by Joe Hearn | Aug 17, 2012 | Retirement
At what stage of life are your retirement dreams most at risk?
Not in your 20s and 30s. That’s when you’re just getting started. Time is on your side. Not only that, but you have some fire in your belly and you’re ready to make your mark on the world.
Not in your 60s either. By then you can see the finish line. Your goals are within reach. You’ve run a good race and you’re anxious to transition into an exciting new phase of life.
The most dangerous time is in your 40s and 50s. You no longer have that new car smell and you’re still a long way from the finish line. You’ve probably been hit by a few obstacles and setbacks in life. You’ve had the wind knocked from your sails a time or two. Your dreams aren’t quite as clear as they used to be. It’s easy to get discouraged, sidetracked or blown off course.
I’m entering that phase of life now, so I’ve been thinking a lot about how to stay motivated and on track. If you’re there too, here are a few ideas:
- Meet with your adviser to make sure you know exactly how much you need to save to fund your retirement. Sometimes the easiest way to stay motivated is to know where the finish line is.
- Answer the question “What do I really want out of life?” Maybe the answer has changed over the years. Maybe you’ve just lost site of what’s important to you. Either way, once you know what you really want out of life you can allocate your time and set goals that align with your priorities. In other words, let your passion and purpose drive your to do list.
- Bring the finish line closer. Rather than waiting a decade or two until retirement, retire today. Start with version 1.0 and then add features as you go.
How about you? Do you want your middle years to be a pivotal time of progress or the period when the wheels came off the bus? Me too. Let’s get to work.
Joe
Photo by Kevin Harber. Used under Creative Commons License.
by Joe Hearn | Aug 13, 2012 | Pursuits, Retirement
Do you remember the scene from The Princess Bride where Vizzini keeps using the word “inconceivable” at all the wrong times? Inigo Montoya finally corrects him: “You keep using that word. I do not think it means what you think it means.”
When it comes to the word “retirement” I feel a little like Inigo must have felt. I keep hearing people use that word and I don’t think it means what they think it means. Most think it is synonymous with things like travel, leisure, adventure and fun. It is the time in their life when they will do everything they have always dreamed of.
A recent study by the Bureau of Labor Statistics (BLS) shows that, when it comes to retirement, perception may be different than reality. The study, called the American Time Use Survey, analyzes how different age groups of Americans spend their day.
As you might imagine, everyone spends time sleeping, eating, shopping, working and enjoying leisure activities. How much time we spend on those different activities varies depending on our life-stage. Students understandably spend more time on educational activities. People in their prime working years spend more time at the office.
How people reallocate their time when moving from their working years into retirement can tell us a great deal about the state of retirement in America. Do we spend our Golden Years living life to the full or does retired life look suspiciously like our working years?
The Results
To get an idea, I compared two groups of people from the study: those in their prime working years (55 to 64) and those in the years typically associated with retirement (65 to 74). The study showed that those in retirement spent less time on things like working, educational activities, and caring for others like their children. They spent more time on things like personal care, eating, household activities, shopping, leisure, civic activities and talking on the phone. In all, a typical retiree took 2.5 hours per day away from activities like work and added those 2.5 hours into activities like leisure.
Too much T.V. Not enough travel.
If that number surprises you, you’re not alone. It surprised me too. The study seems to show that the typical day in retirement doesn’t look drastically different from the typical day during your working years. Rather, it is a reallocation of 10-20 percent of our day from things that we are obligated to do to things that we choose to do.
Said another way, retirement happens at the margins. You won’t be handed a 30 year uninterrupted block of time at your retirement party to do with what you want. You will be given a few extra hours each day. How disciplined and creative you are with those few extra hours will largely determine how fulfilling your retirement years will be.
How are current retirees doing in that regard? The numbers are a little concerning. According to the BLS study, retirees are currently allocating about 9.45 of their extra hours each week to leisure activities like travel, recreation, reading and socializing. That seems like a promising start. Unfortunately, the bulk of that time (5.42 hours to be exact) is spent watching T.V. The rest is spent on things like relaxing (about an hour), socializing (44 minutes), and activities like travel (a whopping 3.6 minutes).
That’s not exactly the stuff that retirement dreams are made of. So why are people choosing the television over travel and other retirement pursuits? It is likely because more and more people are entering retirement financially unprepared and without a clear idea of what they want to do. In other words, television is winning by default. How can we do better?
Save enough—Some of the best things in life are free, but pretty much everything else costs money. If your plans include travel, hobbies, a vacation home or anything else that costs money, it’s important to make sure you’ve set enough aside. I’m sure many retirees in the BLS study would love to do more with their time, but they just can’t afford it. Before retiring, work closely with a trusted adviser to make sure that you are on track to save enough to fund the type of retirement you want.
Simplify—During retirement you are given the same 24 hour day that you had during your working years. The more efficiently you are able to handle things like cleaning the house, getting groceries, mowing the yard, and going to the doctor, the more time you will have to allocate to things like family, relationships, education, adventure, community, hobbies, travel, and health. Do everything you can to simplify, condense, consolidate, minimize, or outsource the maintenance so you can be free to spend more of each day focusing on milestones.
Have specific plans—As you transition into retirement, it’s helpful to have specific, new plans that will force you to steer off the well-worn path you’ve become accustomed to and proactively pursue your new goals. If you don’t have specific new plans, it’s easy to fall into a routine that doesn’t look much different from your working years, save for sleeping in a little bit and having more time to run errands.
Retire to something, not from something—Ralph Waldo Emerson once said “Don’t be pushed by your problems. Be led by your dreams.” Retiring to escape a job is a recipe for misery and discontent. Retiring to pursue things that you are passionate about is a recipe for meaning and fulfillment.
Dream big—When you dream big, something happens. It changes how you think and how you act. It changes the types of questions you ask. It inspires and changes those around you. What are your dreams for the future? What is the vision you have, not just for retirement, but also for the rest of your life? If you can’t answer that question or if your answer doesn’t really inspire you, then stop everything else you’re doing and really think that through. Don’t settle for more Seinfeld reruns when retirement can be so much more.
Don’t quit learning—Those 65 and older in the BLS study reported spending zero hours per day on educational activities. That is unfortunate. Learning new things is a key element to an interesting, rewarding retirement. It helps to keep your mind sharp. It helps you figure out what you like. It helps you discover new things. It gives you people to interact with. It provides personal satisfaction and a sense of accomplishment. Be a lifelong learner.
So as you head into retirement, remember to spend your time wisely. An hour here and there can make a big difference as long as you spend that time doing the right things. Be intentional with your day and having a mediocre retirement would be, well…inconceivable.
Have a great week! Spend some time thinking about what you will do with your day when you’re the one calling the shots.
Joe
I originally published this article at www.fpanet.org.
by Joe Hearn | Aug 8, 2012 | Estate Planning, Investing, Retirement
“Plans fail for lack of counsel, but with many advisers they succeed.” ~Proverbs 15:22
As you approach retirement, there are five people who can make a big difference when it comes to your health, financial security, and overall quality of life. They are:
1. Your doctor
Getting old is inevitable, but aging doesn’t automatically need to be accompanied by poor health. Your doctor can be a great resource when it comes to maintaining a healthy lifestyle. He (or she) can advise you on eating habits and exercise routines. He can provide screenings, tests or procedures recommended for people in your age group. Should you have a colonoscopy? Should you start an aspirin regimen? Your doctor will know. He can also offer advice on how to prevent certain illnesses and can catch small problems before they become big problems. Of course, none of this will happen if you either don’t have a doctor or never go to see him, so make sure to schedule regular check-ups. Be proactive with your health and you will be in much better shape to enjoy retirement.
2. Your lawyer
You probably won’t need to see your lawyer as often as your doctor, but you should still be on a first name basis. Your attorney can help you draft a will (or trust) as well as legal and financial powers of attorney. Everyone needs those documents no matter how much or how little they have. Having your legal affairs in order will ensure 1) That your property passes to the correct people, 2) that the correct people take charge if you die or become disabled and 3) that things like expenses, hassles and taxes are minimized. Use this checklist to review your estate plan annually.
3. Your accountant
Your taxes in retirement will be significantly different than they were during your working years. Will working part time result in your Social Security benefits being taxed? How will distributions from certain retirement accounts be taxed? Does the state you’re planning on moving to tax retiree benefits favorably? How will owning property in two different states affect your tax bill? What if you plan on moving overseas? Your accountant can advise you on all these issues.
4. Your financial adviser
Because finances are the number one concern for most retirees, having a good financial adviser is a must. A recent study by LIMRA showed that people using an adviser were more likely to be saving for retirement and saved a higher portion of their income. A good adviser can boost confidence and provide guidance, education and planning to make sure you meet your retirement goals.
Even if you didn’t use an adviser in your pre-retirement years, you should consider hiring one during retirement. That’s because the issues facing a retiree are much different than the issues facing someone prior to retirement. Most people are familiar with pre-retirement issues like saving. They are usually less familiar with issues like cash flow management, pension payouts, retirement plan distributions, long-term care planning, dealing with Social Security and the tax consequences of certain distribution strategies. Those are post-retirement issues and most people would benefit from the help of a competent professional when dealing with them.
5. 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 and to always be nurturing that relationship. It’s also a good idea to make sure that you are on the same page with your spouse when it comes to plans for retirement. Here are some questions to get the conversation started.
How did you do? Do you have those key relationships in place? If so, great! If not, get to work. Having a good team in place will greatly increase your odds of a secure, healthy, rewarding retirement.
Touch base if I can ever help.
Joe
by Joe Hearn | Aug 2, 2012 | Hobbies, Pursuits, Retirement
One of the most important jobs at any museum is the Chief Curator. It’s his or her job to use a discerning eye and a deep understanding of the museum’s mission to select works that are appropriate for the collection. That is why you will see paintings by Pollock and Picasso at the Museum of Modern Art, but you won’t find any by Rembrandt. It is why you will see the Wright brothers’ plane at the Air and Space Museum instead of at the Museum of Natural History.
In a similar way, you’re the Chief Curator of your life. There are so many things that you could be doing; so many people you could be spending time with; so many things you could buy. It is all too easy to flood your life with stuff, people and activities.
The challenge is to be purposeful with what you allow in. To select things that fit well and to cull those that don’t. To choose the right friends and the ideal activities that fit perfectly with who you are and what you want out of life.
It’s easy to get lazy and start letting things in by default. We hang out with people because they’re somewhere in our orbit of friends, not because we feel drawn to them. We say ‘yes’ and become obligated just because someone asks, not because we feel compelled to do whatever it happens to be. Before we know it, our “collection” is a cluttered hodge podge of the weird, unrelated and uninteresting.
You can do better. Select your activities purposefully. Choose your friends wisely. Most importantly, don’t overstuff your life by saying “yes” to everything. Show me someone with a remarkable life and I’ll show you someone who is a tough curator.
Writer Nora Ephron understood this idea. She died recently, but I remember an interview she gave in her later years where she talked about awakening to the realization that her time was limited. She wanted to be discerning with what she did, even to the point of what restaurants she would go to. She said:
“Is this meal I’m having something I really want to have? If someone says to me, let’s go somewhere and it’s not good, I say ‘Let’s not.’ Because I have a finite number of meals ahead of me and they are all going to be good.”
The lesson? Choose everything—friends, hobbies, work, philanthropy, clothes, vacations, meals, gadgets, books, etc.—with a discerning eye. Your life will be defined by what you allow in and what you keep out.
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 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.
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