“Life is a journey, not a destination”
Ralph Waldo Emerson, American essayist and poet

My adaptation of Ralph Waldo Emerson’s quote is “retirement is a journey, not a destination.” This is getting to be increasingly apparent as I approach my new beginning. You see, despite all of the financial analyses and Excel spreadsheets and despite the multitude of articles that have helped me understand bits and pieces of the puzzle, the uncertainty remains. I am not talking about the unknowns such as future inflation or stock market returns or even how the government will net out on Social Security and Medicare. I am talking about decisions you might make as you approach retirement and realize that this will be something with a lot of unpredictability and may require you to make some calls that you weren’t quite expecting.

Here are a couple of the things that I am now grappling with:

Timing Your Retirement

Aaahh, the spreadsheets were so helpful! I had it planned right down to the month when the stars would align and my finances would be perfectly configured to sustain me through an entire retirement. However, much of that has gone out the window. Some people plan an exit date, but are waylaid by things such as layoffs or unanticipated changes in health. I have had a change of plans due to something much more existential and philosophical.

Two years ago, while preparing to run on the treadmill at the gym, I suffered what is called a Transient Ischemic Attack (TIA – a mini-stroke, although it didn’t feel so “mini” at the time). It seemed so unfair because I workout diligently. However, I learned from this. The net takeaway was life is unpredictable. Sure you can plan to make the move in two years or five years or whatever, but there are no guarantees. In a similar vein, a friend of mine at the gym told me about another incident. A gentleman who also works out regularly had arrived at the gym at 5:00 am and suffered a heart attack that nearly killed him as he began his routine. He was 56 years old at the time of the attack and had no previous warning. Again, I reiterate, life is unpredictable and there are no guarantees. I might add that life appears to be unfair as well if this can happen in the gym. So, I have come to the opinion that the spreadsheets be damned, the time is right when it feels right, and not when the financial analysis says its right.

Getting Your Finances in Order

The mantra for retirement financial planning is get your expenses down. There are several elements from paying off your credit card debt, paying off a mortgage, and finding ways to reduce wasteful or unnecessary spending. For the most part these are common sense. For example, maxing out a credit card is a bad idea no matter what your age, but particularly in and around retirement. Mortgages are a major expense for most people so anything you can do to reduce it is helpful. Some people have gone as far as to recommend that you work extra years to pay-off a mortgage. These all sound like reasonable recommendations.

However, then there are the philosophical issues again. Life is finite and unpredictable. What if you spend the extra years, but die before you can enjoy the fruits of your labor. Downsizing may make sense, but you will still want to live in a house that fits your needs and makes you feel good even if it is a bit more expensive. You may be in the house for 30 years so spending more to find the right place could be worth it – although not in line with reducing expenses. Then again, you may be dead tomorrow and it may make no difference. You just don’t know. This is exactly my dilemma. Consider the TIA. Think about the guy who had the heart attack. This puts things in a very different perspective than you might find in a spreadsheet.

You Knew Adjustments Would Be Required, So Plan to Adjust

It was so much easier when I had a spreadsheet to guide me. I have always lived by the numbers and number don’t lie. However, throw in these philosophical and psychological issues and everything suddenly becomes murky. Now you have three perspectives to consider, not just the one.

So, what is the resolution? I think that the proper perspective is life is to be lived. Everything is not about the money. It’s also about the experience and the enjoyment. Have a reasonable financial plan, but be willing and ready to adjust as the need arises. If financial decisions are all that drive retirement decisions, then you may live a solvent, but unfulfilling retirement. Life is to be lived. Life is to be enjoyed. As one 1970’s song put it: “We may never pass this way again.” Keep that in mind.

Posted by: drdata921 | January 31, 2014


Freelancing may be the future of work in America. Freelancers offer their expertise to companies on a project-by-project basis rather than working for a specific company as a normal employee. The benefit for the company is that they can contract the expertise that they need without incurring the costs of a full-time employee.

The benefit for the freelancer is that they have the freedom to determine how much work to take on and when to do the work. This is in contrast to the normal situation where you are locked into an “8 to 5” schedule that you may have little control over. There are obvious advantages of a full-time job in terms of compensation and benefits. However, there are also costs in terms of freedom, lifestyle, and stress. Would freelancing be a viable and acceptable solution for you?

Freelancing is a natural outgrowth of the offshore outsourcing and contractor hires that has been going on for years as companies have tried to cut costs without cutting capabilities. In the old economy, companies staff up with the expertise that they need. The advantage is that employees develop a deep understanding of the business and their expertise is readily available on a moment’s notice. However, personnel cost are substantial when you factor in compensation, benefits, and taxes. In the new economy, some people believe that corporations will evolve (or devolve) to a core management team that will contract externally for the expertise that they need. This could include functions such as marketing, sales, IT, and administrative support, hired on a freelance or contractor basis.

There are two groups that would find freelancing particularly appealing. The first are Generation “X,” people born between the years of 1965 and 1980. Gen Xers cherish the freedom to determine when and how projects will be completed and have an intense dislike for bureaucracy. The other group who would be receptive to this idea is retirees. As I often tell people, when I retire my intention is not to jump from my current full-time job into another full-time job. However, neither is it my intention to divorce myself completely from the working world. I would still like the intellectual challenges and the income would be nice. Freelancing is the perfect solution. I can take on work when I have the inclination or decide not to when I just want a day (or week) at the beach.

Let’s consider the case of retirees and freelancing. American business is about to face a significant crisis. You see, when their employees walk out of the door into retirement, leaving the building are people with considerable knowledge and expertise built up over the course of a career. If you think that you can fill this vacated job slot with a “twenty something” and have the same level of capabilities and expertise, think again. Even those being hired from prestigious schools have the basic foundation, but not the experience to be productive contributors, at least at the level of those who are leaving. Contracting retirees on a project-by-project basis could be one way to recapture what you are losing as the wave of baby boomers head for the exits.

So, I am guessing that most of you are following what I am saying and might even agree with my assessment. However, there is one obvious question that you should be asking: “What do I need to do to get freelancing assignments.” There are two answers that I could offer. First, the company that you are leaving may feel the loss after you are gone and be willing to contract you on a project-by-project basis until they can backfill your position with an effective replacement. This is certainly something you should explore. Similarly, if there are other companies in your local area that may have a need for your special expertise, a letter, e-mail, or call might spark some interest. You are asking for project work, not full-time employment so you could be a resource that they could tap into as the need arises. For the company, the benefits are great and the costs are relatively low. By the way, if you haven’t noticed, we live in a wired world. So, I would not even limit my search to the local area. Working as a freelancer does not generally require that you work on-site. It is “location agnostic.”

However, there is an even more powerful alternative that is available. That alternative is the Internet. There are a number of websites that specialize in helping you identify and land freelancing gigs. The two big ones are elance.com and odesk.com. When you go onto these sites, you establish an account and create a profile highlighting your skills. You can then search the site for freelance opportunities in your area of expertise and bid for jobs or fill out an application. The procedure varies by website, but the basic concept is the same.

The idea is to make potential businesses that may need your skills for a project feel that you are well qualified to provide the expertise they are after. Sometimes you may be hired based on a low price bid. However, on projects that require special or unique skills, you should be able to earn more because the selection is based on how the hirer assesses the skills you have in respect to their needs. The more specialized or technical the skills required the more likely you will be rewarded handsomely, particularly if you have a unique, but in-demand skill set. As you are hired for freelance gigs and prove yourself, the demands for YOU will likely increase as will what businesses are willing to pay to get your expertise.

Here is a shortlist of freelance sites that appear to be the most popular. Check them out if you are interested in possible freelance opportunities:

– Odesk
– Elance
– freelancer
– guru
– ifreelancer
– Craigslist

So, consider freelancing as a potential income opportunity when you retire. You have developed skills and knowledge over the course of a career. Now is the time to profit from this expertise while also enjoying the freedom that retirement affords.

How much income will you need in retirement? One of the most important numbers that your need to know as you plan for retirement is your “Income replacement percentage.” This is the percentage of your pre-retirement that you will need to maintain your current standard-of-living when you retire. The good news is that there is a multitude of articles and books written on the topic that attempt to provide a useful guideline. The bad news is that there is nearly as many different guidelines as there are authors. I have seen income replacement guidelines as low as 35% of pre-retirement income and as high as 130%. This is not real helpful if you are trying to plan. It is critical to know this number as it applies to you because it is a key input when assessing your retirement financial situation and estimating how long your retirement savings will last.

So, what am I talking about? The question is how much of your pre-retirement income you will need when you retire. Most estimates suggest that your income needs will go down in retirement. The reason is that when you retire, even if you maintain your exact same spending patterns, expenses will decrease.

For example, if you are saving in a retirement IRA or 401K plan, these deductions from your paycheck will go away. If you are not working, some Federal, State, and local taxes will evaporate. Expenses associated with working could be reduced because you will not have the commutes, have to dress for success, etc. Expenses could also go down if you downsize your home and get serious about searching out the deals at the grocery store.

Of course, expenses could also go up if you adopt an expensive hobby, decide to travel extensively, or have health problems that increase your healthcare costs. Some people have suggested that you will need as much as 130% of pre-retirement income when you retire. The more likely scenario is that expenses will drop. However, is the correct “magic number” for you closer to 35% or to 130%?

A recent analysis published by David Blanchett, head of retirement research at Morningstar provides a glimpse into the answer. First, most financial analyses assume that relative spending will remain roughly the same over the course of a retirement and only will adjust upward to reflect the rate of inflation. However, most of the published research suggests that this is not so. Spending in retirement does not seem to be an inflation adjusted constant – it actually declines when adjusted for inflation. By some estimates, this decline could be 5% -10% on average over a 30 year retirement.

Blanchett’s analysis also suggests a drop in spending in real terms (after inflation), but this varies considerably by income level. For example, a household with a $37,500 pre-retirement income would have an expected drop in expenses of 8% over the course of a 30 year retirement. However, for people with incomes of $62,500 the drop could be closer to 20% and for those with incomes over $100,000 the drop could be 30% or more. This makes sense because higher levels of income mean more disposable income and if seniors become less active or involved in fewer activities, less disposable income might be needed.

So, yes you need to estimate the percent of pre-retirement income you will need. However, be aware that this number will change and is likely to drop. This is particularly true for expenses like food, but may not decline in other categories of spending, particularly areas like healthcare.

But, having said that, what percent of pre-retirement income will you need? Well, according to David Blanchett, this varies by your level of income and pre-retirement expenses. However, the range that he had identified varied between 54% and 87% of pre-retirement income. People with higher incomes tended to have a relatively lower percent income requirement.

It is still important to estimate your own anticipated retirement expenses and to compare them to your pre-retirement income and expenses. However, like many other things in retirement, everything is dynamic and constantly changing. The income replacement requirement is individual to you, so trash the guidelines.

Posted by: drdata921 | January 17, 2014


Social Security is in trouble and must be fixed. Estimates are that revenues from Social Security payroll taxes will be able to payout full benefits until around 2023. After that, the Social Security trust fund will need to make up shortfalls. What is the Social Security Trust Fund? Well, when people pay into Social Security, a portion of those revenues go to benefits for current retirees. What is left is put into the trust fund. Think of the trust fund as an IOU that can be redeemed to fund benefits when Social Security revenues fall short of what is needed. In reality, this money does not exist. It was put into general governmental revenues and has long since been spent. To redeem these IOUs, the government will need to borrow. Current projections are that the trust fund will last until 2033 at which time Social Security taxes will be able to cover only 77% of promised benefits.

The Stats

How important is Social Security. In 2010, 36 million people relied on it for retirement income. On average Social Security benefits cover about 38% of total retiree income. However, about 35% of recipients rely on Social Security for 90% or more. By the year 2030, a full 25% of the population will be over 65 years of age. This dependency will increase dramatically as the wave of Baby Boomers retires. It is obvious that fixing Social Security should be a priority in Washington although serious discussions by the Congress and the White House have not yet begun in earnest. The political and social implications of not fixing the problem could be dire.

The Potential Solutions

Obviously something must be done, but what? There are a number of possible solutions that could close a portion of the funding gap. Each of these solutions has strong proponents as well as others who are adamantly against the proposed changes. Here is a list of potential actions that could be taken. Some work on controlling benefits while some are focused on increasing revenues. On the revenue side:

1. Raise the Social Security Tax Rate: In 1937, when the program began Social Security taxes were 2% on incomes up to a certain amount. This has risen over the years. In 1987, during the most recent overhaul, the rate was increased to 12.4%. Half is paid by workers and half by employers. Current estimates are that if the individual rate were increased gradually from 6.2% to 7.2%, we could eliminate over half of the shortfall. If the rate for both individuals and employers increased to 7.6% the entire shortfall could be erased.

2. Lift the Payroll Tax Cap: Social Security taxes are only collected on incomes up to a certain amount. In 2014, once your income has gone over $117,000, you stop paying the tax. Estimates are that if this cap were gradually removed, about 71% of the Social Security shortfall could be eliminated. At present, less than 10% of workers have incomes that would be affected.

3. Means Test Social Security Benefits: Everyone who has paid into the system and meets some minimum criteria qualifies for benefits. Means testing Social Security benefits requires that if your non-Social Security income goes above a certain level, Social Security benefits are either reduced or eliminated. Current recommendations are to reduce benefits for people with non-Social Security income above $55,000 and eliminate them altogether when income is greater than $110,000. When I read this, I wondered whether these income levels would be inflation adjusted annually. This is important because withdrawals from 401K and IRA savings are counted as income and as inflation increases you need to draw out more from savings. These limitations could put an increasing number of retirees in jeopardy each year if not adjusted?

On the benefits side of the equation:

1. Raise the retirement age: People are living longer than in the 1930’s when the program was launched. The original retirement age was 65 years. In the 1940’s, for people who made it to age 21 only 54% of males and 61% of females also survived to the age of 65. In other words, a large number of people paid into the system, but never collected benefits. In 2009, the survival rate had risen to 82% of males and 89% of females. In 1940 once you turned 65, you had an expected lifespan of an addition 12.7 years for males and 14.7 years for females. At 65 in 2009, this had risen to 17.5 years for males and 20.2 years for females. More people are living long enough to collect Social Security and once they do, they collect for longer. In response to this, commissions that have studied this issue have recommended gradually raising the retirement age to 70 by 2050. This would cover about 21% of the shortfall by reducing the period the average retiree would collect benefits.

2. Reduce Annual Adjustments for Inflation: Each year, Social Security benefits are increased by the rate of inflation. Currently this is based on the Consumer Price Index (CPI) for urban workers. One recommendation is to lower the annual increase by adopting what is called the Chained CPI. If you want more information on this, see my blog entry [Will the Promises Be Kept – Social Security, April 2013 Archives]. The net is an estimated annual reduction in the inflation adjustment of 0.25%. If the normal CPI would increase benefits by 3% for example, the chained CPI would increase it by only 2.75%. While this seems like a small change the impact can be substantial over time. This option could cover about 20% of the shortfall.

So, as you can see, there are a lot of proposals, although little action up until now. Clearly something has to be done to fix Social Security. However, there are three questions that need to be considered as we move to a solution: 1) What set of options actually will solve the problem, 2) from the perspective of what you pay in and what you get in return are the solutions fair and equitable, and 3) are you giving retirees and near retirees enough time to adjust to any changes that will affect their income and standard-of-living. After all, this is both a financial and a human problem. In the move to a solution, let’s not forget that.

Posted by: drdata921 | January 11, 2014

Educational Opportunities in Retirement: No Senior Left Behind

“Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young.”

Henry Ford – Industrialist

Retirement is a time of exploration and one very important element of this involves educational opportunities. What would you like to know more about, but have not had the time to learn? For me, I would like to understand how the economy works, learn to speak Spanish, and further a lifelong interest in astronomy. Because of my work schedule, I have been unable to take advantage of the numerous courses offered as part of the local junior college system on these topics. However, in retirement, I will have the time to explore.

In this blog post, I will review several educational options for seniors. These are options that are low or no cost. One of the great aspects of getting older is that you are more likely to seek educational opportunities because you want to learn about the topic, not to attain some sort of certification. If this describes you, then there is a world of possibilities that are open. Let’s take a look at some of the options.


Most states have either formal policies or actual laws that allow residents over the age of 60, 62, or 65 (depending on the state) to attend colleges in the system free or at a substantially reduced cost. Most of these are on a space available basis and do not offer credit for completion of a course. But, if you just want to explore and learn, this could be perfect for you.

The states that have these no or low cost education policies for seniors are:

Two year colleges only: Alabama

Four year colleges only: California, Hawaii, Maine, New York, Oregon, South Dakota

Both Two and four year colleges: Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wyoming

In some instances, there might be restrictions, but check with the specific state on-line to determine the limitations. This can be a good option depending on the content you are after and whether you need the structure of a formal class.


Over the last couple of years, educational opportunities delivered on-line have blossomed. These run the gamut from formal classes delivered through streaming video lectures, multiple-video modules focused on general topics, or relatively short video clips focused on a narrow topic. Let’s explore a couple of these possibilities.


Coursera is an example of a growing number of educational opportunities available on-line. I will use Coursera as the example, but you can Google On-Line Courses Free and find others as well. Several courses are offered for free although you have the opportunity for certification for a fee that varies between $30 -$90 per course. These courses run over the course of an academic semester and have periodic lectures and “out of class” assignments similar to what you would find in a regular classroom. The difference is that you are attending on-line, not in person.

The courses that are offered change over time, but are taught by renowned faculty members from top public and private universities. The content of these courses run the gamut across the sciences, math, humanities, and social sciences. They vary considerably in terms of the background you need to understand the information. However, generally they should be comprehensible by the reasonably educated person. Here are some examples of courses currently being offered and the universities that are producing them:

Introduction to Genetics & Evolution (Duke University)
Climate Change in Four Dimensions (University of California)
Computer Networks (University of Washington)
Social & Economic Networks (Stanford University)
Terrorism & Counter-terrorism (University of Leiden)
Write Like Mozart: An Introduction to Classical Music Composition (National University of Singapore)
The Power of Macroeconomics: Economic Principles in the Real World (University of California)
Global Sustainable Energy (University of Florida)

This list is just a small sampling of courses that are offered. Go on-line to review the full list, read detailed descriptions of the courses offered and to determine the background you need. After that, all you will need to do is to sign-up and view the on-line lectures as they are scheduled. The link to the Coursera website is:


The Khan Academy

This is a website that offers videos covering topics in math, science, economics & finance, and the humanities. This site originally was developed by Sal Khan to assist his niece in grade school. It has expanded substantially from that. Go on to the site and you will have access to video clips ranging from around 5 – 20 minutes each explaining a specific topic. Need a basic refresher on high school algebra – this is the place. Need to understand some basic economic concepts – Khan will provide what you need. These topics are explained in very simple detail. There are, of course, Khan Academy knock-offs. However, no one does it like Sal Khan. The link to this website is:



YouTube is a resource that I have discovered recently. This website provides access to streaming videos that explain nearly any topic of interest. Do you need a video on how to check the oil level in your car? There are several videos on YouTube for that. Need to understand how to set the clock on your VCR – this is the place? Need to know how to hook up your home sound system – well you get the idea. You can find videos on virtually any topic of interest. However, YouTube goes far beyond these simple topics. Many university professors as well as high school AP teachers’ video tape their lectures and put them on YouTube. Just search on the topic you are interested in seeing and all of the available videos will be listed. Click on the ones your want to view and they will stream on your browser. The offerings vary in quality, but I have generally found what I was looking for and gotten the content I needed.

You can spend hours searching this site and viewing videos. It’s both entertaining and educational. The link to YouTube is:


Here’s an idea. If you find a course on Coursera you want that requires a background you don’t have, go to YouTube or the Khan Academy and view videos to get you up to speed on those required background topics. After that, go back to Coursera and sign-up.

In the world of your youth, if you wanted to learn about something your options were to read a book or attend a class. Sometimes these were at considerable expense and might not be readily available. In the new world, the educational options are nearly endless, free or low cost, and available 24/7. All you need is the time to learn and explore. Welcome to retirement.

Posted by: drdata921 | December 27, 2013

The One-Year Resource Guide

December 2013 marks the one year anniversary of the JourneyIntoRetirement Blog. Over this one year period, I have covered several topics including retirement financial planning, the psychology of retirement, the retirement mindset, and even a couple of blog entries on retiree activism. Many of these blog entries contained links to other sites that provide critical information for people planning for retirement.

To close out this first year, I thought that I would provide a resource guide to the blog entry content for the year. This will make it easier to find content that you are looking for. You can gain access to the archives from this main blog page.


Inputs to Retirement Planning

How Do You Estimate Your Expenses in Retirement [December 2013 Archives]

Forecasting Your Retirement Savings [September 2013 Archives)

The Hidden Advantages of Delayed Social Security Filing [July 2013 Archives]

How Long Will You Live [July 2013 Archives]

Five Steps to Assessing Your Retirement Financial Readiness [July 2013 Archives]

Retirement Financial Calculators: A Guided Tour of the Black Box [July 2013 Archives]

Retirement Finances & Inflation [May 2013 Archives]

General Retirement Financial Topics

How Will You Deal With Uncertainty in Retirement [December 2013 Archives]

When It Comes to Retirement Savings Are You Your Own Worst Enemy (I) [November 2013 Archives]

When It Comes to Retirement Savings Are You Your Own Worst Enemy (II) [December 2013 Archives]

The Increasing Uncertainty of Retirement Finances [November 2013 Archives]

The Importance of Work in Retirement [September 2013 Archives]

For Retirement Planning, the Only Certainty is Uncertainty [August 2013 Archives]

Does the 4% Savings Withdrawal Rule Really Work [May 2013 Archives]


Early Retirement? [June 2013 Archives]

Retirement Dreamin [May 2013 Archives]


Find A Cure for “Would Have/Could Have” Syndrome [November 2013 Archives]

How Are You Doing on All of the Dimensions of Well-Being [November 2013 Archives]

How Did I Get HERE [September 2013 Archives]

Physical Fitness in Retirement is Your Key to Quality of Life [August 2013 Archives]

Looking for Love in Retirement: Pets Are the Perfect Companions [June 2013 Archives]


Relocation Possibilities I [April 2013 Archives]

Relocation Possibilities II [April 2013 Archives]


Retiree Activism: The Growing Need for Seniors to Speak Out [August 2013 Archives]

Will the Promises Be Kept – Medicare [May 2013 Archives]

Will the Promises Be Kept – Social Security [April 2013 Archives]


Lessons From the Business Trenches #1 [September 2013 Archives]

Lessons From the Business Trenches #2 [October 2013 Archives]

Lessons From the Business Trenches #3 [October 2013 Archives]

Lessons From the Business Trenches #4 [October 2013 Archives]


Does Greater Happiness Come With Age [November 2013 Archives]

Are You Getting Older and Wiser or Just Older [October 2013 Archives]

The Baby Boomers Are Leaving the Building [June 2013 Archives]

1000 Mario Andrettis: Meet My Rush Hour Community [June 2013 Archives]


Posted by: drdata921 | December 20, 2013

How Will You Deal With Uncertainty in Retirement

Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.

John Allen Paulos – Academic, Mathematician and Author

If there ever is a time of life more marked by uncertainty, it has to be retirement. Take your retirement finances as an example. Despite years of planning and saving for this magic period, you still have no way to know whether you will have enough. Why is that? Simply, because many of the factors that will affect your retirement financial security are beyond your control. Add to that the 20 – 30 year period where so much can go wrong OR right and you have a recipe for uncertainty. But, we know that uncertainty in your life can be both a dirge and a positive experience.

Uncertainty can lead to stress, but it can also lead to positive experiences as well. If everything is always predictable, you lose some of the excitement of life. Perpetual sameness is comforting to some, but would bore most of us to tears. However, if uncertainty creates a constant threat to your well-being, be it financial, physical, or psychological, then it can have a detrimental effect on your quality-of-life.

So, how well do YOU deal with uncertainty? Psychologists have developed a personality scale that measures “tolerance for ambiguity,” how well people deal with ambiguous and uncertain situations. Some people thrive in the face of uncertainty. They see this as a welcome challenge and are quite able to roll with the punches and adapt. Others only function well when everything is certain and predictable. When faced with uncertainty, they become stressed out which can lead to depression and physical illness. Obviously a high level of adaptability is the desired state for a retiree. However, everyone is different.

Notwithstanding the fact that psychologists treat tolerance of ambiguity as a personality trait, is this something that you can learn? What I am asking is whether the ability to cope with an uncertain environment is something that is in your genes (or set in stone due to your upbringing) or something that you can learn at any time in your life. Can you become more resilient in how you handle volatile economic conditions or uncertainty in your personal life? Certainly, retirement will challenge you on both of these. Things are about to change and will require you to adapt to a whole new life-space. This is not necessarily a bad thing. However, any changes as major as those your will face as you enter retirement can throw you off stride for a time.

Here are some coping strategies that I would recommend to help you deal with uncertainty and prosper in the face of major changes:


The time to plan your life in retirement is not the day that you retire, but well before. Many people spend years planning their retirement finances. You can bring some certainty to this by learning what is required to be successful and having an intelligent savings strategy. However, believe it or not, many retirement planners think that the real challenges in retirement are not necessarily financial. A much larger challenge is how you convert from daily activities in the “work-a-day” world to much more freedom in retirement. The good news is that in retirement you will be freer. The bad news is that in retirement you will be freer. If you want a positive experience, you will need to plan for it. As I have noted in this blog before, it is not difficult to fall into inactivity and spend your life in front of a TV. In the working world you had deadlines and other pressures to keep you moving forward.

In retirement you need to create a whole new set of motivations. What gets you out of bed in the morning? What creates the excitement for you? How will you find meaning in your retired life? You need to close your eyes and envision your perfect life in retirement. Then map out a plan to achieve that vision. Your retirement can be anything you want it to be. However, you need to take the bull by the horns and make it happen.


This may be just a special case of the first point above. However, it is important to call this out separately. If you face the future with dread, then you may become stressed out. However, here is a better solution: Rather than dread what may or may not happen in the future, develop a battle plan. Think of all of the challenges that can happen, financially and in your personal life and come up with a plan for how you will handle it. Shift your mentality from “bad things may happen – woe is me” to “if and when bad things happen, here’s what I will do.” Helplessness is stressful, but you can relieve the stress by anticipating and developing a planned reaction. You will be surprised at how much more confident you will feel!


Here is something that psychologists know and you should too: Stress is self-inflicted. The negative emotions associated with stress are not generated by what is happening to you, but by how you interpret the situation and react. Do you know people who are inscrutable – nothing ever seems to bother them? Do you know others who are a constant ball of negative energy – if the sky is not falling, it’s about to? It’s all in the attitude that you adopt about things that happen in your life. If retirement challenges are things to worry about, then you could be in for a constant state of distress. If retirement challenges bring new experiences that you see as exciting, then things will be much more positive. It’s all in the attitude that you adopt and this is totally up to you. Adopt a positive, optimistic attitude and retirement will be a much more pleasant experience. The choice is yours.

Now, some of you may think that I am just being “Dr. Sunshine” – sounds good, but it’s just a lot of feel-good psychobabble. So, let me recommend a book that will bring this idea home. It’s “Man’s Search for Meaning” by Viktor Frankl. Viktor Frankl is a holocaust survivor who came to one realization while incarcerated in a Nazi concentration camp. You can’t always control what is happening in the world around you, but you can control how you react to it. This epiphany helped him survive the experience.

This obviously is a little more extreme than the challenges you will face in retirement (or at least one would hope), but the concept is the same. You can approach the world with a gloom-and-doom attitude or you can approach it with optimism and the belief that you can handle anything that comes your way. To quote I Ching – the ancient Chinese book of wisdom: “The RESPONSE is EVERYTHING.”

Posted by: drdata921 | December 13, 2013

How Do You Estimate Your Expenses in Retirement


One of the most critical steps in determining your financial situation in retirement is to estimate your anticipated expenses. What you are looking for is that all important magic percentage: The portion of your pre-retirement income that you will need to maintain your standard-of-living in retirement. That percentage feeds all of the other calculations.

If your retirement expenses are greater than you income from sources such as Social Security, Pension, and employment earnings, then you can determine how much you will need to rely on your savings to make up the gap to cover your cost-of-living. Or, from another perspective, how much will you need to reduce expenses.

How do you figure out expenses that could happen some years off? The answer is that you don’t need to because your absolute expenses are not the important number as you plan for retirement. The percentage of your pre-retirement income that you will need is. Of course, you will need to update as you get closer to retirement. However, you can get a good guestimate of what you will need right now by looking at your current expenses and estimating how they will change in retirement.

I am providing some help. Download the Expense Spreadsheet from the “Tools Tab” on this blog and follow along. The numbers in the spreadsheet are a hypothetical example, so delete them and fill in your own numbers. Some of these numbers will come from paystubs or W-2 forms. If you track your expenses in financial software such as Quicken, you can estimate several of the other categories of expenses. This spreadsheet was designed to be reasonably comprehensive, but there is room at the bottom to add miscellaneous expenses not listed elsewhere. Once you have entered your current expenses, we can move on to step #2: estimating your retirement expenses.


RETIREMENT SAVINGS CONTRIBUTIONS: Currently you may be saving through an IRA or a 401k plan. Of course the government imposes limits on how much can be saved each year “before taxes” in each of these vehicles . However, let’s take a 401k plan. Currently (2013), you can save up to $17,500 before taxes. In addition, if you are over 50 years of age, you can contribute another $5,500. When you retire, these contributions will go away. So, if you are contributing to the maximum ($17,500 + $5,500), you can cut $23,000 right away from expenses.

TAXES: Contrary to popular belief, retirement income from Social Security and Pensions are not tax free when it comes to the Feds. Depending on your income, you may have as much as 85% of social security benefits taxed. However, except from a handful of states, Social security income is not taxed at the state level. Some states exempt all or a portion of your pension income from state taxes. Many of the taxes that you paid pre-retirement will become much less or go away. For example, Social Security and Medicare taxes that came out of your income will go away. If you are working, it is possible, even likely that those taxes will be reduced significantly if you are earning less.


HOUSING-RELATED EXPENSES: If you pay-off your mortgage before retirement, a large expense could be lifted from your budget. If you decide to downsize your residences when you retire, you could benefit from a slew of expense reductions. These may include reduced mortgages, cheaper house insurance, and lower utility bills. These are changes that vary from person-to-person. However, be aware that a lot of savings can be derived from downsizing.

RELOCATION: An array of expenses could decrease or increase depending on where you decide to retire. I have several blog posts about this topic. However, if you move to a locations where the cost-of-living is less compared to your current residence, you may see potential reductions in a whole series of expenses. For example, you could save on food and utilities. Property taxes may be reduced and many sales taxes may be reduced or eliminated. Of course, if you relocate to a more expensive locations, then the exact opposite could happen.

AUTOMOBILE-RELATED EXPENSES: If you have a long commute it is possible that you could save on gasoline, car maintenance, car insurance and the like. However, if your trade long commutes to work for cross-country trips in an RV, all bets are off. Of course, if you get to a point where you are physically incapable of driving, all car-related expenses could go away. Don’t look for these saving early in your retirement, but it could become a reality latter on. Of course, this could increase other travel related expenses because you may still need to get around.


HEALTH CARE: There are two components to this. First, you will have continuing medical, dental, and visions insurance. You will need to look at your current premiums for coverage through work and compare those to Medicare options. The second source of health care expenses is related to out-of-pocket costs related to medical treatment, drug costs, and costs related to dental and vision needs. Generally, these expenses will increase over the course of a retirement, but this is mostly unpredictable.

HOBBIES AND TRAVEL: With the free time available in retirement, you may fill your time with hobbies or travel. So, leisure related expenses may increase. Of course, some people turn this into a benefit. If you have a hobby that you can turn into a home-based business, you could use this to bring in additional income.

So, do your due diligence and estimate you expected retirement expenses and the magic percentage you will need. The spreadsheet should help, but feel free to revise this as it applies to your situation. When I made this assessment, I was pleasantly surprised at how much my expenses would decrease with no visible reduction in my standard-of-living. Of course, the future may be full of unknowns and you need to plan for this as well.


In the last post I documented the woefully low retirement savings balances that the average retiree will have available. In this post I will suggest that part of this problem is based on the psychology of savings that works against us. While some believe that humans are rational beings that can be counted upon to look long-term, the reality is far from this. Let’s take a look.


Saving for retirement requires us to accept some short-term pain (giving up income each month) for long-term gain (a financially secure retirement). However, people are not very good at that. Psychologists know that human behavior is driven by the expectation of short-term rewards and that behaviors that lead to undesirable outcomes in the short-term are less likely to happen. The principles of operant conditioning are the most basic drivers of human behavior. Very simply:

• Behaviors that are associated with short-term positive rewards become more likely.

• Behaviors that are associated with short-term pain or punishment become less likely.

• Experiencing short-term pain for long-term gains make the behavior, saving in this case, less likely. It is embedded in the emotional part of the brain that drives much of human decision-making. Short-term sacrifice is a negative emotion. Behaviors that produce negative emotions become less likely because negative emotions are unpleasant.

Retirement saving goes against this principle. When you save for retirement, you are giving up short-term rewards for long-term needs. You may rationally tell yourself that it is important to save for retirement. However, the negative emotion associated with what you are giving up in the short-term pushes you to an avoidance or minimization of the short-term pain. That is why we see either no savings or amounts well below what people will need in retirement. Nearly a fifth of workers who have access to a 401k plan don’t participate and those who do save only 6.8% on average – much less than needed.

However, there is more to it than that. Human behavior is willful. In other words we act with the expectation that a specific desired outcome will result. In this case, if we save for retirement, we expect to produce a positive financial situation. However, what if you believe that the amount of money that you will need to produce a financially secure retirement is unattainable.

Some sources say that you need a million dollars to retire. Others push that to two million or more. So, what you come away with is the belief that even if you are willing to accept the short-term pain associated with saving, you may not attain your goal of a secure retirement. Accepting the short-term pain will not guarantee the long-term gain. Is there any question that this could keep a rational person from making the sacrifices for a long-term retirement benefit?

Also playing into this is the fear that if you make the short-term sacrifices you may easily lose that money because of stock market volatility. So, if the short-term behavior causes the pain, but the long-term gain is uncertain then savings behavior becomes less likely.

By the way, most of the advice about how much money you will need when you retire is useless. Income and needs vary substantially from individual-to-individual and many authors are just resorting to sensationalism to cause anxiety and build readership. Take what you read relative to these guidelines with a grain of salt. Better yet, do your own assessments.


Once you decide to save in a 401k plan, for example, you have to make choices about how the money will be invested. Many companies, with the best of intentions, provide a multitude of investment options, giving you a lot of choices. Herein lies the problem. Having a lot of choices sounds like an ideal, but it may not be the best thing?

Let’s say that you have navigated the steps to sign up for a 401k plan and must now select your investments. What do you do? Research conducted at Columbia University has shown that having a large number of investment options can actually work against 401k plan participation. In their research they found that for every 10 additional investment options, you see a 2% reduction in 401k plan participation. In other words, having more choices can drive people away from signing up. Simply put, they become overwhelmed and decide not to participate.

However, the problem doesn’t stop there. When you sign up for one of these plans, you must not only choose investment options, but you also must decide what portion of your savings goes into each of the options you select. One common mistake is to select let’s say five different investment funds and to allocate an equal percentage of your savings to each. Selecting more investment options is a way to hedge your bets based on risk and market performance. However, if you allocate your savings equally among the options, you may be over-allocating your savings to the worst performers and under-allocating your savings to the top performers. Again, information overload can take a toll on the quality of retirement investment decisions. So, even if you decide to save, you may not be optimizing your returns.


The psychology seems daunting. It is a small miracle that anyone decides to save given all that is working against it. So, how do you get around the psychological forces that could keep you from saving for a successful retirement? Here are a couple of research-based solutions:

Make the pain invisible: If you have to write a check each month to your retirement savings, the pain is apparent and very visible. You see it and you feel it. Researchers have found that the solution is to make the pain invisible by using automatic deductions so that the person never sees the money coming out. This seems to increase the number of people who participate and decrease the number of people who drop out.

Increase the contribution percentage invisibly: Put automatic changes into the system by making contribution increases automatic. If I start out saving 5% of my income to get the full employer match the first year, have this adjusted by some percentage each year until you hit a maximum. For example, have the saving rate increase by 2% each year until you hit some maximum such as 15%. This strategy seems to work because, again, the periodic changes are relatively invisible – you don’t feel the pain as directly.

Simplify the investment options: When it comes to investment options, fewer high quality choices are better than a large variety of options. It will simplify the situation and make sure savers are not overwhelmed. Of course, the operative term is “high quality” offerings which puts the onus on your employer.

So, there is a huge savings-related problem as people head for retirement. However, there are also some practical solutions. When it comes to retirement savings, don’t be like one author who quipped, “I’m now as free as the breeze – with roughly the same income.” You can make a financially successful retirement happen!


In the next two posts, I will explore the topic of retirement savings. In the first post, I will lay out the current savings situation for the average person and what this could mean. In the second post, I will discuss the psychology behind these statistics and provide some practical tips about how to save more.

Keep in mind that if you retire at the age of 66 (the full Social Security age for most boomers) you can expect to live another 18 years on average if you are a male or 20 years if you are female. However, many people live well beyond that. A 30+ year retirement duration is not out of the question. This will help put the averages below into perspective in regards to how long your savings must last and whether you will have enough.

Let’s start out with a couple of stats. A 401k savings plan is one of the common ways that people save for retirement these days. They are tax advantaged in that you do not pay taxes on the money until it is withdrawn in retirement, a time when conceivably your marginal tax rates are lower. Typically there is an employer match associated with a portion of your contributions – in essence, free money to help your save. So, based on the research, here are a couple of key 401k facts:

61%: The percentage of all workers who have access to a 401k savings plan.
82%: The percentage of workers who have access and actually contribute.
33%: The percentage of people who contribute and are saving “enough.”
6.8%: The average percentage of income saved by people who participate.

If you do the math, it turns out that only 17% of workers are contributing enough to have relative financial security when they retire and the average contribution of 6.8% is well below what is needed.

What about current savings balances? A survey conducted by the Federal Reserve Board found that the average savings varied by age as you would expect. However, on average these savings balances were woefully short of what would be necessary to fund the average retirement for the 18 – 30 years you will need these funds. Here is what they found in terms of average balances based on all sources of savings. Note if you are unfamiliar with the terms, we have the average and median savings. The median is the savings in the middle of the distribution among all people – 50% of people saved more and 50% saved less. Averages can be biased by people at the extremes, so medians help balance out the picture:

Age 35 or less: Average retirement savings of $25,000/median savings of $9,400
Age 35 – 44: Average retirement savings of $80,100/median savings of $37,000
Age 45 – 54: Average retirement savings of $154,900/median savings of $63,000
Age 55 – 64: Average retirement savings of $270,600/median savings of $100,000
Age 65 – 74: Average retirement savings of $267,000/median savings of $77,000
Age 75+: Average retirement savings of $105,600/median savings of $35,000

Since the average and median savings are so different, some people have saved a lot, but most have saved far less. Also, pre-retirement is a time to accumulate wealth and retirement is a time to consume wealth. So the fact that people 65+ have lower savings balance than other groups is to be expected.

Stats are stats, so let’s address the real gorilla in the room. How long will YOUR savings last? Of course, there is no single number that will apply to all. To get at the answer as it applies to you, you need to know a couple of facts about your own situation:

• At the time just before you plan to retire, what do you expect your working income to be?

• What percentage of that income will you need to maintain your standard-of-living in retirement? The common logic is that your expenses will decline in retirement. This is probably a reasonable assumption for most people. The question is how much?

• What income can you expect from other sources such as Social Security, pension, part-time employment, etc.? Retirement savings are important in that they make up for the gap between what other sources of income provide and what you need to maintain your standard-of-living. If your other sources of income cover all of your needs, then savings are irrelevant. This is not the case for most people.

• Income needs are a moving target because of inflation. For the purposes of retirement simulators, the norms are about a 3.4% – 4.0% average annual inflation rate.

• What are your expectations about average investment returns on your retirement savings balances? A good assumption for planning would be in the range of 5% – 6% annual gains. Investment returns help to offset, in part, the negative impact of inflation on your cost-of-living.

Once you have determined these five things, you will be able to estimate two key numbers: How much income you will need to come from savings withdrawals each year to maintain your standard-of-living and how long these savings will last. By the way, be conservative in your estimates of inflation and investment returns (i.e. 4% inflation rate and a 5% investment return). Solid advice is “hope for the best, but plan for the worst.”

To figure this out, you can download the “Retirement Funds Longevity Calculator” in the tools tab of this blog. You will need to gather income estimates from the Social Security website (ssa.gov) and from any pension calculators available from your company. You will also need to estimate the savings balance you expect at retirement. The output from this tool is the number of years your savings should last and your age when savings are depleted based on your inputs. This age at depletion will help you guestimate whether you are likely to outlive your money.

In my next blog post, I will address the psychological issues that lead to under-saving for retirement and provide some practical tips about how to overcome these limitations.

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