
Have a great week!
Joe
by Joe Hearn | May 15, 2012 | Retirement
There is perhaps no more revered institution in America than that of Sport. Baseball is our national pastime. The Super Bowl is our most watched television program. Popular franchises have billion dollar price tags. Phrases like “The Miracle on Ice” and “The Dream Team” still illicit emotion decades after the games that spawned them. Our heroes are people like Jordan, Ali, DiMaggio and Armstrong. Go to the most remote nation on earth and you will likely find many people who can’t name our President, but they can recognize a picture of Tiger Woods or LeBron James.
Why are people so drawn to sport? Is it the passion of the players? The thrill of victory? The hometown pride in the team? Those are all good reasons, but I think somewhere near the top of the list would have to be the life lessons we can draw from organized competition. Whether it’s little league or major league, there are things we can all learn from games and the players who play them.
That is probably why I recently found myself wondering, as I watched fans yell advice to Tiger at the tee box, what advice he would have for us if the tables were turned. Since my beat is retirement, I pondered what wisdom guys like Tiger, Tebow and Tyson would have for those planning their golden years.
Tiger Woods (Have a plan)
In Hank Haney’s new book The Big Miss, Tiger’s former coach reveals that he always played his best golf when he had a plan for improvement, structured practice sessions and a clear goal that it was all pointing to. If Tiger were to look at how most of us are preparing for retirement he would probably ask, “What’s the plan?” How much do you need to save? Where will you live? What are you going to do? Our plan should answer all those questions and should be a step-by-step guide to get us from where we are to where we want to be.
Coach John Wooden (The importance of team)
John Wooden was the first person to be inducted into the basketball hall of fame as both a player and a coach. As great as his talents were, he understood the importance of team. A favorite saying of his was, “The main ingredient to stardom is the rest of the team.” Are you going it alone with your retirement planning or do you have a team? Partnering with trained professionals like a financial planner, estate-planning attorney, and accountant can bring a level of expertise and discipline to your planning that greatly increases your odds of success.
Andy Murray (Focus on fundamentals)
Andy Murray is a great tennis player. Unfortunately, he hasn’t won a major yet because he happens to be playing the game at a time when it is dominated by three of the greatest players to ever pick up a racquet: Federer, Nadal, and Djokovic. To rise to the challenge, he is returning to the fundamentals of the game. He has hired a new coach (tennis great Ivan Lendl) and is working tirelessly on the key building blocks of his game like the forehand, backhand, serve, spin, placement and power. He has a special diet and trains for endurance, strength, explosiveness and agility. His advice for us would likely be “Focus on the fundamentals.” For retirees, that means things like a retirement budget, debt reduction, asset allocation, distribution strategy, health care, Medicare and Social Security.
Cal Ripken, Jr. (Stay healthy)
Cal Ripken, Jr. broke a record in baseball that many thought was unbreakable: Lou Gehrig’s record for consecutive games played. As if to put an exclamation point on it, he exceeded Gehrig’s mark by 501 games. How did he do it? He stayed healthy. “Early in my career I decided I never wanted to get out of shape,” he said. To make the most out of retirement, you should follow Ripken’s lead. Taking care of yourself and staying healthy will not only allow you to be more active during retirement, but it will also lessen the strain on your nest egg.
Mike Tyson (Don’t sabotage yourself)
Iron Mike won over $300 million in prize money during his career. Unfortunately, he also elevated bad decision making to an art form—horrible spending habits, jail time, biting off his opponent’s ear—and he was eventually forced to declare bankruptcy. Don’t be like Mike. One bad decision can ruin a lifetime of good ones. One of the earliest lessons in life is that actions have consequences and boy is that true in the final third of life. Don’t do anything that would derail your retirement dreams.
Lance Armstrong (Deal with adversity)
Things don’t always go according to plan. Markets can fall. The government can change the rules on things like Social Security or Medicare. There can be an unexpected illness. Being retired doesn’t mean that everything magically goes your way. After facing cancer, no one would have blamed Lance Armstrong if he’d decided to quit racing. Instead he fought through the adversity and eventually won the Tour de France seven times. Why didn’t he quit? “Pain is temporary,” he said. “It may last a minute, or an hour, or a day, or a year, but eventually it will subside and something else will take its place. If I quit, however, it lasts forever.”
Michael Jordan (Diversify your income streams)
During retirement it’s helpful to have income from multiple sources like Social Security, a pension, savings, a small business or part-time work. This reduces risk and increases your options. Having several sources of income was one of the reasons Michael Jordan could afford to walk away from basketball and pursue his dream of playing minor league baseball. The pittance a minor leaguer is paid was no worry when he still had millions coming in from Nike, McDonalds, and Gatorade. You and I may have fewer zeroes in our paychecks, but we can follow the same principle.
Muhammad Ali (Visualize the future)
Muhammad Ali once said, “I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life a champion.'” Getting ready for retirement is hard work. It takes discipline and sacrifice. Experts in behavioral finance have shown that you can make it easier and improve your chances if you do what Ali did and visualize yourself in the future.
A recent study* showed participants pictures of themselves and then asked them to allocate money toward a hypothetical retirement savings account. Half were shown current pictures of themselves. The other half were shown “age morphed” pictures of themselves that depicted what they would look like in old age. Those shown the age adjusted photos allocated twice as much money to savings as did the others.
I could go on and on drawing parallels between athletics and retirement, but you get my point. Just like the athletes we adore, we all want to succeed and do our best. And like those athletes, if we work hard and keep our head in the game, good things will come. As Yogi Berra might say “Retirement is 90 percent mental. The other half is physical.”
Is there anything I can do to help? Don’t be a stranger. Touch base anytime.
Joe
Photo courtesy of Chase McAlpine. Used under Creative Commons License. I originally published this article at www.fpanet.org.
*—Ersner-Hershfield, H., Goldstein, D., Sharpe, W., and Bailenson, J. (2010). Future Self-Continuity and Saving Behavior. Working paper.
by Joe Hearn | May 8, 2012 | Estate Planning, Insurance, Investing, Retirement
The odds are extremely good that my wife will outlive me. Whatever the reason—genetics, a healthier diet, the fact that she uses our treadmill as something other than a clothes rack—there will likely come a day when she bids me adieu.
Most people know that women have a longer life expectancy than men, living about 81 years compared to 76 for the average male. But what they may not have considered is what this statistic means in reality: namely that the overwhelming majority of people in retirement are women.
In the U.S., women make up nearly 60 percent of the population over age 65 and nearly 70 percent of the population of those over age 85*. How should that reality affect the retirement planning of the fairer sex?
Investments
At a minimum, a longer retirement means the need for more income. All else being equal, funding a 20-year retirement will be more expensive than funding a 10-year retirement. That means more money will need to be set aside leading up to retirement and withdrawal rates will need to be sustainable (around 4 percent) during retirement in order to keep from running out of money.
Also, asset allocation will be more important than ever. The portfolio will need to be invested aggressively enough to overcome the ravaging effects of inflation that are sure to happen over a longer period, but not so aggressively that investment losses wipe out principal. Maintaining the proper balance is a key ingredient to making the money last.
Pension plans
A pension plan for a married couple can be an important source of retirement income, but what happens to that income when one of the spouses dies? If the husband dies and it was his pension, does that income go away? It depends. If the pension benefit was based on his life only, then payments will likely end when he dies. To avoid the negative financial impact that this would likely cause, couples should arrange with the pension provider to base the benefits on both of their lives. “Joint Life” benefits will likely be smaller than those based on a single life, but they will also minimize the financial impact on the surviving spouse.
Social Security
Women are more likely than men to leave the workforce at some point in their careers in order to raise children or care for aging parents. Some choose not to work outside the home at all. This, along with the fact that women still tend to earn less than their male counterparts, can impact their eligibility for Social Security benefits. Because of that, the Social Security Administration has special rules that apply to people who are widowed, divorced or still married, but with little in the way of earned benefits.
For starters, spousal benefits entitle everyone to either their own benefit or half of their spouse’s benefit, whichever is greater. In addition, those widowed or divorced are able to collect benefits on their former spouse’s Social Security record if:
- The former spouse is collecting benefits or is deceased
- You were married for at least 10 years
- You are 62 or older (60 or older if your spouse is deceased)
Getting remarried could affect your eligibility for benefits under certain conditions, so be sure to check with the Social Security Administration before heading back to the altar. For more information visit www.ssa.gov and download the brochure “What Every Woman Should Know.”
Life Insurance
The primary purpose of life insurance is to replace a person’s income in the event of his or her death (Note: It can also be an effective estate planning tool, but that is a discussion for another article). Because of that, many people keep adequate insurance coverage during their working years to protect their spouse and children, but then get rid of it when they retire. This could be a big mistake if a significant portion of a couple’s retirement income is attributable to just one of the spouses, say in the form of pension or Social Security benefits.
How do you know if you need life insurance during retirement? Ask yourself this question: “Would my death create a significant financial hardship for my spouse?” If not, then you probably don’t need life insurance. However, if the death of either you or your spouse would result in significant loss of income for the other, then life insurance can be a good way to protect against that loss.
Long-term care insurance
Long-term care insurance can help cover a variety of costs including home health care, respite care, adult day care, care in an assisted living facility, or nursing home care. This type of insurance can make sense for women for a variety of reasons, but two stand out. First, if a woman is predeceased by her husband, there is a good chance that there will be some large medical bills related to his final illness and care. These bills can take a big chunk out a couple’s nest egg and impair its ability to provide income to the surviving spouse. Long-term care insurance can help preserve those assets by covering expenses not usually covered by health insurance, Medicare or Medicaid.
Second, if a woman lives 5, 10 or even 20 years longer than her husband, there is a good chance that she will need some type of long-term care services during her life as well. And because her husband died first, she will have fewer options if she becomes sick or disabled and needs someone to help. A long-term care policy can provide peace of mind, minimize burden on friends or family, and help her get into her choice of facilities or be cared for at home as long as possible.
Estate Planning
Married couples typically create their estate plan (e.g. wills, powers of attorney, etc.) together, but it is the wife who tends to see that plan in action. Because women live longer, it is the wife who will likely be the one to use the powers of attorney for finance and health care if her husband becomes disabled or incapacitated due to illness. She will also need to handle his estate when he dies. When that occurs she will need to update her own planning and make sure that it passes her property to the correct people and names the people she wants to handle her affairs in the event that she is no longer able. Because of that, women should pay particular attention to their family’s estate planning and make sure that it is up to date and accurately reflects their wishes.
Living a long, healthy life definitely has its benefits. It means more time with friends and family. More time doing the things you love. More time enjoying life and experiencing all that it has to offer. Unfortunately, it can also mean outliving those you love. By planning ahead, you can create security and peace of mind for yourself and your family and keep your retirement on track.
Photo by Mark Brooks. Used under Creative Commons License. I originally published this article at www.fpanet.org.
by Joe Hearn | May 4, 2012 | Social Security
I’m back from the land of the midnight sun and trying to get caught up on any retirement news I missed while on the road. One item that caught my eye was the Social Security Administration’s decision to provide online statements for estimated retirement benefits. You may have noticed that they quit mailing the paper statements last year in a bid to save about $70 million a year in mailing costs. Saving money is good, but being in the dark about your potential benefits is bad, so I’m glad they’re making the change.
To access your statement, go to www.ssa.gov and create a secure account. Once done you will be able to see your complete earnings history as well as the total Social Security and Medicare taxes paid over your career. More importantly, you can see the retirement benefits you can expect to receive at different ages (i.e. 62, full retirement age, and 70) so you can factor that information into your planning.
For more information on Social Security, just scan through the list of related posts below. Have a great weekend and touch base if I can ever help.
Joe
