by Joe Hearn | Jul 30, 2012 | Pursuits, Retirement
You’re too busy. So am I. Pretty much all of us are. It’s like there’s a Busy Virus sweeping the nation and most of us are carriers. Call it the Busy Zombie Apocalypse. Some have managed to avoid the contagion, but not many.
Signs of infection include packed schedules, overwork, exhaustion, stress, anxiety, and a complete loss of the boundaries between our work and personal time.
If scientists were to trace the virus back to its origin, I suspect that “Patient Zero” would either be Steve Jobs or Mark Zuckerberg. Both gave us amazing inventions that wowed us and drew us in, but also sowed the seeds of our infection. The iPhone, iPad and Facebook were like Sirens calling us all to shore. Most of us heeded the call and set sail for the enchanting music coming from just beyond the rocky coastline.
Don’t get me wrong. A busy schedule and useful tools are wonderful when they help us to be busy and productive with things that actually matter. Unfortunately, the opposite is often true. Our busyness is actually keeping us from accomplishing the things we really care about.
Why? When the Busy Virus strikes, it goes to your core and identifies what it is that you really want out of life. Then it hopelessly dilutes those dreams with a deluge of trivial and unnecessary tasks. It forces you to become efficient at doing the unimportant, and ultimately prevents you from becoming effective at the things that really matter to you.
The Cure
If you’re going to have a meaningful retirement, you need to embrace the idea that your goal is not to have busy days or full days, but days spent on things that bring meaning, fulfillment, purpose, fun, and happiness. For that to happen, you need to inoculate yourself against the Busy Virus.
Step 1 is to actually decide what you want out of life. You only get one go-around in this world and I’m guessing you don’t want your legacy to be defined by your high score in Angry Birds.
Create some space in your schedule this week to actually sit and think. What do you really want to do? What would fill you with a sense of purpose? What would make you happy and provide meaning? Dream big and have a vision for your life that goes beyond the daily treadmill of the trivial.
Step 2 is to start taking those plans very seriously. How much of your typical day is actually spent in service to the big dreams you outlined in Step 1? If the answer is “not much” then the Busy Virus is doing a good job at overwhelming your To-Do list. That’s about to change.
Step 3 is to purge. What tasks, obligations and responsibilities need to go? What can you finish up and be done with? What can you outsource or delegate? What has no business being there in the first place and just needs to be cut? Bring some sanity to your To-Do List by making a Stop-Doing List. As Tim Ferriss would say, be selective:
“Slow down and remember this: Most things make no difference. Being busy is a form of laziness—lazy thinking and indiscriminate action. Being overwhelmed is often as unproductive as doing nothing, and is far more unpleasant. Being selective—doing less—is the path of the productive.”
In other words, focus on the things that you’re passionate about and life will become more satisfying and less harried. Do more by doing less. Here are some additional articles and resources that can help.
Have a great week!
Joe
by Joe Hearn | Jul 24, 2012 | Learning Challenge, Pursuits
“Patience!” That was the advice that a French pastry chef gave me when I asked him for pointers on making croissants. I should back up. What set of circumstances brought me to the point where I was getting cooking advice from the former personal chef to the king of Saudi Arabia?
As many of you know, I believe that one of the keys to a full, rewarding life (both before and during retirement) is to constantly be learning new things. To stay disciplined in this area and intentional about learning new things, I do periodic “30-Day Challenges” where I will learn about something that interests me and then write about it here at the blog. Hopefully some of you will be inspired to follow along at home each month and we’ll be able to add something fun and interesting to our “life skills resume.”
For those keeping track at home, here’s our list so far:
- Learn all the countries of the world
- Learn to SCUBA dive
- Learn to make croissants with my wife
…and now, the rest of the story
Right about the time that my wife and I were buying a pastry board and watching Julia Child make croissants on YouTube, it was time to head out of town on vacation. Each year we take a trip with three other couples and spend a week or so hanging out, laughing and having fun. This year we went to the island of Anguilla in the British West Indies, where we could put our recent SCUBA certification to good use.
Each morning on the island started by either cooking a big breakfast at the house or visiting one of the excellent local bakeries. It was on one of those pastry runs that my friend Kelly and I found ourselves in Geraud’s Patisserie. Geraud is a friendly and unassuming guy. Just talking with him you wouldn’t know that his resumé contained training at Le Cordon Bleu and a stint as the personal chef to the king of Saudi Arabia, but those things come as no surprise after sampling a croissant or pain au chocoloat.
Since my wife and I were learning to make croissants, I couldn’t pass up the opportunity to ask Geraud for some pointers. As I said earlier, his primary advice was to be patient, which made sense, given that the time between mixing the dough and putting it in the oven is usually around twenty hours (with several interludes of flattening and folding to achieve those flaky layers present in a good croissant). He was also gracious enough to give me his croissant recipe and told me to email him if I had any questions.
Armed with his advice, the aforementioned Julie Child videos and lots of trial and error, my wife and I are trying to master the art of making a good croissant. Here are some things I’ve learned along the way with this challenge:
Do stuff with your spouse
Chances are good that, without a job or kids competing for your time, you’ll be spending a lot more time with your spouse during retirement than you did during your working years. With that in mind, it’s a good idea to have some things in common. My wife loves to cook. I’m terrible at it, but if I spend some time learning, we’ll have something new to talk about and do together. As you think about things you might like to learn, include your spouse in the process.
Expand your horizons
As I said earlier, I’m not a chef. I didn’t grow up cooking and I don’t really have any culinary knowledge beyond toast and omelets. Trying something totally new can sometimes be frustrating because you’re starting from scratch, but it can also open an entirely new area to you that you didn’t know you liked. Don’t be afraid to expand your horizons.
The more you learn and do, the more opportunity knocks
Had I not been learning to make croissants, I wouldn’t have given Geraud’s a second thought. I would have run in, grabbed breakfast and then gone about my day. Sometimes we miss great opportunities—a potential friendship, a solution to a problem, a fun experience—because we’re on autopilot and not really being intentional about life. Learning new things tends to remove the blinders.
“Sometimes serendipity is just intention unmasked.” ~Elizabeth Berg
What’s next?
When I speak to a group or do a seminar or workshop for clients, I usually use PowerPoint. It can be a great tool to reinforce what you’re talking about, but more often than not it can get in the way of what you’re trying to communicate because the slides can be boring, overcrowded and distracting.
I recently learned about new presentation software called Prezi that is really cool. It can help bring a presentation to life and present information in a way that people are likely to understand and remember. Go to Prezi’s website to watch a short video and see what I’m talking about.
Since my job is all about presenting ideas, I’m going to spend the next 30 days learning how to use Prezi. Once I have it down, I’ll put together a presentation on a retirement related topic and send it out with the next Learning Challenge update. Follow along if you’re interested or feel free to come up with a challenge of your own. Regardless, be intentional about learning and your life will be richer for it.
“We should remember that good fortune often happens when opportunity meets with preparation.” ~Thomas Edison
by Joe Hearn | Jul 18, 2012 | Insurance, Retirement
When entering retirement, it’s common to simplify your budget as much as possible by cutting all unnecessary expenses. Nix the expensive work wardrobe. Downsize to a smaller house. Stop making IRA and 401(k) contributions. Cancel your life insurance policies. Hold on. Not so fast. That insurance might come in handy during retirement.
Income replacement is the primary purpose of life insurance and since most retirees aren’t working, having life insurance can seem like a solution in search of a problem. But insurance can serve other purposes as well. Below are five reasons you may want to keep your life insurance during retirement.
Income Protection
It’s not a given that retirees don’t need income replacement protection. More and more people are choosing to work part time during retirement in order to supplement their income. If you choose to work and your spouse is counting on that income, life insurance can be a good way to replace it if something happens to you.
Life insurance can also help replace pension income that stops or is reduced when the pension holder dies. Ditto for Social Security . When one spouse dies, the surviving spouse receives the higher of the couple’s Social Security checks and the lower benefit stops. In all of these cases, life insurance can be an effective way to protect the income of the surviving spouse.
Tax Free Withdrawals
If you have a permanent life insurance policy (such as whole life) that has built up cash value over the years, you can use that cash value in a variety of ways. First, you can use it to make premium payments on the policy. This can be a good way to keep the insurance while still cutting your expenses.
You can also withdraw a portion of the cash value, which is not taxable as long as you take out less than what you originally paid in. Any amount over that will be taxed. Borrowing against the cash value is another common way to access the funds. Rather than paying the money back, you can choose to have the loan plus any accumulated interest subtracted from the death benefit after you die. The proceeds from the loan are not taxed as long as the policy does not lapse or get surrendered before the loan is paid back. Before withdrawing or borrowing against the cash value in your policy, meet with your adviser to see how those actions will affect your taxes, premium payments, and death benefit.
Estate Equalization
Chances are good that you’ll leave more than just money to your heirs. Maybe you have a family business or a vacation home that has been passed down over the generations. If you have three children, but only one is interested in taking over the business, how do you treat everyone fairly? Life insurance can be a great way to provide liquidity to your estate so you can pass the business to the child that is interested and give the remaining children an equivalent amount in cash.
Estate Taxes
Under current tax laws, the top federal gift and estate tax bracket is 35% and the exemption is a little more than $5 million per person. Basically, with a little planning, a couple could avoid estate taxes as long as their estate was worth less than $10 million. That means the vast majority of people do not need to worry about the estate tax. However, the current laws are scheduled to “sunset” at the end of 2012 and will revert to the previous 55% tax and $1 million exclusion. Unless changed by Congress, the new law will result in many more people having a potential estate tax liability. Life insurance can help protect against that liability and preserve an estate for heirs or charitable giving.
Long-Term Care Insurance
As you move into retirement, you may be in a position where you’re less concerned about life insurance than you are about long-term care insurance. If you have a cash value life insurance policy that you no longer need, you might want to consider converting that into a life insurance policy that has a long-term care rider. You can accomplish that by doing a tax free transfer (a 1035 exchange in industry lingo) of the cash value from your current policy into the new policy.
The new policy with the long-term care rider will provide you with several options. As discussed previously, you can always withdraw what you put into the policy if you end up needing the money. If you choose to keep the policy in force and die without needing long-term care, the insurance company will pay a death benefit to your heirs. If you need long-term care, however, you can use the policy to help cover those costs instead of using it as life insurance. In short, this type of policy gives you added benefits and flexibility.
While not appropriate for everyone, life insurance can play an important role during retirement. Work closely with a trusted adviser to see if maintaining your policies makes sense for you.
Photo by Russ Morris. Used under Creative Commons License. I originally published a version of this article at www.fpanet.org.
by Joe Hearn | Jul 13, 2012 | Distribution Planning, Retirement, Social Security
I met with a prospective new client this week and he asked me the question I get asked by most people during introductory meetings:
“When can I afford to retire?”
We spent about an hour working through some numbers and coming up with the answer. I thought seeing a real world example would be helpful to some of you, so I asked him if I could share the details as long as I kept his name confidential. Here are the basic facts:
- He and his wife are 61 years old
- He has worked for his current employer for 41 years
- His 401(k) is worth around $700,000
- They have another $600,000 in savings and investments
- His estimated Social Security benefits are $1,900 per month if he retires early at 62 and $2,500 per month if he waits until full retirement age at 66.
- His wife does not work outside the home and has not qualified for Social Security
- Their house is paid for and they have no other debt
- They need an income of $60,000 per year in retirement
Step 1 in deciding when to retire is answering the question “How much income do I need?” As George Foreman said, “The question isn’t at what age I want to retire, it’s at what income.” In this case, the client (Let’s call him Jim) wants to have about $60,000 per year gross (i.e. Before taking out taxes).
Step 2 is figuring out where that money is going to come from. If Jim retires at 62, he will get $1,900 per month from Social Security. That’s $22,800 per year. He wasn’t expecting his wife to receive any Social Security because she hadn’t worked the 40 quarters required to qualify. Needless to say, he was happy when I told him that she qualifies for a spousal benefit. Spouses are entitled to receive the higher of their benefit (in this case $0) or half their spouses benefit (in this case $950 per month). That adds another $11,400 in income per year.
So they need a total of $60,000 and $34,200 of that is coming from Social Security. That means their personal investments will need to generate the remaining $25,800. Is their nest egg up to the task?
They have a total of $1,300,000. As we have discussed here many times before, research shows that a safe withdrawal rate from a portfolio is around 4 percent. Taking a 4 percent withdrawal from their portfolio would get them about $52,000 per year, which more than covers the $25,800 they need. So looking at the numbers, Jim and his wife could afford to retire at 62. But should they? I advised him to seriously consider waiting a few years. Here’s why:
- They will almost certainly need more income than they are expecting. Jim told me that his $60,000 estimate is the absolute minimum they’d need to maintain their lifestyle. If anything unexpected happens and they need to draw more, they could run out of money sooner than expected.
- They are both in good health and have parents that are alive and in their nineties. Given their health and family history, there’s a good chance that they will live for a long time. If that’s the case, their money needs to last. Working for a few more years not only gives them a chance to save more, but also means that they won’t be drawing income from their savings yet, which will help it last longer.
- The breakeven point on their Social Security (where it makes sense to wait until full retirement age to claim benefits) is about 12 years. That means if they plan on living past age 74, it probably makes sense to wait to begin collecting benefits until full retirement age rather than taking a reduced benefit at 62.
- Another potential reason to wait is health care. Right now, Jim’s employer pays the cost of his health care, but that would stop if he retires. Since he and his wife won’t be eligible for Medicare until age 65, retiring now would mean either going without health care or paying out of pocket for coverage. To continue his current coverage using COBRA would be about $900 per month. Waiting to retire until they are eligible for Medicare would eliminate that expense.
- Finally, we’re living in an uncertain time. Inflation is tame now, but could easily get much worse. The markets are volatile. Interest rates are low. All of these things can damage a portfolio’s ability to generate enough income.
Conclusion: Jim and his wife can afford to retire now, but as long as they’re in good health and Jim is relatively happy at his job, waiting could greatly increase their security during retirement. I hope that example helps shed some light on the process of deciding when you can afford to retire. Touch base if you have any questions or if there’s ever anything I can do for you.
Joe
by Joe Hearn | Jul 11, 2012 | Pursuits, Retirement
We recently passed the halfway mark for the year. Six months to go before breaking out the bubbly and Auld Lang Syne. How are you doing with your plans for the year? Are you making progress toward your retirement goals?
Ray Bradbury, the vaunted science fiction writer (Fahrenheit 451), died a few weeks ago. Many of his stories and books involved envisioning or even predicting the future. In real life, though, he seemed to prefer a less futuristic way of forecasting what was to come.
Listening to an interview that was being rebroadcast after his death, I thought he had a great insight on how he “predicted” the future in his own life and how you and I can do the same thing—no time machine necessary. He said:
“I’ve learned that by doing things, things get done. I’m not an optimist; I’m an optimal behaviorist. We ensure the future by doing it.”
When I heard him say that, I thought of Babe Ruth pointing to the center field bleachers in Game 3 of the 1932 World Series and then hitting a homerun to those bleachers on the very next pitch. Oftentimes, when we think about the future, we frame it in terms of our “hopes and dreams.” Bradbury (and Ruth) seemed to have little patience for that because it was passive and outside his control. Rather than optimism, he favored optimal behaviors. “What do I need to do to achieve the outcome that I want?” That’s a good question to ask yourself as you enter the second half of the year. What do you really want out of life and retirement? What do you need to do to make that a reality?
Hope you’re having a great week. Don’t be a stranger. Touch base with me if I can ever help.
Joe
