The dual processes of an ideal retirement

The dual processes of an ideal retirement

When the Pope asked Michelangelo how he knew what to cut away when he was sculpting the statue of David, Michelangelo reportedly answered “Simple.  I just chipped away everything that didn’t look like David.”

There are two kinds of processes that artists use when making their art.  The first, used by Michelangelo when sculpting David, was a Subtractive Process.  You start with something—a block of marble or a hunk of wood—and you slowly chisel, carve and otherwise remove bits of that something until what you’re left with is the finished product.

The other process is an Additive Process.  There you start with nothing—a blank canvas, a hunk of clay, an empty lot—and then you paint, shape, mold or build until you have the finished product.  Think Van Gogh, Alberto Giacometti or Frank Lloyd Wright.

To create the life you want in retirement you need to use both the Additive and Subtractive Processes.

You need to channel your inner Michelangelo and remove everything that doesn’t look like the life you want.  You need to make the “Stop Doing” list that I’ve talked about here many times before and then begin to chip away, purge, streamline and simplify.

At the same time, you need to figure out what you really want out of this life and start adding, shaping and building.  What will you do?  How will you pay for it?  Who needs to be there?  What skills do you need?  You have a blank canvas.  Paint a Rembrandt.  You have an empty lot.  Build Fallingwater.

“Every block of stone has a statue inside it and it is the task of the sculptor to discover it.”  ~Michelangelo

Photo by Scott Ableman.  Used under Creative Commons License.

Why you should roll your 401(k) into your IRA when you retire

Why you should roll your 401(k) into your IRA when you retire

Your 401(k) is a great tool for accumulation, but it’s probably not the best place to leave your money once your goals shift to distribution.  After retiring, it usually makes sense to roll your money out of your 401(k) and into your IRA.  Here’s why:

Simplification.  The average person changes jobs several times over the years.  That could mean multiple retirement plans at former employers in addition to your IRAs and other investment accounts.  During retirement, you will need to begin drawing money from those accounts.  The more accounts you have, the more complicated that becomes.  If you have multiple 401(k)s, roll them into an IRA.  If you have multiple IRAs, consolidate them into a single account.  Doing so will cut down on paperwork and expense and will make your distribution strategy easier to manage.

More choices.  Your 401(k) likely has a limited number of investment options.  That’s not the case in your IRA, where you can invest in pretty much any stock, bond, mutual fund or ETF.  More choices typically means more money, because you can choose funds with better performance and lower expenses.

More control.  When it comes to accessing your money, your IRA has fewer limitations and rules than your 401(k).  For example, you can take penalty free early withdrawals from your IRA for things like higher education or certain medical bills.  In addition, your 401(k) may have restrictions on how often you can make changes to your investment allocation. Finally, most people prefer to call the shots on their account rather than having to deal with their former employer every time they need to make a change or take a distribution.

Better beneficiary options.  Your 401(k) will typically require you to list your spouse as the primary beneficiary unless he or she consents to you naming someone else.  That can complicate planning for those in their second marriage who want to keep certain assets separate.  Also, if your spouse dies first and you haven’t named someone else, the 401(k) will typically default to your estate when you die.  That can result in unwelcome tax consequences.

With an IRA, you can name anyone as your beneficiary and that beneficiary has more distribution options than they would if they were inheriting from your 401(k).  With the IRA, they can choose to distribute the money over their lifetime, rather than being forced to take it all at once as with the 401(k).  That can spread the taxes out over many years.

Easier Required Minimum Distribution (RMD) calculations.  When you turn 70 ½, you are required to begin taking minimum amounts from your IRA and 401(k) accounts.  The fewer accounts you have, the easier it will be to calculate the correct amount and take the proper distribution.  Make a mistake and you will owe a big penalty to the IRS.


How to be happy Part 2: The hedonic treadmill

How to be happy Part 2: The hedonic treadmill

When I was in college, I rented my body to science so I could have enough money to buy groceries.  There was a medical testing facility not far from my apartment and they would pay you around $500 to check in on Friday, check out on Sunday and allow them to test some new wonder drug on you in the interim.  I didn’t have much in those years (as you’ve probably already deduced), but I was happy.

After graduating, I was able to leverage my finance degree into a career that no longer required me to spend my weekends subjecting myself to Hunter S. Thompson style pharmacological testing.  I got married and moved into a nicer apartment.  We eventually moved into a house and continued down the path of pursuing the “American Dream.”

Given that little bit of information, you’d think I would be happier now than I was 20 years ago, but that’s not really the case.  I’m happy for sure, but my level of happiness doesn’t seem to have grown in tandem with my standard of living.  I was happy then and I’m happy now.

Behavioral psychologists refer to this phenomenon as the hedonic (or happiness) treadmill.  It is our tendency to quickly return to a relatively stable level of happiness despite changes to our standard of living.  Basically, our expectations rise in tandem with our income.  The more we have, the more we think we need.

Because we want to be happy, we (somewhat predictably) deal with the hedonic treadmill by constantly upgrading our “stuff.”  We buy the new iPhone, television or car and it makes us happier for awhile, but we eventually get used to those things so we upgrade to the next gadget or gizmo.  The more we have, the tougher it is to move the needle on our happiness meter.  We run faster and faster without really getting anywhere.

Is there a way to get off the treadmill and actually derive some lasting happiness from the resources that we’ve been blessed with?  Yes, according to behavioral finance expert Dan Ariely.  “The best way to maximize happiness is to spend money on things you won’t get used to,” he says.  Here are three examples:

Travel: I’ve written before that it’s better to spend your retirement dollars on experiences instead of assets.  After learning about the hedonic treadmill, I understand why.  We quickly get used to stuff, but the happiness that comes from experiences sticks with us long after the stuff has gone to the Goodwill.  Travel is a great example of a purchase that has a longer happiness shelf life.  As Ariely says: “If you’re deciding between a sofa and a vacation, go for the vacation.  You’ll quickly get used to the sofa, but the vacation will bring long-lasting memories.”

Learning:  Another way to spend your money on things that result in longer-term happiness is to invest in learning.  For example, signing up for tennis lessons or learning to play an instrument will likely yield more lasting happiness than if you spent those same dollars on a new flat-screen T.V.  Learning something new will keep you challenged and will give you a sense of accomplishment.  It will also give you a skill that will stick with you.  If you’ve been around here for awhile, you know that we’re big on learning here at Intentional Retirement.  Follow along with our learning challenges or start one of your own to boost your happiness quotient.

Relationships: One of the side effects of a stuff heavy life is less time for your spouse, kids, grandkids and friends.  How so?  Everything we own requires some of our time and money.  Columnist Ellen Goodman described it this way: “Normal is getting dressed in clothes that you buy for work, driving through traffic in a car that you are still paying for, in order to get to the job that you need so you can pay for the clothes, car and the house that you leave empty all day in order to afford to live in it.”

Rather than being a slave to your stuff, focus your time and resources on building relationships instead.  Go on regular dates with your spouse.  Take the grandkids fishing.  Go on a guy’s (or girl’s) trip with your friends.  Those things cost money, but they will pay dividends for years to come.

How about you?  Are you stuck on the hedonic treadmill?  If so, think about how you can start spending your money in ways that will actually bring more lasting happiness.


Note: See Part 1 of the Happiness Series here.

Where were you when…

Where were you when…

Do you remember where you were 11 years ago on September 11, 2001?  I was on an airplane.  In hindsight, not the best place to be.

You see, my grandpa is a huge Chicago Cubs fan.  One day we were talking baseball and I said “We should go to Wrigley sometime for a game.”

Since he was pretty frugal and, to my knowledge, had only been on an airplane one other time in his life (to my wedding in Alaska), I expected some resistance.  “Too expensive,” he said.

“What if I found us a deal?”  I asked.  That got his interest, probably because his instinct for a deal was second only to his instinct to spend nothing whatsoever.  I asked him how much he’d be willing to spend on tickets to a game.  He thought about it and said it was a once in a lifetime opportunity, so he’d be willing to spend up to $25 per seat so we could get really good seats.

I thought that was a fair price, assuming we could find a time machine that would transport us back to 1950s Chicago, so I told him I would handle it.

I bought the tickets (see above) from a season ticket holder for $250, booked our airfare and lined up a hotel.  I told him I was able find a good deal, so I would cover the costs, but he insisted on giving me $28 for his ticket (the face amount printed on each ticket).  A few weeks later we were on a plane to Chicago.  We landed at O’Hare and boarded the ‘L’ to take us into town.

While on the train, the passenger across from us got a call on his cell phone.  When he hung up he told us “That was my wife.  She said a plane just hit the World Trade Center.”

The picture in my mind was of a Cessna getting off course and hitting one of the towers, so we didn’t really think that much more about it.  When we got into town we hailed a cab and realized that it was much more than a small plane.  The driver had the radio on and the announcer was saying that both towers had been hit by commercial airplanes and that unconfirmed reports were coming in that there were other planes in the air that were not responding and possibly heading for Washington, D.C.

We got to our hotel and no rooms were available because no one was checking out, so we walked around the corner to a restaurant to grab some breakfast.  Several televisions were on, but the tables facing them were full, so we took a seat over in the corner.  A loud gasp alerted us when the first building fell.

I tried to call my wife, but the circuits were jammed.  I finally got through later that morning and let her know that we were ok.  The games were obviously cancelled and all flights were grounded.  There wasn’t a rental car anywhere to be found in the city and several people in our hotel actually went to car dealerships and bought cars so they could get home.

Each day we would walk to the rental car office and wait in line in hopes that there would a car.  By the time we got one, our two day trip had turned into five and we came home to a much different world than the one we had left just a few days earlier.

Thousands of people had died senselessly, our country would be in two different wars within a short period of time and the events of that Tuesday in September would have a profound impact on the world for years to come.

The time we have in this life is exceedingly short.  You never know when a terrible tragedy, a frightening diagnosis or an unforeseen circumstance is going to come along and make it even shorter.  As you think back to that day eleven years ago, use it as a reminder to be intentional with each day that you’re given.


The top 10 posts from the first 100

The top 10 posts from the first 100

Earlier this week I noticed that the post counter in my blogging software was about to hit 100. 

Since that seemed like something of a milestone, I thought I’d take a quick look back and give you what I think are 10 key posts from the first 100.  For those of you who have been with me since the beginning, it will be a good review.  For those of you who found us more recently, it will be a chance to read something that you may have missed.

Visit the Archives Page to scroll through the entire list of articles.  Also, if you read something that is helpful or encouraging to you, pass it on to a friend.  Great ideas spread thanks to people like you.

Thanks for reading.  On to the next 100.

~ Joe