Strategies of retirement super savers

Strategies of retirement super savers

The general idea behind retirement is to reach a point of financial independence where work is optional and you control your time.  How fast you get there depends largely on how much you save and how much you need to live on during retirement.  The math is pretty simple.  The more you save and the less you need, the faster you will be financially independent.  How can you ratchet up your savings and reach your goals faster?  For some ideas, let’s look at the habits and tactics of super savers (people who save 30-50 percent of their take home pay).

How to save half your income

First, let’s address the elephant in the room.  “Wait Joe, Did you say 50 percent!?!”  Indeed I did.  That might sound ludicrous to most of you, but let me prove to you that it’s possible.  Think about how much money you make.  Got it?  Ok.  No matter what number you have in your head right now, there are millions of people in the U.S.—some of whom no doubt are your friends, neighbors and co-workers—living on half that.    Say your income is $100,000.  Almost half the country is currently living on half that.  Or maybe your income is $50,000.  There are tens of millions living on half of that.  So living on half of whatever number you have in your head right now is not only possible, it’s apparently pretty easy.  Millions of people are already doing it.  The trick is to spend like them, even though you’re making twice as much.  Do that and your savings rate will skyrocket.  Let’s look at how super savers do it and then consider how to apply those lessons.

Strategies of Super Savers

They focus on maximizing income.  Super savers focus on income, not just expenses.  They realize that the more money they make, the easier it will be to cover a comfortable lifestyle and still have plenty left over to save.

They avoid lifestyle bloat. Most people allow lifestyle bloat as they get older.  As income grows, so do expenses.  Bigger paychecks mean better houses, cars, vacations, wardrobes and gadgets.  If you spend everything you make, you’ll never be financially independent.  Super savers try to buy their freedom as soon as possible by capping their lifestyle and saving the rest. 

They have clear priorities and goals.  Super savers understand what’s important to them and what’s not.  They have clear retirement goals.  They have a vision for their future.  They know what they really want out of life and they are taking those plans very seriously.

They are self-aware and secure.  Because super savers take the time to think about what’s important to them, they are less likely to make purchase decisions based on expectations, peer pressure, vanity, a pushy salesperson or the need to keep up with the Joneses.  Instead, they spend liberally on things that provide them with a solid ROI and miserly on things that don’t.

They make things simple and automatic.  Super savers automate their savings by having the money automatically deducted from their paychecks and/or bank accounts.

They are organized and intentional.  Saving large chunks of your income doesn’t just happen.  In fact, the path of least resistance is to spend everything you make.  Super savers are disciplined and intentional about earning, saving and spending.  They track their progress and regularly try to improve.

They have aggressive goals. I have a theory.  Our collective failure to adequately prepare for retirement is partly due to the fact that our target (mid 60s) is so far out in the future when we start our careers.  There’s no sense of urgency.  Super savers have aggressive goals that don’t allow for complacency. 

They use debt sparingly.  Debt allows you to bring future purchases into the present.  You get the fancy doodad now in exchange for the promise to keep working so you can pay for it over time.  Super savers understand this calculus.  They realize that you don’t add debt, you exchange future years of your life for it.  And since they hold those future years dear and want to control their time, they use debt very sparingly.

It’s not about the job.  For the most part, super savers aren’t trying to quit working.  They’re trying to get to the point where work is optional and they have greater leverage in choosing the type of work or other activities that they do.

How to buy your freedom faster.

I wrote this article, of course, in the hopes that it would inspire some of you to ratchet up your savings rate and thus buy your freedom faster.  Here are a few simple ways to apply the strategies discussed above.

Inventory.  The first step is a quick inventory of your current financial situation.  The goal is to get an overview of how much you earn and where that money is going.  Grab a pay stub and calculate your annual after-tax income.  Make a list of what you’re currently saving in your different accounts (e.g. 401k, IRA, etc.).  Review your budget to see where you’re currently spending.  Again, the idea with this is just to get a clear picture of how much money is coming in and where it’s going.

Define your priorities.  Next, think about what’s important to you.  What do you actually want to do in this life?  When would you like to retire and how much money do you need to fund that lifestyle?  What goals do you have?  What types of purchases do you view as most worthwhile?  The idea here is to define your priorities and goals so you can allocate your resources more efficiently.  You want to invest in things that are important to you and stop spending on things that aren’t. 

Set an audacious savings goal.  How much are you saving?  Nothing?  3 percent?  10 percent?  Whatever the number, set a stretch goal to drastically improve your savings rate.  Something that will give you a sense of urgency and force you to put forth major effort. 

Track. I’ve been experimenting with savings rates myself for the last two years.  To help, I created a simple spreadsheet that has a column for my income, columns for each of my accounts and a column for my mortgage.  Then each time I get a paycheck, I list my after-tax income in the income column and then enter the amount of savings in each of the other columns (e.g. 401k, IRA, HSA, etc.).  I’m trying to pay off my mortgage quickly, so I count extra payments there as savings. 

Reallocate. Increasing your savings rate takes time because the extra money you want to save is already allocated somewhere else.  In some cases, it will be easy to reallocate it.  If you eat out regularly, but that isn’t a high priority, then stop eating out and send that money to savings instead.  Other things take a little more time (e.g. paying off credit card bills) or more effort (e.g. lifestyle changes like downsizing your house).  As you get rid of past indiscretions and reorder your priorities, your savings rate will rise and you’ll reach your goals faster.  Not only that, but you’ll also be less stressed about money and more satisfied with your lifestyle because you’re spending on things that matter to you.

Be Intentional,

Joe

You’re doing it wrong

You’re doing it wrong

I’ve seen some disturbing data points recently:

  • 78 percent of American workers report living paycheck to paycheck.  This became very visible during the recent government shutdown.
  • 40 percent of Americans said they couldn’t cover a $400 unexpected expense without going into debt.  That number jumps to 60 percent for a $1,000 expense.
  • A record 7 million Americans are 3 months delinquent on their car loans.  
  • In 2018, student loan debt hit $1.46 trillion and $166 billion of that is seriously delinquent.  Both record highs. 
  • People in their 60s with student loans owe an average of $33,800 in student debt.  They owe $86 billion total which is a 161% increase since 2010.
  • People over 60 owed $615 billion in credit cards, auto loans, personal loans and student loans as of 2017.  That’s an 84% increase since 2010 and the biggest increase of any age group.
  • The percentage of bankruptcy filers older than 65 is higher than it’s ever been.

Whatever the reasons, we’re spending too much, saving too little and living on the bleeding edge of financial insecurity.  Sure, everyone on Facebook looks like they’re #LivingTheirBestLife, but peer behind the curtains and there’s trouble.  To make matters worse, all of this is happening at a point in time when the economy is in relatively good shape, unemployment is at multidecade lows and the stock market is near all-time highs.  What happens if/when we have another recession?  

I’m going to spend the next several posts discussing these worrisome trends and talking about how you can overhaul your expenses, save more and improve your retirement security.  Today, however, I’m just giving you a friendly reminder.  The general idea behind retirement is to reach a point of financial independence where work is optional.  If you’re not on track for financial independence, you’re doing it wrong.  Stay tuned over the next few weeks and I’ll give you some practical ideas on how to get there.

Be Intentional,

Joe

Is today the day you’ll start?

Is today the day you’ll start?

In January I wrote a lot about health.  You can’t be unhealthy—mentally, emotionally, physically—and have a great retirement.  While that’s true, it’s also true that you are fighting a losing battle.

No matter how much kale you eat or how many marathons you run, your body is gradually breaking down.  Mine too.  In science, this is called entropy.  Everything is moving from order to disorder.  You can slow the process through your actions and decisions, but you can’t stop it.  How should this affect how you live?

First, don’t let it depress you.  Yes, your time is limited, but to paraphrase Seneca, you have plenty of time if you use it wisely.  Second, stop waiting.  Delayed gratification is overrated.  Decide what you really want out of life and start taking those plans very seriously.  Retirement isn’t about how many birthdays you’ve had or whether or not you punch a time clock.  It’s an intentional way of living that prioritizes freedom, fulfillment, purpose and relationships.  It starts today and is an incremental process of aligning your lifestyle and actions with your highest priorities.

Bottom line?  Do everything you can to get and stay healthy, but don’t stop there.  Make the most of those extra years.  Start today. 

“We have two lives.  The second begins when we realize we only have one.” – Confucius

~ Joe

How to keep loneliness from ruining your retirement

How to keep loneliness from ruining your retirement

Quick summary:  Loneliness and depression are growing problems with the baby boom generation.  In this article I talk about why that is, the problems that it causes and a few ideas on how to fix it.

Loneliness is the sadness you feel when there’s a gap (in quality or quantity) between how much social interaction you have and how much you want to have.  Unfortunately, it’s a growing problem among retirees.  According to the American Journal of Geriatric Psychiatry, loneliness affects between 25% and 60% of all older adults.  The baby boomer generation reported the highest levels of loneliness and isolation.  This is a serious issue because it not only affects quality of life, but can also have severe health consequences.  Why are retirees particularly susceptible to loneliness (and depression) and how can you keep it from ruining your retirement?

Risk factors

As you age, there are a number of things that can affect the quality and quantity of your relationships.  Death.  Divorce.  Leaving the workforce.  Moving.  Physical changes, like arthritis, can affect your mobility and keep you homebound.  Common ailments like hearing loss can make it harder to engage socially.  Women are especially vulnerable because they live longer and are therefore more likely to be impacted by one or more of the previous risk factors.  What are some of the problems that loneliness causes? 

Health consequences

Loneliness affects more than just your happiness and quality of life.  It increases the risk of depression, cognitive decline and dementia.  It weakens the immune system.  It increases blood pressure.  In short, it is linked to poor health and early death.  So let’s re-cap.  Loneliness is more common among older people and the side-effects are no bueno.  How can you keep it from ruining your retirement?  I put several ideas below.

Fixes

Work on your social circles.  A large study by Julianne Holt-Lunstad of Brigham Young University found that those with greater social connection had a 50% lower risk of early death.  Retirement is an amazing time, but it’s also a time where your social network can undergo serious change.  Some of those are by choice (e.g. leaving work, relocating).  Some not (e.g. death of a close friend or spouse).  Either way, you need to be very intentional about making and maintaining relationships.   

Use technology to maintain your independence.  Loss of independence can have a huge impact on social interaction.  If you can’t drive, you can’t meet a friend for coffee.  Thankfully, there’s Uber.  If you can’t hear very well, you’re unlikely to attend social functions or join groups or organizations that require you to interact and converse with others.  Thankfully, hearing aid technology has improved dramatically.  Take advantage of it.  I could give a hundred more examples.  Unfortunately, some people are reluctant to use these technologies because it’s like admitting that they’re “old.”  That’s nonsense.  We all grow old.  We all experience health changes.  Don’t let stubbornness or pride prevent you from using technology to improve your quality of life. 

Consider senior housing, an assisted living facility or CCRC.  People understandably want to age in place and stay at home.  It’s familiar.  It gives a sense of independence.  I get it.  But if your physical limitations mean that your home becomes a place of isolation, maybe it would be better to move into a facility that is designed to provide social interaction, regular activities and assistance with issues that get harder as you age.  People in these types of facilities report being happier and having higher levels of physical, social and emotional wellbeing.  Most clients I’ve worked with over the years have viewed a move into one of these facilities as a positive, even if they were reluctant at first.  In fact, I moved into one myself to see what it was like.  You can read more about that here: So…I moved into an assisted living facility.  Here’s how it went.

Volunteer. I mentioned this in my article last week, but it bears repeating.  Several large studies show that volunteering can have positive effects on your health and well-being.  One reason it’s so good for you is because it provides lots of social interaction.  Not only that, but doing good deeds can reduce stress and lower cortisol levels which can strengthen your immune and cardiovascular systems and ultimately lengthen your life.  Use some of your extra time during retirement to volunteer.  Chances are it will make you healthier and happier.

Evaluate social media use.  Sometimes social media is a helpful way to stay connected with your friends and supplement your in-person interactions.  Sometimes it’s a vortex of negativity that breeds discontent and FOMO (fear of missing out).  If it’s making you happier and more connected, great!  If not, don’t be afraid delete your profiles and invest your energy elsewhere.

Join a local group related to your hobbies or interests.  Like to garden?  See if there’s a local gardening club.  Like to golf or play pickleball?  Join a league.  Like to dance?  There’s a group for that.  Like to travel?  Consider group trips through organizations like Road Scholar.  As with most things, hobbies are better when you can add others into the mix for friendship and fun.

Entertain.  Everyone wants and needs social interaction, but too often they just sit at home waiting for the phone to ring.  They’d jump at the chance if someone took the initiative.  You can be that someone.  As our daughter has gotten older, we’ve invested a little money in our house so it will be a place where her and her friends will want to hang out.  I’m guessing many of you did the same thing for your kids.  There’s no rule against doing that same thing in retirement.  Be the person that has dinner parties, back yard barbeques or movie nights.  Take the initiative and you’ll likely have plenty of people excited to participate.

Get professional help.  If you’re lonely or depressed, get some professional help.  There’s no shame in that.  I’m not a doctor, but I have had several close friends and family members who have struggled with loneliness, anxiety or depression.  In each case they sought help (counseling and/or medication) and saw drastic improvements.  For some reason, there is a stigma associated with mental health in the U.S.  No one blinks an eye when someone seeks treatment for cancer or diabetes, but there is reluctance to treat depression like the disease that it is.  There are a number of effective treatments.  “Cheer up!” is not one of them.  If you need help, get help.

If you have any other thoughts or ideas, feel free to share them in the comments section.  Thanks for reading.

Be Intentional,

Joe

12 Tips for a healthy retirement

12 Tips for a healthy retirement

Are you trying to take better care of yourself this year?  Great!  We enjoy having you around.  Here are 12 simple ways to be healthier, both now and in retirement.

Forgive.  Researchers have discovered a link between forgiveness and physical health.  One study showed that people who forgive have fewer coronary problems than people who hold grudges.  Other studies show that those who forgive have less anger, less depression, decreased anxiety and more hope for the future.  The research also shows that forgiveness improves your mood and makes you more optimistic.  Don’t let old wounds fester.  Forgive and move on.

Volunteer. Several large studies show that volunteering can have positive effects on your health and well-being.  Doing good deeds can reduce stress and lower cortisol levels which can strengthen your immune and cardiovascular systems and ultimately lengthen your life.  Use some of your extra time in retirement to volunteer.  Chances are it will make you healthier and happier.

Find purpose and meaning.  Studies show that when you feel like your life has purpose and meaning, you will experience less stress (and the negative health effects it produces), you’ll be better able to cope with challenges and you’ll be more inclined to take better care of yourself.  Studies also show that having purpose makes people more likely to be physically active and more likely to use preventative health services like getting a cholesterol check or prostate exam.  Looking for ways to find purpose and meaning?  Read this: 15 Practical ways to live a purposeful life.

Get rid of belly fat.  A recent study published in the British Journal of Nutrition showed a strong correlation between belly fat and cognitive abilities as you age.  Those with higher levels of belly fat performed worse on cognitive tests and they were also more likely to develop diabetes or have a heart attack. 

Eat less.  Maybe you’ve heard the expression, “You can’t outrun your fork.”  If you’re trying to lose the belly fat mentioned above, focus on how much you eat rather than just exercise.  You need to burn about 3,500 calories to lose a pound.  Most people could trim 500 calories per day if they shrunk their portion size or cut back on snacking.  That would result in a pound per week of weight loss.  To burn the same calories running, you’d need to run about 5 miles per day or 35 miles per week.  Exercise is good, but most of us aren’t running an ultra-marathon every week, so watch the Ben and Jerry’s instead.

Retire sooner rather than later.  According to research done by the National Bureau of Economic Research, retiring can improve your overall happiness and health.  The research found that life satisfaction improves immediately for retirees and their health improves gradually over a period of years.

Retire later rather than sooner.  There are other studies that show that retiring later (after 65) may extend your life. I suspect this has to do with the quality of your pre-retirement life.  If you have a fulfilling career, staying in the workforce can help you stay socially and mentally engaged and reduce the risk of certain diseases.  If you hate your job and have plenty of friends outside of work, retiring sooner (as mentioned in #6) might provide more benefits.

Meditate/Pray. Meditation carries a number of benefits.  It reduces stress, anxiety and blood pressure.  It improves self-awareness and can help you sleep better.  It helps you live more in the present.  It can improve emotional health and reduce age related memory loss.  There are several apps that can help you with meditation, including Calm and Headspace.

Don’t smoke.  This one pretty much goes without saying.

Get enough sleep.  The research on sleep has gotten pretty compelling.  Most adults need between 7 and 9 hours of sleep per night.  Getting enough sleep can strengthen your immune system, help you maintain a healthy weight and help reduce your risk of serious health problems like diabetes and heart disease.  It can also improve your mood and help you to get along well with others, which will help with # 11.

Work on your relationships.  Retirement is a risky time for relationships.  Death can take a spouse or close friend.  Leaving work might alter key relationships or social interaction.  Friends might retire and move away.  Those are all bad, because loneliness is linked to poor health and early death.  In fact, loneliness has the same impact on mortality as smoking about 15 cigarettes per day.  The takeaway?  Invest in friendships.  Invest in your family.  Work on your relationship with your spouse.  Being lonely and isolated can kill you.

Exercise.  We all know that exercise is important, but recent research shows just how important it is to retirees.  Not only does regular exercise reduce your risk of heart disease, diabetes and stroke, but a recent study by Cardiff University showed that exercise was the single biggest influence on whether or not study participants developed dementia.  If you want to maintain your faculties and have a healthy, active retirement, then get regular exercise.