by Joe Hearn | May 23, 2014 | Lifestyle Design, Pursuits, Retirement
What are you waiting for? Permission? Extra time? Enough money?
What’s holding you back? Fear? Laziness? Uncertainty?
I’ve struggled with all of those things at one time or another. In fact, I’m struggling with most of them right now as we get ready to head out on our first mini-retirement (update on that next week).
But here’s the thing. The time will never be “right.” The conditions will never be “perfect.” The things holding us back will never magically align and start flashing a giant green light.
The road less traveled will never be safe, risk free or totally clear. Sometimes you just need to go. To try. To step out and take a chance. If you don’t, that chance will vanish. “To wait” has a funny way of becoming “too late.”
When that happens, you’ll no longer have something trivial like money or fear holding you back. It will be something much harder to overcome, like your health or some other door that was once wide open only to slam shut.
So don’t wait. Your life and opportunities won’t go on forever. Someday it will be “too late.” That realization should cause you to live with a sense of urgency and to focus on the people, issues and goals that are important to you. Time will rush on. What will you do to make the most of it? What will you do to live a meaningful life and leave the world a better place?
“We are now faced with the fact, my friends, that tomorrow is today. We are confronted with the fierce urgency of now. In this unfolding conundrum of life and history, there is such a thing as being too late. Procrastination is still the thief of time. Life often leaves us standing bare, naked, and dejected with a lost opportunity. The tide in the affairs of men does not remain at flood—it ebbs. We may cry out desperately for time to pause in her passage, but time is adamant to every plea and rushes on. Over the bleached bones and jumbled residues of numerous civilizations are written the pathetic words, “Too late.”
~ Martin Luther King, Jr.
by Joe Hearn | Apr 30, 2014 | Retirement, Risk
As we go through life, there seems to be a natural progression. When we’re young, we tend to be hungry and passionate. We have a fire in our belly. We’re willing to take risks and blaze new trails.
We accept things like moving, changing jobs and making new friends as a common part of life. We’re ok living in a humble apartment filled with less than desirable roommates and hand me down furniture. We’re ok driving a sketchy car.
In short, we’re comfortable with discomfort. Partly because we don’t know any better, but mostly because we know that the discomfort is a necessary stepping-stone on the way to something better.
Then a funny thing happens as we get older. We get a better job with a better income. We upgrade our house. Buy a better car. We get the kids into private school and take on a whole mess of responsibilities. As this happens we get less willing to rock the boat. Less willing to take a risk. We’re more willing to compromise and less willing to change because along with change comes stress, uncertainty and, most of all, discomfort.
Then retirement comes. The retirement that most of us imagine requires significant life change. We’re leaving our job. A move may be involved. We’re doing new things. Trying new experiences. Saying goodbye to some people and meeting new ones. Saying no instead of yes. Saying yes instead of no. Doing those things can be intimidating and scary. They require a certain level of discomfort.
Unfortunately, we’re at that phase in life where we’re not very comfortable with being uncomfortable. The obvious risk is that we will decide to downsize, delay or even discard our dreams for retirement. Just as we’re ready to “sail, dream and discover” we decide to keep our ship at anchor instead.
I’ve seen this phenomenon many times as I help people transition into retirement. I even see the seeds of it starting to germinate in my own life. The risk is real. So don’t get too comfortable. Stay curious and open to new things. Be ready to steer off the well-worn path of the familiar and onto the road less taken. Remember that retirement doesn’t need to wait until some far off date. Each of us can start today.
~ Joe
Photo by a200/a77Wells. Used under Creative Commons License.
by Joe Hearn | Apr 14, 2014 | Estate Planning, Retirement
I help a lot of clients with their retirement planning and anytime I come across a situation that I think we can all learn from I like to change the names to protect the innocent and then write about it here at Intentional Retirement.
Today’s installment is brought to you by the phrase “Per Stirpes.” No, that’s not a nasty disease. Per Stirpes is a Latin phrase that means “by branch” and, believe it or not, those two words are incredibly important when it comes to your beneficiary designations.
Here’s the scenario. A widow (not a client of mine, but of a colleague) in her 80s had a sizeable IRA and she named her four adult children as beneficiaries. Two of those children died unexpectedly last year and then the client also passed away at the end of the year without updating her beneficiary designations.
One of the surviving daughters was the executor of the will and she asked us to divide the IRA into four equal parts and pay each part out to the four beneficiaries or their surviving families.
Per Stirpes vs. Pro Rata
This is where our Latin lesson comes into play. When you name multiple beneficiaries (or multiple contingent beneficiaries), as this client did, there’s always the chance that one or more of those beneficiaries will die before you do.
If that happens, the language in your IRA agreement will specify what happens next. In some cases, that language will specify that the benefits should be paid Per Stirpes: To each named beneficiary OR their surviving family (i.e. their “branch” of the family).
In other cases, the IRA agreement may specify that the assets be divided on a Pro Rata basis among any surviving beneficiaries, effectively disinherited any of your beneficiaries (or their families) that predecease you.
Returning to our example, the family wanted us to divide the assets into four equal parts and distribute them to the four kids or, in the case of the two children who had died, their surviving family members. Instead, we were obligated to divide the assets into two equal parts and distribute them to the two surviving children because the IRA agreement stipulated Pro Rata instead of Per Stirpes.
“Wait,” you might be saying. “I don’t ever remember being given the choice between Per Stirpes or Pro Rata.” That’s because many IRA custodians choose one of those options (or some other option) as a default and then leave the burden on you to tell them if you want something different. To make matters worse, not all custodians choose the same default.
You can see where this could create problems and might cause you to accidentally disinherit certain branches of your family. To avoid any problems, it’s a good idea to review your beneficiary designations periodically to make sure that they are designed to accurately carry out your wishes.
Some tips for updating your beneficiary designations
- Review your designations each time there is a major change in your family circumstances (e.g. birth, death, divorce, etc.).
- Specify whether the designation is Pro Rata or Per Stirpes
- On accounts that don’t allow beneficiaries, consider using a Payable On Death (POD) or a Transfer On Death (TOD) designation in order to avoid probate on those assets.
- Coordinate your designations with your will or trust, but keep in mind that your beneficiary designations will trump your will, even if your will is more up to date and accurately reflects your wishes.
Touch base if you have any questions. Have a great weekend!
Carpe Diem,
Joe
by Joe Hearn | Mar 28, 2014 | Lifestyle Design, Mini-retirements, Pursuits, Retirement
It’s no accident that this site is called Intentional Retirement.
Being intentional with this brief, but beautiful life is one of the things I’ve tried to weave into the DNA of the site since day one. I preach that sermon every chance I get and I work hard to practice what I preach. I know many of you do the same.
One side effect of being intentional is that you start to tackle big things. You look past the low hanging fruit of your daily “To Do List” and instead set your sights on those big, intimidating goals that you’ve thought about for years, but have never brought to the front burner of life.
Here’s an example from my own life. As many of you know, I’m in the middle of planning my first Mini-Retirement. One thing I’ve learned so far is that ditching your job and traveling halfway around the world for four weeks takes a lot of planning. I know. Who knew? Right?
I’ve spent months working on logistics like accommodations, rental cars, airfare, event tickets, reservations, train tickets and daily itineraries. This is to say nothing of other important details like figuring out a way to pay for it all (Donations accepted. Just kidding. I’ve learned a lot about traveling less expensively and I’ll detail that in a future post.).
As I thought about all this, I had a flash of insight relating to doing big things. It’s the universal secret to accomplishing anything big in life, whether that’s a big trip, writing a book, having a great relationship, building a healthy marriage, having a successful career, getting in shape or putting a man on the moon.
Here it is.
Ready?
The secret to doing big things is to do a bunch of little things. In other words, you don’t “write a book,” you write a little bit today, and then tomorrow and then the next day. You do that a few thousand times and then throw in a good dose of editing, pitching and publishing and Voila! You’ve written a book. This same process applies to anything big you want to do in life.
If I were to put that into an equation, it would look something like this:
Little things + Consistency + Time = Big Things
Application
As you think about how you can apply the above equation in your own life, keep one thing in mind: The clock is ticking. In other words, the “Time” variable in the equation is getting smaller each day. Why is that important? Because if “Time” is getting smaller, then you need to increase the “Little Things” and the “Consistency” in order to still achieve the “Big Things” that you have in mind. If you can’t do that, then you need to rewrite your equation to get rid of the “Big Things” and replace them with medium or small things.
That’s why I’m so adamant about not waiting until your 60s to retire. It’s why I’m so against saving the best for last. Too many people follow the “traditional retirement” path and when they arrive, they realize that their equation doesn’t balance. They do the mental math and realize that many of their plans and dreams require a crazy amount of effort and consistency because they’ve waited so long start. This results in no small amount of discouragement as they let those dreams go and settle on smaller plans.
So remember that equation above. Dream big, but don’t wait to start. Retire today.
Have a great weekend!
Joe
by Joe Hearn | Mar 14, 2014 | Distribution Planning, Income, Retirement
Will retirement be cheaper than you think? Maybe. A lot depends on your income replacement ratio. What’s that you ask? It’s the percentage of your current income that you will need during retirement to maintain your standard of living.
Some people will need 100% of their current income. Others will be able to get by on less. Ironically, the more money you make now, the lower your income replacement ratio will likely be. That’s because you probably aren’t using all of your current income for expenses that will still exist during your retirement years.
Here are three major expenses that will likely disappear from your retirement budget:
Savings: Retirement is a shift from the accumulation phase to the distribution phase. That means no more 401(k), IRA or savings account contributions. How much are you saving now? Five Percent? Ten? Fifteen? Once you’re no longer saving, you won’t need that income.
Payroll taxes: Looking at the glass half-empty, retirement means no more paycheck. Looking at the glass half-full, that also means no more Social Security and Medicare taxes on your earned income. Right now you’re paying a 6.2% Social Security tax on your first $114,000 in income and a 1.45% Medicare tax on all your income (7.65% total or twice that if self-employed). And if you’re a high-wage earner ($200,000 for singles, $250,000 for couples) you’re paying an additional 0.9% Medicare surtax. Those taxes go away when your earned income goes away.
Work expenses: Think of all the expenses you have that relate to your job: commuting, dress clothes, expensive lunches, a second car. Most of those expenses can be reduced or eliminated in retirement, which is probably the equivalent of hundreds of dollars each month that you can cut from your budget.
If I apply those three items to my own budget, I could eliminate more than a quarter of my expenses. How about you? How much could you get rid of? I’m guessing the amount is significant. If you’re able to pay off your house and retire debt free, you could eliminate even more. To be fair, you’ll also have some expenses that get added to your budget during retirement (e.g. travel, hobbies, etc.), but those likely won’t outweigh the cuts.
A common rule of thumb for your income replacement ratio is 85%. David Blanchett, head of retirement research at Morningstar, thinks that most people will be able to get by on less. Whatever the number, it is the primary driver of how big your nest egg needs to be. Shave 20% from your income replacement ratio and you’ll be able to shave 20% from your nest egg, which means you could save less and retire sooner.
Start Today
One of the benefits of the exercise above is that it shows the direct link between expenses and retirement. The less you need, the sooner you can retire. Remember that your ideal retirement is not about age or work status. It’s about control. It’s a gradual shift from doing what you have to do to doing what you want to do. One way to speed that shift is to save more, but equally effective (and often overlooked) is to need less.
~ Joe
by Joe Hearn | Feb 25, 2014 | Retirement
I’d like to take a moment to thank the good people at Merriam-Webster and Oxford English Dictionaries.
Each year they faithfully add hundreds of new words in an effort to help us all communicate more efficiently and effectively. After all, without those additions, how would we know the difference between fracking and twerking?
I mean seriously. How did our ancestors survive without acronyms like MOOC and YOLO? And without words like selfie, how would we describe carefully choreographed, deceptively flattering photos of ourselves? Vanity photo? Ego pic? Those sound so…narcissistic.
So in the interest of a more perfect lexicon, I have a few submissions I’d like to make for 2014. Below are 15 retirement words that don’t exist, but should (feel free to suggest your own in the comments section below).
1) Jobby: noun. plural jobbies. A hobby that you enjoy and are passionate about that you turn into a job or second career during retirement. Running the bed and breakfast is a jobby of mine.
2) Benboozle: verb. See also benboozled, benboozling. To deceive retirement savers into believing that they have enough money, only to make it incredibly difficult for them to generate retirement income due to financial repression and a policy of zero percent interest rates similar to that instituted by Ben Bernanke. I thought my nest egg was adequate until Bernanke came along and benboozled me.
3) Moneymoon: noun. That brief period after you retire when you’re more concerned about having meaningful experiences than you are about running out of money. The bills from our African Safari came in today and unfortunately, the moneymoon is over.
4) Casabanka: noun. A house that is used to fund one’s retirement via a reverse mortgage. If our nest egg isn’t big enough, we may need to withdraw money from casabanka.
5) Boomerboomerang: noun. A person who retires, but misses the challenge and social interaction of their job, so they return to work either full or part-time.
6) YOLHO: slang. You Only Leave Home Once! Acronym used by empty nesters to discourage their adult children from moving back home when the latter are struggling with the poor economy or bad job prospects.
7) Refire: verb. See also refired, refirng. When a person retires sooner than they expected because they got fired, downsized or laid off. Matt refired from his job at the factory when they brought in a machine to do his job.
8) Someday Window: noun. The wonderful window of time during life when you are retired, healthy and able to do all the things that you’ve been putting off until “someday.” [Note: See “Someday is Here!” for ideas on making the most of your someday window.]
9) Maximalist: noun. A person who lives life thoroughly and to the full. Similar to how a minimalist will structure their life around minimizing possessions, a maximalist will structure their life around maximizing experiences.
10) Globetalker: noun. A person who talks frequently about the globetrotting and travel that they have done or plan on doing.
11) Taxile: noun. A retiree who leaves their home state due to an unfavorable tax structure. I haven’t always lived in Florida. I’m a taxile from Nebraska.
12) CRLP: slang. Cash Rich, Lifestyle Poor. Acronym used to describe a person who treats retirement solely as a math problem. They have enough money, but don’t use it to enjoy life.
13) Doughphobia: noun. An abnormal fear of outliving your money.
14) Fibflation: noun. A false estimate of the general rise in prices used by the government to justify an unfair cost of living adjustment in Social Security.
15) To-Don’t List: noun. A list of tasks, activities or obligations that you plan to quit doing once you retire, usually organized in order of priority. This is my last year as club president. Once I retire, it’s totally going at the top of my To-Don’t List.
Bonus word: I originally wrote this article for Dow Jones and they published it yesterday at their MarketWatch website. Not surprisingly, several of my word suggestions didn’t make it through the editing process for one reason or another. Just for fun (and because my editorial standards are a bit looser than those at Dow Jones), I thought I’d share my favorite word that ended up on the cutting room floor.
F**ket List: noun. The most dangerous items on your Bucket List that you’re saving until you’ve lived a long life and no longer care if you die in an adrenaline filled wipeout. On his 90th birthday, Sam crossed wingsuit flying off his F**ket List.
Hope you’re all doing well. Have a great week!
~ Joe
Photo by gadgetgirl. Used under Creative Commons License.
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