Who Said You Need Millions?

Living a Six-Figure Lifestyle on a $30,000 Salary?

2011-05-11T07:26:00.000-07:00

So this is a story about a guy named Brian C. Williams who recently wrote an article for Yahoo Finance where he explains how he can live a six-figure lifestyle on a $30,000 salary. Mr. Williams discusses how he was able, with a little work, to find great deals on luxury homes, fancy cars and high-dollar watches. It he can do it then so can you.

This article is interesting for retirees for two reasons. First, is shows that you can live well on relatively little money. The second reason why this article should be on interest to retirees, and those planning to retire, is more of a question. That question is: why does Mr. Williams feel he needs those luxury homes, fancy cars and high-dollar watches?

Who is he trying to impress? And as a retiree, or someone planning to retire, you should ask yourself the same question. Who are you trying to impress? Do you really need a mansion, a luxury car and a $800 dollar watch to be happy?

How much faster would Mr. Williams be able to become financially independent if he had used his considerable bargain hunting skills to find a modest home, a fuel efficient small car and a Timex? If Mr. Williams can live a luxury lifestyle on $30,000, how much less would he need to live a more modest lifestyle. Food for thought.

Life Span: Retirement Planning's Missing Link

2009-12-04T09:18:00.000-08:00

Retirement planning would be easy if you knew exactly how long you were going to live. While this variable in your retirement calculator is unknown, it is not unpredictable. The question is whether these predictions are worth anything.

There are several methods by which you could make an educated guess as to your lifespan.. First there are simple actuarial tables. These are the tables used by life insurance companies and while they are fairly accurate for groups of people, they are probably not as accurate for individuals. Then there are more detailed calculators like the Northwest Mutual Life Insurance Company's Lifespan Calculator and MSN's Life Expectancy Calculator.

The results vary widely. The actuarial tables suggest I'll live 26.83 more years or until almost 80 years of age, while Northwest Mutual's calculator has me living until age 90. Best of all, according to MSNs calculator, I'll live to age 93. While I don't care much for MSN's products, I really like their calculator!

So how should you plan your retirement? As you can see these lifespan estimates aren't very helpful. If you had my numbers would you need your retirement money to last only until age 80 or all the way to age 93? My suggestion is to use a wide variety of calculators and then shoot for lifespan somewhere in the middle of the estimates.
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In addition, it helps to live in your retirement as frugally as possible and to leave a little cushion in your retirement calculations such as excluding some (or perhaps all) of the equity value of your home in your net worth. That way if you live to the ripe old age of 100 or more, you can take out a reverse mortgage to fund your gravy years.

Should You Be Worried About Low CD Rates?

2009-11-12T19:04:00.001-08:00

A recent trip to my credit union to purchase a CD was a surprise. A 3-month CD yielded a measly 1.32 percent. A 5 -year CD wasn't much better at 3.43 percent. But these low rates got me thinking about another rate and that's the inflation rate. (See: http://www.inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp for the raw inflation data.). The annualized inflation rate for the month of September 2009 was -1.3 percent. That "minus" means that goods and services cost an annualized 1.3 percent less in September 2009 than they did the year before. So if I had a 3-month CD which paid me an annualized rate of 1.32 percent in this inflation environment, my "real" annualized yield for the month of September 2009 would be 2.62 percent (i.e., 1.32-(-1.3)= 2.62). If I had a 5-year CD my "real" annualized yield for the month of September 2009 would be 4.73 percent. Not bad!

Consider the same CD in January 2006. According to government statistics (the Federal Reserve's H.15 publication), in January 2006 a 3-month CD yielded 4.56 percent. That month the inflation rate was 4 percent, meaning that the saver's "real" annualized yield for that month was only .56 percent.

So, while today's CD rates seem low, the "real" return to the saver is much more than they were in 2006 (after taking the inflation rate into account). In fact, a few quick calculations shows that 2009 is turning out to be a much better year for CD investors, if you consider the CD return over inflation, than the 3 previous years.

I compared the 3-month Certificate of Deposit Index (CODI) (calculated by averaging the previous 12 rates of the 3 month CD rate. which is less volatile than straight CD rates) for each of 2006 through 2009 and compared it to the inflation rate for the same periods, I found the annualized returns over the inflation rate for 2006, 2007, 2008 and 2009 were 1.267, 2.432, 0.156 and 3.116 percent, respectively.

So the low CD rates offered by banks and credit unions aren't as bad as the seem at first blush. In addition, when you consider the taxes you pay on your returns, today's inflation (or rather, deflation) environment is even better.

Lets say for simplicity that the 3-month CD rates held steady at 4.56% and 1.32% for the whole year in 2006 and 2009, respectively, and similarly the inflation rates for those years held steady at 4% and -1.3, respectively.

Back in 2006 let's assume you put $100 in a one year CD which paid 4.56% interest. So you "earned" $4.56 on your CD for that year and paid taxes on that amount. Let's say you were in the 30% tax bracket and paid 30% of that $4.56 (or $1.39) to the government in taxes. But remember that in 2006 the inflation rate was 4% and therefore your "real" return after inflation on your $100 CD was only $0.56. Yet you paid $1.39 in taxes! So for 2006 you lost $.81.

Let's go forward to 2009 when you will "earn" only $1.32 on your $100 CD, pay your 30% taxes of $.40 for a net of $.92. But, after considering that inflation is only -1.3 in 2009 your "real" return after inflation in 2009 will be $2.22!

Do I have this math all wrong? It seems to me that 2009 will turn out to be a good year for CD investors (assuming, of course, that the inflation rate (or, rather, the deflation rate) doesn't change.

Retirees Sleep Better! (Who Knew?)

2009-11-04T18:48:00.000-08:00

It's official. Retirees sleep better that working folks. Gosh! What a surprise.

A recent Finnish study entitled "Effect of Retirement on Sleep Disturbances: the GAZEL Prospective Cohort Study" concluded that retirees sleep a lot better than people who work. You probably suspected that this might the case.

Surely you can imagine the soporific effect of spending the day reading a good book in a hammock as opposed to working like a dog and being chewed out by your boss. But now it's no longer conjecture. The study reported "repeated measurements [that] provide strong evidence for a substantial and sustained decrease in sleep disturbances following retirement." So now it has been proven: retirement equals better sleep. The improvement in sleep was more pronounced in men than in women, but both groups registered significant improvement in sleep.

Need a good night's sleep? Perhaps retirement is for you. Sweet dreams!

Need Help Saving Money? Frugal living can help.

2009-10-25T15:06:00.000-07:00

When planning for retirement, or living in retirement, many people need help saving money. Being frugal can help. There's a difference between a someone who is frugal and someone who is a cheapskate or a skinflint. Cheapskates and skinflints tend toward the miserly side of the spectrum. Someone who is frugal, on the other hand, is wise with his or her money. Frugal people enjoy life to the fullest, but they don't pay full price. To get you started on your frugal life, I found this nifty website with 50 tips on frugal living which may be of help to you. I'm doing most of them already (although, I'll admit, I still have a cell phone). See how many of the 50 you can incorporate into your life.

If you need help with retirement planning, including some of my frugal living tips, check out my book, Who Said You Need Millions? Retirement Strategies for the Rest of Us, available at online bookstores.

Need to find out where you stand?

2009-09-30T11:44:00.000-07:00

So you are sitting in your office, your cubical or just chillin' in the back room or on the loading dock and thinking about your retirement. Do you have enough money? What about Social Security? You've go a lot of questions. Do you want to get an idea of where you stand in the race to retirement? A retirement planning calculator might help.

When it comes to retirement planning calculators available on the internet, there are a lot to choose from. There are simple calculators like the one available at CNN/Money.com, but sometimes simple is not necessarily better. One calculator I like is called ESPlannerBasic created by Professor Laurance Kotlikoff, Professor of Economics at Boston University. The great thing about ESPlannerBasic is that it's easy to use, free and it allows you to customize the calculations to fit your specific situation.

Too often retirement calculated make assumptions that do not fit your life situation. As a result, the conclusions that the retirement calculator reach will probably be inaccurate. Not so with ESPlannerBasic. Try it and see for youself.

Note that Professor Kotlikoff offers two even more detailed calculators called ESPlannerPlus and ESPlannerPro if you want to pay for them. I haven't tried these versions but I would expect them to be even more accurate than ESPlannerBasic, since they allow you to customize the results even further. Good luck with your planning.

Check Out Our New Facebook Page

2009-08-21T15:02:00.000-07:00

Not to be left behind, I too am joining the facebook and twitter generation. Find the new facebook page at: http://www.facebook.com/home.php?ref=home#/pages/Who-Said-You-Need-Millions-Retirement-Strategies-for-the-Rest-of-Us/148380866130?ref=nf

Check out the discussion board on the page and participate. Today's topic is "Why is There So Much Bad News About Retirement?" You see, I get a daily RSS feed about news articles written about retirement issues and all the news seems to be bad. However, the people I know who are retired are having the time of their lives. Why, I wonder, is there such a disconnect? If you have something positive to report about retirement please participate in the discussion.

For example here's some good news I posted: When our economic system was collapsing last year and early this year I sought advice from my 88 year old father who said, wisely, don't worry son, things will improve, they always do. And, he was right. Almost a year later things do seem to be improving. Additionally, like everyone else, I cut back my spending in response to the crisis and learned that I can even live happily on less money than I had predicted when I retired. Now that is good news. Living on less doesn't mean I'm a cheapskate and it doesn't mean that I'm depriving myself of things that I really need. But it does mean that I have to spend a little time getting the best value for my buck which I have turned into sort of a game. Recently, I spent some time getting insurance quotes (home, car, umbrella etc.). When you're working, who has time to do that? Turns out I saved $800 bucks a year for my efforts. Not bad eh?

P.S. What does the picture have to do with this topic? Nothing. My wife and I recently went on a two and one half month motor home trip (retired people can do that you know!). One of the stops was Arches National Park in Utah. While I am loathe to use the current vernacular, it was truly awesome.

Stress Test Your Retirement Plan

2009-05-07T11:24:00.000-07:00

Many people have opened their 401(k) and/or other retirement savings account statements and found that they have lost a significant percentage of their retirement nest egg. I've experienced the same thing and friends who are still working often ask me, usually with a tinge of schadenfreude in their voice, "so (smarty pants), when are you going back to work?" Not yet, I tell them. Here's why.

In the course of every retirement, there are going to be economic downturns. True, the current downturn is the worst since the great depression. But it's just another economic downturn. During a 30 to 40 year retirement, you're bound to experience a few of them. Perhaps the silver lining that can be found in this doozy of a downturn is that if your retirement plan can survive it (without you going back to work or living out of your car and eating only beans and rice cooked over Sterno®), it can probably survive anything. In that way, like what the Federal Reserve Bank is doing for the nations top banks, this downturn is sort of a "stress test" for your retirement plan.

But, without risking the chance that you'll completely running out of money in a few years, how can you really determine where your retirement plan stands? One approach might to do an actual stress test of your plan again using a realistic retirement calculator.

One calculator I like is called ESPlannerBasic. ESPlannerBasic a comprehensive retirement planning software program developed by Laurence Kotlikoff, a professor of economics at Boston University. One great thing about the software is that it's available on the Internet for free. A more robust version of the software is also available for a fee.

The software "calculates how much you should spend, save, and insure each year to achieve a stable living standard." Those who are already retired can use the software to test their current levels of spending to see if their retirement plan is still viable. If your plan doesn't pass the test, you'll know exactly how much you'll need to cut. Those on the verge of retirement can use the software to see whether or not now is the time to take the plunge.

I've stress tested my retirement plan using Kotlikoff's ESPlannerBasic and have learned a few things about my retirement plan. First, I've learned that, despite the setbacks caused by the recent financial crisis, my retirement plan is still viable, as long as I keep my spending under strict control. Whew! Second, the stress test results provided by ESPlannerBasic reinforced what I already know and that is that controlling the expenditure side of the retirement plan ledger is the key to a successful retirement.

ESPlannerBasic has a few flaws, for example it assumes that you will live to 100 years old (you have a less that 1% chance) and doesn't allow you to tap the equity in your home for your support. However, the software is a good basic tool for making stress test estimates.

Afraid to Retire?

2009-04-11T07:17:00.000-07:00

This piece from the Public Broadcasting Network's show Nightly Business Report got me thinking. Why do people fear retiring early? Is it that we Americans don't know what to do with ourselves if we're not working? The piece gave me the impression that many people on the show have assumed that retiring from work means retiring from life? Notice how old the retirement experts look?¹ If they are such experts, why aren't they retired already? Have we all been brainwashed into believing that we "are" what we "do" (for a job, that is).

My experience with retirement and retirees is more positive. I can't tell you how many retirees, young and old, tell me that they had wished they had retired sooner. Most are having the time of their lives. Sure, many retirees don't have as much money as they want (who does?). But what they do have is time; time to do whatever they want, whenever they want (within reason, of course). Many retirees I meet tell me that they wouldn't give up this freedom just to make a little more money. And most retirees tell me they are busier than ever. "How did I ever have time to work?" I often hear.

So those who find themselves unexpectedly unemployed should sharpen their pencils and see if they can develop a plan to retire. Of course, your plan will probably involve sensibly, but perhaps drastically, downsizing your lifestyle. However, if you can find a way to make it work for you, you shouldn't let fear of retirement stop you. I can almost guarantee that you won't regret retiring.

There are, of course, many folks affected by unexpected unemployment for whom an early retirement (or any retirement) seems unattainable because of credit card debts, commitments to pay for college for offspring or other financial responsibilities. But losing a job, although painful, may be the impetus which causes serious reexamination of lifestyles and ultimate goals in life.

Sure, many folks who find themselves unexpectedly unemployed will need to find new employment. But perhaps the shock of unemployment will cause them to come to the realization that they can't maintain their current lifestyle and have a successful retirement. Also, being unemployed often teaches people how little they can actually live on. This then, may be somewhat of a silver lining.

Since no one can successfully retire on credit, those who can't realistically retire immediately should use this period of unemployment as a time to step back from their life and desired lifestyles for a moment to realistically consider what their exit from the workforce strategy is ultimately going to be. Most will conclude (perhaps begrudgingly) that lifestyle cutbacks must be part of the plan (even after they land a new job) if their retirement is to be successful. By making lifestyle changes now, aggressively paying off debt and by learning to live below your means, almost anyone can put themselves on road to a successful, if not early retirement.²

By using an unexpected unemployment to seriously look at your future, some people may find that with some lifestyle changes, they can retire right now. If you can do it I urge you to try it. There is nothing to fear. You can always go back to work if you find you don't like it. Other people will find that retirement is not in their immediate future. While looking for a new job, those people should use the experience to figure out what they'll need to do to get on track for a successful retirement

The sooner you retire, the sooner you can answer the dreaded "what do you do?" question with the snappy retort: "In case of what?"

¹ Except, of course, Emily Brandon from U.S. News and World Report.

²Parents paying for kid's college should insist that their offspring downsize too. This may mean selecting a more affordable college (perhaps a less expensive community college for the first two years), working part-time and/or tenatiously applying for and getting scholarships to help pay for college.

Is the Third World the Only Possible Refuge for Today's Retirees?

2008-11-09T19:20:00.000-08:00

I read a recent article by Robert Powell in the "webmag" Market Watch, entitled "Time to rescue America's retirement plans. Commentary: Savings reforms need to be on Obama's radar, and soon." The article got me thinking about retirement issues again. (Note: until very recently the stock market crash had me feeling so numb, I could hardly write anything or think of anything but survival.) In his article, Powell notes, the following "facts:"

1. Median household income in America is about $50,000.

2. Many experts suggest that Americans will need to save 20 times their income to retire.

3. The cost of health care in retirement will likely be $200,000 to $500,000.

To me, that translates into this:

1. If you're average, with a household income of $50K, you'll need $1 million to retire.

2. Subtract the cost of health care and you'll only have $500K to $800K to fund your day-to-day retirement spending (food, clothing, housing, transportation, entertainment, etc).

3. If these are the real numbers, most Americans are in big trouble.

That is, of course, unless you head to the Third World for your retirement.

I'm currently hiding out in an historic, colonial town in Mexico with 500 year-old cathedrals, narrow cobblestone streets and lots of old world charm. I've found that, with the increasing value of the dollar (caused by the financial crisis) and the relative low cost of most Mexican goods and services, I can get by on much less than I can in the U.S.

Imagine a visit to the Emergency Room where the first person you see is a U.S. trained doctor, who reviews your history, diagnoses your medical problem, does some lab work, AND fills your prescription for $75. That's it 75 bucks. No forms, no copays, no pre-approvals and no waiting. Imagine dinner for two out at a nice restaurant for less than $20. Imagine Starbucks coffee for less than 2 bucks. The Third World doesn't sound so bad does it?

But consider what would happen if hoards of Americans decided to do what I have done. It's not as far-fetched as it sounds. With the cost of retirement in the U.S., as estimated by the so-called experts, most Americans won't be able to afford a U.S. retirement. Thus, they may be forced to choose between leaving the U.S. in order to enjoy a comfortable retirement or eating cat food in their sunset years. So, in the next 18 years we might see a good portion of the 67 million Baby Boomers heading to Mexico, Thailand, Costa Rica or other low-cost retiree havens.

Mr. Obama's task may be even bigger than Robert Powell's article suggests (as if Mr. Obama doesn't have enough on his plate). Even if Obama is capable of "rescuing" America's retirement plans for the 20, 30 and 40 somethings, he may also have to figure out how to stem the diaspora of retiring Baby Boomers who have lost 40% of their nest eggs. Imagine the side effects of such an exodus: Millions of U.S. homes would come on the market, exacerbating an already depressed housing market for years to come, with trillions of dollars of consumer spending shipped out of the U.S., further stressing the United States' consumer-driven economy.

But most Baby Boomers are red-blooded, Joe Six-Pack or Plumber (your choice), true-blue, dyed-in-the-wool Americans (key up Lee Greenwood's song here), and you would expect most to vehemently resist something as unpatriotic as abandoning the land of the free and home of the brave for some banana republic. Or would they? Are we sure retirees would choose living in patriotic squalor over retirement comfort? Yeah, yeah, sure they would. Wouldn't they? After all these are Americans we're talking about; credit-card-loving, no-money-down, 30-years-to-pay, interest-only, fiscally-conservative Americans. They'd never consider an easy way out of their retirement conundrum.

Financial Crisis Got You Feeling Like a Chump?

2008-09-24T13:22:00.000-07:00

You resisted the urge to get yet another credit card. You didn't lie when you got your home mortgage and you actually made the payments. You saved the maximum in your 401(k) and even saved a little extra. You thought you were set for retirement. But that was before the global financial meltdown made a mess of your best-made plans. Now you feel like a chump.

I know how you feel. So while Mr. Paulson and Mr. Bernanke are still working on the "mother of all plans" that bails out the greedy banks and profligate consumers, I think they should add in some goodies to make those of us who have been good boys and girls feel a little better. I'm not just talking about a little free government cheese here! We need more drastic measures. These are my suggestions:

· Each bank that accepts government help must pay an additional 2.83485% interest on currently existing long-term deposit accounts with balances over $20,000. Why 2.83485%? No special reason. I'm just winging it here. After all, if Paulson and Bernanke can wing it, why can't I?

· Each profligate consumer who gets relief from the government with respect to the mortgage on their overpriced McMansion must mow his or her solvent neighbor's yard and do general yard maintenance for at least 2.83485 years.

· Each profligate consumer who gets relief from the government with respect to the mortgage on their overpriced McMansion shall be prohibited from having additional children and borrowing any additional money for the next 28.3485 years or until all currently outstanding debts have been repaid, whichever shall occur first.

· Each CEO, CFO, COO, VP, Treasuer and/or BFD of any bank that accepts government help may not receive a salary in excess of that paid to the lowest paid employee of said institution.

· These executives shall offer all current bank clients with deposit accounts with balances over $20,000 free use of all vacation homes owned by said executives in perpetuity. A lottery system shall be developed so that there will be no squabbling among such clients over who gets to ski in Vail this winter and who gets to go to the Cayman Islands.

· Each profligate consumer with a currently outstanding bankruptcy petition or who shall seek to declare bankruptcy within the next 28.3485 years and who (a) seeks a discharge of indebtedness with respect to money borrowed to purchase a Hummer, BMW, Lexus, Mercedes Benz, gas-guzzling SUV or other vehicle with an original sales price of over $28,348.50, (b) wears or has ever worn a Bluetooth headset in their ear, (c) financed a home with a value equal to more than 3 times their 2007 income, and/or (d) who seeks discharge of indebtedness with respect to any "free interest for a year" deal on consumer goods, must attend a financial re-education program for a period of no less than 2.83485 years and shall be publicly flogged 28.3485 times in the village square.

I'll take some of that cheese too.

Your Home is a Nest, Not a Nest Egg

2008-09-14T16:04:00.000-07:00

A recent headline for an article about property renovation in the UK's Telegraph hits the nail on the head, when it comes to where your home fits in your retirement plan. Your home is a nest. It's not a nest egg.

We've often heard what a “great investment” a home is or that our homes are our largest single “investment.” It’s true that some home values go up over time. When you sell your home, you will sometimes (but not always) get more than you paid for it. But even if you sell for more than your purchase price, people often don’t take into account how much they’ve spent while they owned the home. First there is property taxes and insurance. Then there is the mortgage interest on your home loan that can make the home cost double or triple the purchase price over the life of the loan. Next their is the cost of maintenance. You may have to repair the roof, keep the landscaping looking nice, fix leaky toilets, paint, spruce up the bathroom or kitchen from time to time, etc. Then there are the selling expenses like fees charge by the realtor (often 6% of the sale price) and closing costs. Finally, there’s inflation to consider. The value of many homes doesn’t go up any faster than inflation, so after paying all the mortgage payments, repairs, insurance premiums, taxes, selling expenses etc. you’re actually losing money. And as the current housing crisis has shown us, the value of your home can go down, sometimes substantially.

So while a home is technically an investment, it’s often not a good one, especially if you live in it. Therefore, you should exclude the entire value of your home from your calculations of your net worth and your retirement nest egg, unless you’re renting out rooms (then you can include the present value of the rental income in your calculations) or you have a firm contract to sell your home and not reinvest the proceeds in another home (but then, where will you live?).

But what about reverse mortgages, you ask? It's true that reverse mortgages are available to tap into some of the value of your home (if any). However, I still wouldn’t include the untapped funds available through a reverse mortgage in your net worth calculations. Instead, I’d keep whatever you could borrow with a reverse mortgage in the back of your mind as a catastrophic reserve, in case everything else in your retirement plan goes wrong.

So The World is Not Going to Hell in a Hand Basket After All

2008-09-01T09:35:00.001-07:00

We heard it from the press, over and over: "Americans are Now Using Their 401(k) Plans as a Piggy Bank!" Borrowing from 401(k) plans to finance day-to-day expenses had reached epic levels, we were told. Those profligate baby boomers were borrowing against their future, putting their retirement (and perhaps civilization as we know it) at risk.

Turns out, however, that it may not be true. A recent article in Investment News reports that 401(k) loan activity actually went down in 2007. This according to data from major fund managers like Fidelity and T. Rowe Price.

While I'm no fan of Phil Graham's politics, could he have been right when he said that the country is in a "mental recession?" Bad news attracts eyeballs and sells advertising for newspapers, television and even on the internet. Good news is often ignored. After all, who wants to hear from Pollyanna. As a result, we often tend to believe that the economy is is worse shape than it really is, as seems to have been the case with the 401(k) loan story.

So maybe the world is not going to hell in a hand basket after all. Go Figure.

Retirement Security? It May Depend on Where You Live.

2008-08-27T15:52:00.000-07:00

A headline in a recent article in the Christian Science Monitor reads: "Who's Poor? It depends on where you live, some say." The article reports that "a steadily growing number of experts and policy-makers argue that the poverty line should look like a wave, fluctuating with geography." Apparently, these geniuses have finally realized that it's more expensive to live in New York City than it is to live in Omaha, Nebraska. I wonder what planet they've been living on.

Perhaps the retirement planning "experts" should take note too. In my estimation, those who claim you'll need millions saved to retire comfortably must be assuming that you'll live in New York City and not Omaha. According to Bankrate.com's Cost of Living Comparison Calculator, a person with an income of $50,000 in New York City would need only $21,766.60 to finance the same standard of living in Omaha.

So you can add moving to another city to your bag of tricks for getting your retirement saving plan up to snuff. Don't like Omaha? There are plenty of other low-cost places in the United States where you can live. New Yorkers could move to places like West Palm Beach, FL, San Angelo, TX or Yuma, AZ and still maintain their standard of living with less than half the income they'd need in the Big Apple.

Will You Be In the Bread Lines?

2008-08-26T18:59:00.001-07:00

Is the need to save for retirement in America being ignored by the average American today like harbingers of 1929 Stock Market crash were ignored in the last century? Sure, we hear a lot of "blah, blah, blah" about the need to save for retirement. Yeah, people say, there's a crisis looming. But it seems that no one really wants to do anything about it. Who can worry about that stuff now, the conventional wisdom goes. It will all work out somehow.

Will the end result of this apathy be that many retirees will have to depend on handouts and breadlines to survive in their retirement? Could something like that really happen again in America? Let's hope not.

But a recent study by the Employee Benefits Research Institute found that while 72% of workers reported saving for retirement, 36% of them had saved less than $10,000, and only 39% had saved $50,000 or more. For those people who have 401(k) plans, Bankrate.com reported that the average 50-year-old had only $137,766 in a 401(k) and that the average 60-year-old had only $140,957.

Sounds bad, doesn't it? While I am definitely not one of those who thinks you'll need millions to retire, I do think you'll need something for retirement other than Social Security. I think there's still time for most workers to avoid the handout and breadline scenario and get their retirement savings plan back on track. But today (not tomorrow) is the best day to start! If you behind on your retirement savings, do something about it now. Here are four "must do's" for anyone who hopes to retire:

1. Calculate Your Net Worth: Simply add up the value of all of your income producing assets (i.e., your savings and investments, and the value of any other saleable property you own). Forget about your home for now. I'll be writing about the value of your home as an "investment" in a future blog entry. Next subtract from the total all of your indebtedness (i.e., how much you owe on your mortgage, credit cards, personal loans, lines of credit, etc.). This net worth figure is basically your retirement nest egg. This number tells you where you stand today.

2. Project How Much Your Nest Egg Will Grow: Next project, using a reasonable figure -- say 7%- 8% per annum -- how much your nest egg will grow between now and your anticipated retirement date (for the purposes of this exercise we'll assume, and hope, that you don't take on any more debt). For this calculation, you can use a simple compounding calculator like the CD calculator available at Bankrate.com.

3. Project How Much More You'll Earn Before Retirement: Make an estimate of how much you expect to earn between today and your anticipated retirement date. Use what you earn now as a guide to determine what you'll make in each future year you plan to work, increasing your current pay in each future year by some reasonable percentage -- say 3% per annum -- to account for any future raises. From this total you'll have to fund your expenses before retirement and save to increase your retirement nest egg.

4. Make a Retirement Budget: Estimate what you might spend in retirement. Use your current expenditures as a guide, eliminating expenses you have today that you won't have in retirement (e.g., commuting expenses, mortgage payments, expenses for children's upkeep, dry cleaning, work clothes, lunches out, $4.00 lattes, etc.) and adding back and new expenses you'll have after you retire (health insurance premiums, greens fees, travel expense, etc.).

Don't like what you see? My next blog entry (coming soon!) will provide some tips on what you can do to get your retirement back on track.

We're a Nation of Consumers And There's Nothing Wrong With That?

2008-08-19T12:42:00.000-07:00

Is it just me or does that new Discover Card commercial bug you? You know the one: "We're a nation of consumers," the ad says, "and there's nothing wrong with that." There's just so much "cool stuff" out there, we poor rubes can't help ourselves. Then Discover makes it pitch, saying that it can help you use credit card debt responsibly. Fat chance! If you're retired or planning to retire, you should run as far away from credit cards as you can, no matter what they "offer." Here's the ad:

Now let's talk about the "consumer" part of the ad. Is their really "nothing wrong" with the level of consumption in the United States? According to CNN "the richest 20 percent of people consume 86 percent of everything that is sold for private consumption. The poorest 20 percent consume 1 percent of it. " According to the Sierra Club, the "United States, with less than five per cent of the world's people, consumes over twenty five percent of its resources." Does this seem unfair to you? It sounds like we Americans are going to be on the receiving end of a new French Revolution but on a global scale.

So what does this have to do with retirement? Plenty. There are two sides to the retirement ledger, income and expenses. Reducing expenses (i.e., consumption) is just as (or maybe more) important as increasing income. So, for a retiree, there is something wrong with consumption. It chews up your nest egg in a hurry. If you want to ensure that you won't run out of money in retirement, reducing your consumption is a great way to do it.

Reducing consumption has benefits beyond the obvious. For example, cutting down on food consumption could help the 63% of Americans who are overweight. And, while I don't want to sound too much like a tree-hugger, from the prospective of promoting a green planet, driving less, buying less stuff and turning off a few lights can go a long way, AND help you get to retirement sooner. Think about it.

Obama or McCain: Who's Better for Retirees?

2008-08-19T09:28:00.000-07:00

If you're going to vote on the basis of where each candidate stands on issues like gay marriage or abortion rights, then you've made your choice. However, if you're a retiree or wannabe who's not a single issue voter, you might wonder which candidate will be better for retiree's pocketbooks.

Here's what I've found.

On the health care front McCain is no friend of retirees. He voted for a bill that reduced spending on Medicare by $6.4 billion by cutting payments to home health care providers and requiring that beneficiaries purchase certain medical equipment. He missed a vote which would have allowed Medicare Part D to negotiate lower prices for prescription drugs, just like the Department of Veterans Affairs does. He voted for increases in Medicare premiums and voted to raise medicare eligibility age.

On the other hand, McCain is in favor of keeping capital gains taxes at the current 15% rate, which would allow retirees to buy and sell the stocks, bonds and other investments that compose their retirement nest egg with a lower tax impact.

On health care Obama seems to be more friendly to retirees. He proposes making a new national health plan available to all Americans, including the self-employed and small businesses, which will allow them to buy affordable health coverage that is similar to the plan available to members of Congress. Under Obama's proposal, no one can be turned away from any insurance plan because of illness or pre-existing conditions. Further, according to Obama the plan will have affordable premiums, co-pays and deductibles.

This sounds good for anyone, like me, who buys health insurance in the private market (at very high cost). I do have a question about the "national" part of his health care plan which may mean a government bureaucracy will run the show.

However, on the tax front, Obama is a mixed bag. He supports returning the capital gains tax to where it was before the Bush tax cuts. This may have an effect on the stock market and will increase your taxes when you sell stocks, bonds and other investments that compose your retirement nest egg. On the other hand he wants to eliminate income taxes for seniors making less than $50,000.

What I worry about from either candidate is their willingness to tax so-called "weathier" retirees. My concern is what they mean by wealthy. Are those who saved and scrimped during their working lives to save up a nest egg to live off of in retirement considered "wealthy?" Are those who spent every dime they had and then some during their working lives and now have nothing for retirement the poor people that Washington wants to help?

So there it is. Neither candidate is perfect. Your comments on this subject are welcome.

Clueless About Your Retirement?

2008-08-18T19:01:00.000-07:00

Where do you stand when it comes to planning your retirement. Think about it, the future is not what it used to be. Your retirement may be (or could be with some good planning now) closer than you realize. To get an idea of what you might need for retirement, a good place to begin is with a retirement calculator. Retirement calculators come in many varieties. Some are quick "back-of-the-napkin" estimates, while others are very detailed. Still others, like the Social Security Calculator listed as Number 5 below, give you only part of the picture. By using several of the calculators set forth below you can get multiple perspectives of what you might need to retire. But take what the calculators tell you with a grain of salt. Many tend to overestimate what you might need. Nevertheless retirement calculators are a good starting place on your road to retirement.

Here are 7 calculators you should try:

Easy to Use:
1. Fidelity
2. Choose to Save

Medium Difficulty:
3. T. Rowe Price
4. Bankrate.com

More Difficult:
5. Social Security's Retirement Estimator
6. AARP
7. FireCalc

Can Retirement be Sexy?

2008-08-07T17:56:00.001-07:00

Why are there no celebrity retirees? This has been bugging me for a while. Why is there no Paris Hilton of the retiree set? Some beautiful person who is the trendsetter for the leisure class; a superstar retiree in the vein of Barack Obama, Madonna or Sting. A person chased by the paparazzi for being such a cool retiree. Why couldn't it be so? Most retirees aren't decrepit old folks. On the contrary, retirees are active, aren't they? Don't all the ads on TV for retirement products show retirees being active doing things like surfing, sailing, cycling, rock climbing, or playing tennis?

Where would we find such a retiree superstar? Perhaps from the ranks of personal finance advisors. How about Scott Burns, the syndicated columnist who has been giving us some great retirement advice for years? Nope, Scott is something like 67 years old, by my count, and is still working! Makes you wonder about his retirement advice, doesn't it? I mean if he is so great at planning for retirement, how come he's not retired?

Then there is Ben Stein. He's great right? I love Mr. Stein's dry humor and common sense. But he's in his 60's too. If his advice the cat's meow shouldn't he be retired? Or is he just another one of those "do-as-I-say-not-as-I-do" people?

How about Suze Orman? According to her website she is an "internationally acclaimed personal finance expert" (nothing like a little modesty). Could she be the retirement superstar we're looking for? Nope, she's "only" 57 and still working. And frankly, we probably don't want her anyway. Do we really want a retiree superstar who nags you? You have your mother for that.

So I'll put it to a vote. Send your vote for the retiree superstar to: superstar@whosaidyouneedmillions.com. I'll keep a tally of the votes and let you know the results.

Social Security Administration Updates Antiquated Retirement Calculator

2008-07-23T17:31:00.000-07:00

The Social Security Administration has finally revamped their retirement calculator. Now it's a heck of lot easier to find the answer to the question: How much am I going to get? The SSA calls the new calculator its "Retirement Estimator" and it's a major improvement of their old versions. After you imput a little personal information (Name, Maiden Name (if any), Social Security Number, DOB, birthplace, and mother's maiden name) the calculator links to your earnings history on file with SSA to provide you with an estimate of your benefit. No longer do you have to input all that income data yourself. You can even do "what if" scenarios to find out how your benefit would be affected by future changes such as taking a lower or higher paying job or stopping work before you can collect benefits. What could be easier?

Why Can't Americans Save For Retirement?

2008-07-21T18:02:00.000-07:00

Dread Saving for Retirement. A recent survey by the Bank of America found that Americans view retirement planning as being as difficult as diet and exercise. Given the current obesity epidemic in America, this may mean that we're in big trouble.In the past, America stood for thrift, hard work and apple pie. What happened? Have we forgotten about thrift and hard work? Are all of us just sitting around eating too much apple pie? Why are Americans doing so badly when it comes to saving for retirement?

Getting the Wrong Message. It's probably because we're not getting the right messages about retirement planning. Sure, most people understand that they're not doing enough to save for retirement, but few seem to know how to change their situation. Solutions seem hard to come by and most of what we hear is counterproductive.

Consider the messages we receive hundreds of times a day on radio and television begging us to "buy, buy, buy!" You don't find too many advertisements encouraging you to "save, save, save"; except perhaps from mutual fund companies who earn fees for managing your retirement accounts.

One of the most egregious television ads I've seen recently is one for Hyundai sedans. The ad offers $3,000 cash back if you buy a car. "Seems like a good time to buy," a customer says to the salesman. Then, some guy who has written a best-selling book on financial planning lowers the window of a new Hyundai and tells the customer that it would be foolish not to take such a good deal on a car, adding "take your savings and put it in a Roth IRA." Who are they kidding! Are they really telling us that it’s a good idea to buy a new car and invest the "savings" for retirement? Whoa! When a television ad selling cars gives you retirement planning advice it’s time to watch out.

Duped Again? Do a lot of people fall for this stuff? I suppose the twisted reasoning would go something like this:

I'm broke and I can't pay my bills, much less save for retirement;
I want a new car (doesn't everyone?);
If I buy a car on credit, they'll give me cash back for free;
I'll save so much on the car that I can invest the savings for my retirement; and
If I do this, I'm a financial genius!

The funny thing is that plenty of smart people fall for these types of ads. We're bombarded with them relentlessly. After a while you begin to believe that they make sense. Maybe we should require opposing view ads like the Democrat's response to President Bush's State of the Union Address. Perhaps we need someone to scream at us: "No, don't buy a new car you lunkhead! That would be dumb. Buy a used car instead or, better yet, drive that old clunker into the ground. Save for your retirement! SAVE, SAVE, SAVE!"

Feel Good Economics. Sure, we'd all like to have a new car. Buying new stuff makes us feel good. But buying a new car, or any other unnecessary consumer item (especially on credit), will put you farther away from what should be your real goal: financial independence. Financial independence means that you have enough income from savings, pensions, etc., to support yourself without working. You can't retire unless you're financially independent. Remember, a new car becomes an old car in a hurry, but financial independence will last (if you plan it right) forever.

Wouldn't you feel better if you didn't have to work? In fact, you'd feel great. Imagine getting up each day knowing that you didn't owe anybody anything. Imagine working at what you wanted to do, not what you had to do to keep your head above water. Or imagine not working at all. Imagine how good you'd feel then? Now that's financial genius.I don't have anything against Hyundai or the financial experts in their ads. They're just trying to make a buck like the rest of us. I'm sure that Hyundai makes a fine car and those financial experts give out good financial advice. But do they think we will believe it's a good retirement planning move to buy their car and put what we "saved" on the deal in an IRA?

Defend Yourself. So what can an average American do to defend against the onslaught of messages that are contrary to a goal of building a secure retirement future? We need to change how we think about saving for retirement. Let's go back to the Bank of America survey for a moment. They found that "[n]early one-third (30%) of Americans say that starting retirement planning is difficult -- as many as those who say it is difficult to start a fitness routine (29%) or a diet (28%). Only one in three (33%) Americans report that they are on track with their retirement planning efforts, and nearly one quarter (23%) report that they have not started planning at all."

Saving for retirement may seem difficult. With all the bills you have to pay --for credit cards, college tuition, cable television, cell phones, car loans, food, utilities, insurance, taxes, etc. --there never seems to be enough left over to save. But if you think about it, saving for retirement has a lot in common with the way the human body becomes overweight.

About 127 million adults in the U.S. are overweight, around 60 million are obese, and close to a million are severely obese, so this is something we all can relate to. Becoming overweight is easy (and we all know it can be fun). You simply take in more calories than you use. The plumper you get, the more sedentary you become. As you slow down and expend even less energy, the amount of fat your body stores increases dramatically.

Fatten Up Your Retirement Savings. A retirement savings plan works the same way. If you simply spend a little less than you earn each week, each month, and each year, storing the excess in a savings account, your retirement nest egg begins to fatten up. Like becoming overweight, it isn't very noticeable at first. But as the earnings on your savings starts contributing to the plumpness of your nest egg, and if you continue to spend less and add more to your nest egg each year, your retirement savings will increase dramatically. Soon your financial chubbiness will begin to show. And believe it or not, fattening up your retirement nest egg is fun too. While your neighbors are driving down the street flaunting their new cars, you can laugh all the way to the bank knowing that your future retirement is secure.Want to learn more about retirement and retirement strategies? Go to www.WhoSaidYouNeedMillions.com.