Posted by: drdata921 | November 23, 2013

Does Greater Happiness Come With Age

“Happiness depends, as nature shows, less on exterior things than most suppose.”

William Cowper – English Poet

“Nobody grows old merely by living a number of years. We grow old by deserting our ideals. Years may wrinkle the skin, but to give up enthusiasm wrinkles the soul.”

Samuel Ullman – American Businessman, Poet, & Humanitarian

“Every age has its happiness and troubles”

Jeanne Calment – French supercentenarian (Lived to the age of 122)

WHAT IS THE HAPPIEST TIME OF LIFE

Here is a question for you. What time of life brings the greatest happiness? One could argue that time should be the years following retirement. Think back on your life. When were you the happiest.

When you are in your 20’s, you are just starting out. You are struggling financially and are trying to establish yourself in the working world. As you move into your 30’s, careers are underway, but many people also have the responsibilities of marriage, children, mortgages and the like. Your life is consumed by family with the endless soccer games, t-ball, basketball, little league and school activities including homework. It is all about family without a lot of downtime for yourself. Add on top of that continuous worries about how you are going to fund college and a retirement. The positive part of these early family years is that your kids actually look-up to you and want to spend time.

Then as you enter your 40’s, your kids are probably teenagers who want the car keys, but not you. Who are they hanging with? Are they doing drugs or alcohol? Do you fear that call in the middle of the night that you little cherub has been in a serious accident or has been picked up by the police (all happened to us). This is another period of high stress. Again, college is approaching and you feel unprepared because your kid(s) will be moving on with their life without you and the impending tuition expenses are daunting.

But, then you enter your 60’s. Everyone is worried about whether they have saved enough for retirement. However, here is the realization that I came to. If I got laid off from my job, I would have a safety net. It might not be ideal or happen as I planned, but this is an age when you are somewhat protected. File for Social Security and you have a monthly income. If you have a pension, even more. If you have been diligent about saving a layoff could be a god sent because you can move on to the next phase without guilt, regret, or large financial issues.

Retirement is a time of life when you can explore. You are at a time in life when you stop accumulating wealth and start enjoying what you have. You don’t need to continue competing with the Jone’s. What people think about you is irrelevant, because it is a time to start looking inward, not comparing yourself to external standards. It should be the perfect time.

WHAT DOES THE RESEARCH SAY

For those of you who have been following this blog for awhile, you know that I am very data bound and analytical. So, what does the research say about happiness and age? Well, a number of economists gathered data from the “America’s General Social Survey”, the European Eurobarometer, and Gallup. They looked at two kinds of happiness. The first was focused on general feelings of wellbeing. For example, “thinking about your life as a whole, how do you feel?” The other was focused on emotional wellbeing, feelings of stress, or contentment. For example: “Yesterday did you feel happy or contented or angry or anxious.

The results were a bit surprising. Happiness seemed to follow a U-curve with people reporting being happiest in their twenties and after their 50’s. The unhappiest time of life was for people in their 40’s and 50’s.

My hypothesis for why people in their 20’s are happiest is this is a time when they are learning to be an adult and are experiencing greater freedom. It is also a time for many before all of the heavy responsibilities hit. This was the happiest time in my life. I was making enough money to get by, but my finances were not stressed. I was in graduate school having the time of my life, intellectually and socially. I didn’t want to see it end – but, like all things it did as I began my career. It was never the same afterwards.

What about older people? There are a number of hypotheses for why this time of life is happier, but the ones that made the most sense to me were:

– Increased wisdom about how to handle life. People are less fazed by setbacks and are more able to roll with the punches. As I mentioned a couple of posts ago, as people get older, they react less emotionally and are better able to take things in stride.

– Feelings of accomplishment after a long career and for most, having successfully supported a family where the kids have gone on to their own lives.

– Less worry about having to please everyone all of the time. You look more within for acceptance rather than expecting external validation. You are much more self-accepting and emotionally self-sufficient.

– Greater appreciation for life because being older can mean that you are freer, both physically and psychologically.

These results provided validation for me. I am sensing that something different is on the way as I approach retirement and this simply confirmed that positive changes are on the horizon. I hope that most of you are looking forward to this time of life as well.

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Posted by: drdata921 | November 16, 2013

The Increasing Uncertainty of Retirement Finances

Nobody is aware of what the future holds. To take advantage of uncertainty is to hope for the best and prepare for the worst.

Blaze Olamiday

In this blog post, I want to talk about how retirement finances are becoming increasingly uncertain. Sources like 401K savings, Social Security, and pensions are supposed to be adding to our financial security. However, as the wave of boomer are beginning to retire, many of the promises seem to be in jeopardy. It is not that these expected sources of income will not be available to fund our retirements. The question is how much income to expect. As we close in on retirement, you would think that estimates of income become clearer, but it beginning to look muddier and muddier.

SOCIAL SECURITY

Let’s talk about Social Security. Most of us have been paying into the system for several years with the expectation that it will be a significant source of income when we retire. I think that the reality is that it will be there. However, the question is how to plan for this income. Estimates are that by 2020, taxes coming into Social Security will be less than benefits going out. The trust fund, which is the accumulation of taxes paid into the system over the years that have not gone out as benefits will cover the slack for a time. However, this is expected to last only until 2033, at which time incoming taxes will only be able to cover 75% of promised benefits.

However, it could be even more of a problem than that. After the 2020 date, the government will have to start redeeming treasury bonds to cover benefits. You see, all of the money that you have been paying into the system all of these years have not gone into a saving account. The government has purchased treasury bonds with the remaining taxes after benefits and the proceeds of those sales have gone into general revenue. Another way of saying this is that these taxes are gone for all practical purposes and we are left with IOU’s. So, as the government redeems the bonds to fund Social Security benefits, this will add to the Federal deficit. Herein lies the problem. There is already significant pressure and political jockeying to cut future Social Security benefits as a way to reduce Federal deficits. In other words, Social Security has not added to the Federal deficit, but redeeming the Social Security IOU’s will. Somehow this does not seem fair, but it is the current state-of-affairs. So, what can you expect from Social Security is yet to evolve.

PENSION PLANS

What about pensions? The number of people who work for companies that offer a pension are very limited at this point. If you are one of these people, you should feel lucky. However, I read an article on Yahoo-Finance recently talking about how many companies are freezing pension plans. The implications for a person moving towards retirement is that while you can normally project pension benefits to your anticipated retirement date, the uncertainty about whether your company will keep their plan creates income uncertainty. By law, any benefits that you have accrued must be paid. But, if benefits are frozen, you do not continue to accrue after the date of the freeze and if you were expecting more, this could put a crimp in your retirement planning.

RETIREMENT SAVINGS PLANS

And, then there are 401k retirement savings plans? At this point, the estimates I have seen suggest that only about 50% of American workers have access to one of these plans. For those who do, many do not take advantage of the opportunity or are saving minimal amounts. Notwithstanding a schizy stock market, this is one of the few retirement income sources where you can exercise some control. The recommendation is to save to the maximum that you can. However, there is a lot of inertia here and the psychology goes against the need to delay current pleasures for future needs. There are ways to get around this. I have included a video clip from a TED presentation that talks about how to overcome this psychology and to save more. I hope that you find this useful:

http://www.ted.com/talks/shlomo_benartzi_saving_more_tomorrow.html

So, it is beginning to feel like two core strategies need to be included in your retirement financial planning. They are to save as much as you can (and I would use the advice in the video clip) and to find some source of additional income, such as a part-time job or a home-based business, once you retire from your fulltime career. Of course, you can always delay retirement to take some of the pressure off.

I remember a recent commercial by one of the financial companies. A middle-aged woman talking about her retirement finances said: “I don’t know how much money I will have, but that’s what I will live on.” That’s a great perspective and one that could be relevant to most of us in these uncertain economic and political times.

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Posted by: drdata921 | November 8, 2013

FIND A CURE FOR “WOULD HAVE/COULD HAVE” SYNDROME

“If you believe that achievement ends with retirement, you will slowly fade away. First of all, keeping the mind active is one way to prolong your life and to enjoy life to its fullest for as long as possible.”

Byron Pulsifer, End Of Achievement

In the spirit of the post last week concerning well-being, I have decided to repost a blog entry that I ran shortly after I started the Journey into Retirement blog. As I have scanned the various retirement blogs on WordPress, I frequently have run into concerns about what people will do on a day-to-day basis following retirement. After money, this is probably the most commonly expressed fear. After years in the workforce, having to be somewhere each day at a specific time, the question is how do you shift gears when it is over. The answer is “with a lot of effort.” However, think of the freedom you now have as you move to the next phase. Enjoy the post and please let me know your comments.

We all know about procrastination. Typically this is the tendency to put off undesirable tasks to the last moment. It is an attempt to avoid or to delay things that are painful, uninteresting or unpleasant. However, here is a version of procrastination that you might not have thought about. I call it “Would Have/Could Have” Syndrome or WHCHS (appropriately pronounced “Wishes”). WHCHS is the common practice of procrastinating on the good things. For example, I hear someone play the piano and get motivated to learn. However, I never seem to find the time – would have/could have been a piano player. Or, how about this: I could volunteer at a food pantry or humane shelter. Not only would this be a productive activity, but it would make me feel good about myself. However, I never seem to get around to it. We all want things in our lives, but we often don’t expend the effort to move in a positive direction. It is procrastination of the worst kind because it is fundamentally avoidance of pleasure. It is driven by laziness or just plain inertia, but it keeps us from doing the things that would make our lives much more enjoyable and fulfilling.

Recently, I finished reading a book entitled “How to Retire Happy, Wild, and Free” by Ernie Zelinski. This is a must read for anyone heading for retirement. It deals with the psychological and lifestyle issues you can face when you retire. One important theme of the book is that you can’t just let retirement happen. You need to prepare for it. If you don’t, you can easily fall into the trap of inactivity and what I have called WHCHS. I sleep until noon. Then I get up and watch some game shows, soaps, and situation comedies until bed time. I don’t think that anyone plans for this. It just happens. But, is it really what you had in mind when you contemplated retirement? No, you had great plans for all of the new and exciting things you were going to do when you finally had the time.

As we approach retirement, we all have our plans. For me, I want to write some books. I want to learn the piano. I want to volunteer at an animal shelter. However, WHCHS can easily take over and derail even the best of intentions. Mr. Zelinski points out in his book that the time to start working on these “wants” is not the day that you retire. You need to build momentum so that what you do on the first day of retirement is a continuation of things that you were doing before – sans the long work days, of course. He points out that sitting around watching television all day is the quickest road to an early grave. You are not contributing to anything to give you purpose – unless, of course, you can find purpose in “The Price is Right” or “The Family Feud.” You are not engaged in physical activities or mental challenges that will keep you fresh and sharp. You are not engaged socially to give you an emotional edge.

I have taken what he has said seriously. I have just completed my first book, on of all topics, retirement financial planning (see the Don’s Book Tab above). I am planning a second book because the first one was such a blast. I am looking into volunteer opportunities at local animal shelters. I have not yet gotten myself to sit down and practice the piano, but I am working on it. I am about three years from retirement, but I am actively planning for that magic day.

So, what should you do right now, TODAY to avoid WHCHS in your retirement:

• The first step is to make a list of the things that you want to do and the skills that you want to master. I’ll bet there are many things you would like to experience or learn; things that you can do now and things that will take you well into retirement to accomplish.

• Second, write out a plan for how you are going to get from where you are now to where you want to be. Put together a schedule that will detail when and how this will be accomplished. Make this plan specific, but be realistic about what you can do and the time it will take.

• Third, follow your plan and stay on the schedule. Make this a positive experience. If you “fall off the wagon,” don’t denigrate yourself. Get back on and continue with your quest.

• Finally, find little ways to reward yourself for your efforts and progress. For example, when I finished my book, I bought a nice bottle of Champagne. When I master my first song on the piano, I plan to treat myself to a movie.

You should take this seriously and find a cure for WHCHS. No one wants to look back on retirement and regret that they could have done so much more – things that they really wanted to do, but never got around to. Now is the time to begin that journey!

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Posted by: drdata921 | November 2, 2013

How Are You Doing on All of the Dimensions of Well-being?

If you don’t make the time to work on creating the life you want, you’re eventually going to be forced to spend a lot of time dealing with a life you don’t want.

Kevin Ngo, President of Kevcomp (an internet social media company)

The content of your character is your choice. Day by day, what you choose, what you think and what you do is who you become.

Heraclitis, Greek philosopher

If you cannot fly, drive; If you cannot drive, run; If you cannot run, walk; If you cannot walk, crawl; But whatever you do, you have to keep moving forward.

Martin Luther King, Civil Rights Leader

A couple of years ago, I had the opportunity through my employer, to attend a three day training course called “Corporate Athlete Training.” Those of us who attended lovingly described the experience as Mind, Body and Spirit boot camp. It was three activity packed days talking about and practicing nutrition, physical fitness, mental alertness, emotional well-being and spirituality. The course was designed to deal with all of the elements necessary for true well-being and how we can develop lasting habits to ensure that our lives will evolve in a positive direction. Pretty unusual that a large company would offer this kind of training, but it is the single best training course I have ever attended. And yes, the things that we discussed have stayed with me and still affect my daily life. How many training courses that you have attended can you say that about?

One of the key points of this training was that most people have control over what they become and what happens in their life. However, because of the daily stresses, pressures and just plain procrastination, we tend to be on autopilot. We all have our dreams. But, if you want these things to happen in your life you need to actively pursue them.

It’s sort of like the lottery. Everyone wishes that they could win, but it happens for only a few. And, the lottery is a great metaphor for life. You see, just like winning the lottery, you can cross your fingers and hope that the forces of chance smile kindly on you. Or, you can actively and aggressively go after those things that you truly want. It is your choice.

Well-being is the key to a happy and fulfilling life. However, it goes well beyond eating healthy meals or daily penance in the gym. Yes, physical health is an important part of well-being, but it is only one component. So, what should you focus on for a fulfilling and happy life:

• Physical fitness: Take care of your body and it will take care of you. The way I have always looked at it is that the body is the platform on which the mind sits – healthy body = healthy mind and healthy body = happy life. So, diet is part of the equation as is daily exercise. If you are feeling weak or sick, it is hard to feel good about yourself. Eat right and exercise. It will pay dividends in terms of your lifestyle and happiness.

• The Spiritual: No, I am not necessarily taking about religion although religion for some people may contribute to this. It is about finding your passion and direction in life. It is about finding something that is truly motivating and brings joy and excitement. What is the grand vision in your life? Are you taking any steps each day to move towards that vision? There are all those things that you want to do and experience. Write out a list and a plan for how you are going to do these things.

• Emotional Well-Being: Are you generally upbeat in your perspective or do you tend to have a negative bend. Do you wake up in the morning with dread or do you wake up with excitement about what the new day may bring. Both can be self-fulfilling prophesies. Think that great things are about to happen, and magically they do. Think that it will be a lot of bad and that too is likely to happen with all of the associated stresses. One technique that people have recommended (and it seems to work for me) is to spend the first five minutes after you wake up to think about all of the good things that could happen today and all of the good things that are happening in your life. Think about all of the things that you have to be thankful for. Surprisingly, if you start out positive, the day is much more likely to move in that direction. I am sure that some of you will say “please, not until I have had my coffee.” But, you get the point.

Here’s another handy tip related to positive emotions. When you are driving to work, don’t listen to the news. The world is full of doom and gloom and hearing about all of those poor souls in Syria or the political battles in Washington is a downer. If you have satellite radio, find a comedy station or some upbeat music. If you listen to music sing along – the other drivers will not hear you and you will feel much better – and even if they do, so what? To laugh or sing will put you in a good mood from the very start of the day.

• Mental Stimulation: What are the mental and intellectual challenges in your life? Do you have the mental challenges, things like problem solving and other activities to keep you mentally engaged. Are you looking for new things to learn and experience? It is all part of mental well-being.

So, believe it or not, well-being is a choice we all make. As Heraclitis said: “The content of your character is your choice. Day by day, what you choose, what you think and what you do is who you become.” It’s never too late to start on the positive journey. In retirement, we have the time and freedom to do just that.

HAVE A VERY GOOD WEEK!

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Posted by: drdata921 | October 25, 2013

Are You Getting Older and Wiser or Just Older

Feeble, aged, people almost to their knees
Complain about the present using memories
Never found their pot of gold
Wrinkled hands pound weary holes
Each line screams out you’re old, you’re old, you’re old
But nobody’s buying flowers from the flower lady

Song Lyrics from “The Flower Lady” by Phil Ochs

Here is a question for you: Does wisdom come with age? The common logic is that as we get older and as we have experienced life, these experiences make us wiser. This may or may not be true. I know many people who continue to make the same mistakes and don’t seem to learn from them – they live, but they do not learn. As Albert Einstein once noted, insanity is defined as repeatedly doing the same thing, but expecting a different outcome. I am sure that you know some people who do just that.

Also, wisdom does not seem to be limited to older adults. I have a 25 year old daughter who is probably the single wisest person I have known. She has an understanding of life well beyond her years – a wisdom I would be more than happy to gain as I enter my senior years.

However, what is the truth behind age and wisdom? As it turns out, research has supported the notion that with age comes wisdom. Some of it might be experience, but a significant portion seems to be due to biology. A University of California, San Diego professor studied 3,000 people between the ages of 60 and 100. He found that these older adults were “less dopamine dependent” making them less impulsive and emotional than younger age groups because of slower response in the brain. Older adults seem to be more thoughtful and less emotionally driven in how they respond to the world, particularly negative stimuli around them. In addition, brain scans have shown greater activity in four regions of the brain by older adults associated with wisdom when compared to younger adults. So, there is evidence that with age comes wisdom despite the idiosyncratic traits of some people that hold them back.

OK, that’s the science. However, beyond the research, what is the common wisdom about wisdom? I was able to dig up some quotes on the topic that might inform, inspire, and amuse you:

QUOTES FROM THE WISE AND FAMOUS

With everything that has happened to you, you can either feel sorry for yourself or treat what has happened as a gift. Everything is either an opportunity to grow or an obstacle to keep you from growing. You get to choose.

Wayne Dyer – Author and Motivational Speaker

All we have to decide is what to do with the time that is given us.

J. R. R. Tolkien – Writer

You are never too old to set another goal or to dream a new dream.

Aristotle – Philosopher

In three words, I can sum up everything I’ve learned about life: IT GOES ON!

Robert Frost – Poet

The most creative act you will ever undertake is the act if creating yourself.

Deepak Chopra – Author

Isn’t it funny how day by day nothing changes, but when you look back, everything is different?

C. S. Lewis – Writer

You have to start by changing the story you tell yourself about getting older. The minute you say to yourself “Time is everything and I am going to make sure that time is used the way I dream it should be used.” Then you’ve got a whole different story.

Diane Sawyer – News Journalist

QUOTES FROM ANONYMOUS, BUT STILL WISE AUTHORS

As I have grown older, I have learned that pleasing everyone is impossible, but pissing everyone off is a piece of cake.

You don’t get to choose when or how you are going to die. You can only choose how you are going to live.

The older I get, the less I care about what people think of me. Therefore, the older I get, the more I enjoy life.

Sometimes the best way to be happy is to learn to let go of things you tried hard to hold on to that are no longer good for you.

I decided to take an aerobics class – I bent, twisted, gyrated, and jumped up and down for an hour. But, by the time I got my leotard on, the class was over.

In life, no matter how old you are, it’s never too late to make new beginnings. In fact, the very best may very well be yet to come!

Live your life and forget your age!

I believe that everyone else my age is an adult whereas I am merely in disguise.

My mind says I am in my twenties. My body says yeah, you wish!

If you laugh a lot, when you get older, the wrinkles will be in the right places.

One day, you will be just a memory for some people. Do your best to be a good one.

To be old and wise, first you need to be young and stupid.

Life isn’t about finding yourself. It’s about finding who god created you to be.

Do not regret growing older. It’s a privilege denied to many.

We are not too old until regrets start taking the place of dreams.

The trick is to enjoy life. Don’t wish away your days waiting for better ones ahead.

I HOPE THAT YOU HAVE FOUND SOME INSPIRATION AND PERSPECTIVE IN THESE WORDS OF OTHERS. HAVE A GREAT WEEK!!

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Posted by: drdata921 | October 18, 2013

Lessons From the Business Trenches #4

This is the fourth in a series of blog posts discussing what I have learned in business that can help you when planning a successful retirement.

LESSON #4: Do the analyses and the “What Ifs” so that you understand your options and the implications of various decisions and actions.

In 1982, Tom Peters, a business guru wrote a book entitled “In Search of Excellence.” He laid out the factors that make some companies great. One of the tenets of that book was a phrase he coined, avoid “analysis paralysis.” The point he was trying to make is that you can over-analyze a problem and that this excessive focus on more and more analysis can keep you from making a decision or at least a timely decision.

While I can attest to the fact that you can over-analyze an issue, these days I often see managers erring in the opposite direction. Leaders often let ego take over and make gut-level decisions either counter to what the data is saying or totally devoid of any analysis. This, in my opinion, can be even more dangerous than over-analysis. Data and information is nothing more than a window into reality. And, I would warn you to ignore reality at your own peril. Do you want to leave your retirement outcomes totally to chance? Do you want to explain to your spouse how in your gut you thought you knew the answer, but were wrong? Do you really want to take the risk that your version of condo living in retirement will be a refrigerator crate over an urban heating grate.

The reason that I bring this up is that I can envision some people making an “analysis paralysis” statement about this blog. After all, I have done a lot of data analysis to answer the prime questions over the various posts. In addition, I have built a number of tools for your use that some will see as highly (if not overly) analytic. Isn’t this overkill? Can’t we all just agree that inflation could be a problem, stock market returns are volatile, and that you are saving what you can and just leave it at that? Well the answer is “we could.” However, without these analyses, how will you know what to do? How will you know how or even if you should course correct? What actions should you take proactively to guide you to a successful retirement?

OK, I am more analytic than most. My tendency is probably to over- vs. under-analyze a problem. However, when you assess the risks involved, is that not the more prudent course to take, particularly when you are talking retirement? In retirement planning, I don’t think that you can have too much information.

Here is the point that I want to make: The real power of the information and tools that I have provided on this blog is the ability to assess the potential outcomes of various decisions you might make. So, for example:

– What are the implications for you when you enter retirement of the savings decisions you have made along the way. This involves allocation of your portfolio and how much you are saving. Is there a compelling reason to change either of these? What will happen if you do (with a particular focus on savings)?

– What are the implications of physically relocating in retirement? Is it a better option from a financial perspective to move or to stay put?

– Given various spending rates and cost of living expectations, how should you adjust? Should you plan to spend less or can you spend more?

– Can you retire earlier or should you work longer than you had planned? This is a key question for many people these days and the answer is an important one.

– How important is it to work after retirement? Is this a choice or an imperative?

For those who have a sixth sense about these sorts of things, you won’t need a lot of analysis. For most of the rest of you, humor me and do the analysis. I don’t think you will regret it!

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Posted by: drdata921 | October 11, 2013

Lessons From the Business Trenches #3

This blog post is the third in a series focused on what I have learned in business that can help you with planning a happy and successful retirement.

Lesson #3: We all want answers, but first we must ask the right questions?

This may be one of the most fundamental principles in business, if not in life. If you want answers you can use, you need to know what questions to ask. It is not that you won’t get an answer, but rather you will probably not get an answer that will help you succeed.

In business, there is really only two questions that are important: What are the right things to do to be successful and how do I do those things better. Everything else is just a variation on the theme. However, that is not always the way that businesses are run. One area of expertise for me is promotion planning. This area is rife with misdirected questions. For example, I am often asked how to promote products more effectively. However, what people seldom ask is the real question: should we be promoting at all if we want to be successful. Does this activity contribute to the success of the business or it is just a big money sink. The answer is often a little bit of both, but the total picture is rarely examined. What people should be asking is whether promotions are necessary to be success and if so, how to perform this activity better?

How many activities in a large business are little more than continuations of what has always been done in the past. In many cases, we stop questioning whether the activity is truly needed or whether it will contribute to success. Only after you answer this can you proceed to question number two: If this activity is useful, how do we manage it better? If I don’t ask the first question first, then I may end up optimizing an activity that does not help me with my real goal. This brings to mind a quote by Peter Drucker, the business guru: “There is nothing so useless as doing efficiently that which should not be done at.” If you asked the right questions, you would know that some activities are counterproductive and shouldn’t be done at all!

How does this apply to retirement planning? We have already seen one example of this in a previous blog post where I dealt with the topic of the appropriate savings withdrawal rate during retirement. People often fall back to the famous 4% rule. This rule states that if you draw out 4% of your savings to begin with and adjust this withdrawal rate for inflation each year, your savings should last for the duration of your retirement. So the question you are asking is whether the 4% rule will extend your savings.

The withdrawal rate issue is not irrelevant necessarily, but it is probably not the first question you should ask. The real issue is how to maintain your standard of living over an extended retirement so that life is enjoyable, not constrained by financial problems. You see with the 4% rule, we are focused on savings balances when we should be focused on lifestyle. Yes, with the 4% rule your savings should last. But did you know that if you follow it, the 4% rule may not allow you to withdraw enough money each year to keep up with inflation and your standard-of-living will decrease over time. (See “Does the 4% Rule Really Work” in the May 2013 archives).

I am sure that some of you will say: “Yes, but if my savings drops to zero, that could be a bad thing, right?” Of course you are right. However, if you know that this is a risk given the lifestyle that you are planning your next question should be “how do I adjust.” For example, should I get a part-time job? Should I delay retirement? Should I save more? Should I invest differently? Should I rob banks (just kidding)?

The larger question might be “how do I make my retirement an enjoyable celebration of life.” How do I move to the next stage allowing me more freedom and time to explore. Retirement finances are certainly one element of that. If you struggle financially, it will be difficult to feel free or even to have the resources to explore. However, in the decisions that you make, you need to be laser-focused on your true goal – living an enjoyable lifestyle in all of its aspects.

Let’s take another example. If, for example, you decide to move in retirement to take advantage of a lower cost of living, you need to make sure that the new location is actually somewhere you want to be aside from lower expenses. It does you no good to be financially sound, but live in a place that makes you miserable. So, the decision of relocation goes beyond the issue of a cheap cost-of-living. In any retirement decision, there are elements of the financial, psychological, and practical. So, don’t treat each element as if it totally detached from the others. Consider all of the aspects. A cheap cost-of-living is good, but cheap and exciting is what you are really looking for. So, ask the question of how a move to a new location will contribute to your overall happiness in retirement, not just your finances.

So yes, questions about financial solvency in retirement are important. However, keep in mind the real question: How do you guarantee a happy retirement – in terms of your finances, in terms of your preferred lifestyle, and in terms of your psychological well-being. Certainly continue to ask questions about retirement finances. That is an important element of a happy retirement. However, consider all of the dimensions of retirement happiness. Don’t be one-dimensional and don’t deal with the important questions as if each were independent of the rest. They are all interrelated. If things are not fitting together, than ask yourself how you will need to adjust to make it work. Ask the right questions before you make the important decisions. It’s all about balance and what will make you happy in your retirement years! All other questions should be focused on this and this alone.

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Posted by: drdata921 | October 4, 2013

Lessons from the Business Trenches #2

This post is the second in a series applying what I have learned working in business to retirement planning.

Experience: that most brutal of teachers. But you learn, my God do you learn.
C.S. Lewis – Famous Writer

Lesson #2: Use information for guidance, not confirmation

This is a lesson that gets reinforced all too often in business. When you do marketing analysis for a living like I do, you tend to run into two generic kinds of people. There are those who truly want you to provide guidance and will consider the information, regardless of what it says. These people are the enlightened because they are truly looking for an answer and have no preset agenda. On the opposing side of the spectrum are people who already have made a decision. They just want you to provide confirmation. For these sorts of people, if the information doesn’t confirm the decision they want to make, they either reject the analysis or intentionally misinterpret the results. Mostly, these people think that they are too smart to be wrong.

Now in retirement planning the problem is not so much that people think that they are too smart to fail. Rather, they know what kind of outcome they want and just want the data to tell them that is what they can expect. It is more wishful thinking than anything else. However, here is the rub: reality is reality and rejecting an inconvenient truth will not help you succeed in retirement. It will bring momentary happiness, but longterm grief. Believe me, reality can be great teacher, but a cruel master.

Here’s how it all plays out. You want to know that your pending retirement situation will be positive. That is, you want the best outcome. It is just human nature that you would feel that way. The best way to ensure that you get a good answer is to use rosy inputs in your planning so that the results you get from your analysis will be positive. What do I mean by this? Here are some examples:

1) Lowballing the estimates of inflation. For example, if inflation over the last couple of years has averaged 2%, assume that this will continue indefinitely. Don’t use longterm historical averages because this won’t give you the answer you want.

2) Assuming an unrealistic investment return on your savings given the economic situation and business uncertainty. For example, assuming that you are really good at picking investments so that you can expect to be at the high end of what others are getting.

3) Being overly optimistic about the percent of pre-retirement income you will need. For example, you assume you can live on just 50% of your pre-retirement income when the actual number is closer to 80%

4) Underestimating your potential lifespan, the amount of time you need to plan for. Look in the newspaper obituaries and you will find people who died at a fairly young age, but others that lived beyond 100. You need to assess the possibilities and hedge your bets. Average lifespans are just that. Some people have shorter lives and some longer. Plan for the average then add some years to be safe. If you live only to the average, your heirs will thank you.

5) Overestimating post-retirement earnings. For example, you plan to start a home-based business that you are certain will explode into a multi-million dollar company in a couple of years. OR, you are having health issues, but still expect to be able to work in a physically demanding job post-retirement. Even a Walmart greeter can be a physically challenging job. It puts a lot of stress on the wrist “waving” and facial “smiling” muscles.

These are just a few examples of assumptions that can make retirement planning look better than is realistic. I am not be trying to be negative here, but just noting that there is a natural tendency to be overly optimistic because you want things to work out for the best. You know what answer you want to hear. You don’t want to struggle in retirement. This should be a time of peacefulness. So, it is “feel good” to hedge the assumptions a bit.

However, this is not the answer to retirement success. The answer is to seek an honest assessment of the situation. This provides understanding and feedback so that you will know whether you will need to adjust. As I have said before, it is better to be pleasantly surprised by a more positive outcome than you expected than to be rudely awakened by a much more negative situation.

There is nothing in the tools offered on this blog that will prevent you from being mister or madam sunshine. If you assume that inflation will average 0% for your 20 or 30 years of retirement because that is what it was last year, the tools will joyfully make the calculations based on that input. If you think that you will get a 30% annual return on your investments, the tools will cheerfully complete the calculations using that assumption. It is up to you to be critical and to adopt the proper perspective. You will have less ability to adapt if your assumptions are overly optimistic and you may be blindsided (not a good thing).

By the way, in regard to those people who are seeking confirmation for decisions they have already made – some succeed shortterm, but few succeed longterm. For me, that has been confirmation for the need to be honest! As I have said, you ignore reality at your own peril.

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Posted by: drdata921 | September 27, 2013

Lessons from the Business Trenches #1

As I have done my due diligence in retirement planning it struck me how common the issues and lessons were to what I have been dealing with for the last 30 years as a business analyst. So, for the next couple of blog posts, I thought that I would talk about those lessons. These are perspectives I think that you can use as you move towards retirement.

Lesson #1: To know where you are going, you need to start by knowing where you are. To attain your goals, you need to define them.

Business strategy is fundamentally about finding a way to take you from you current status to a better and more successful place. As an analyst, a great part of my job is to assess the current health of the business and to make recommendations about how to improve it. The beginning point of retirement planning is the same. You need to know where you are at each point as you approach retirement and find a way to manage your current situation to whatever goal you have defined.

So, for example, if one goal is to retire with $1,000,000 in your 401k savings account, you should know where you are at each point before retirement so that you can adjust your savings and investments as you manage towards that goal. I am constantly amazed as I talk to people as close as five years from retirement how few know how their 401k savings are doing, can even annunciate a savings goal for retirement, or have any sense of how to adjust if necessary. The whole process is on autopilot and they believe that somehow it will all work out. Retirement planning is NOT on of those areas where you want to do this.

Some people are very good at defining their financial goals and managing their investments. Others are totally oblivious. I read an interesting article on Yahoo Finance that looked at these various groups of people. About 57% of people have some degree of active management of their finances, while nearly 43% are on some degree of autopilot. See what you think – where are you in this scheme?

http://finance.yahoo.com/news/4-money-mindsets-yours-190001258.html

In a previous blog post (Forecasting Your Retirement Savings, 9/7/13), I talked extensively about savings forecasts that will give you an estimate of where your savings balances will be at retirement. I provided you a tool that would help you make that assessment. This suggests two things: 1) that you keep track of your savings balances on a periodic basis (I suggested monthly tracking), and 2) that you gain some sense of what your final savings goal is. Assess your anticipated expenses in retirement and how much income you will need. Then determine how well those needs will be met with your various income sources including savings. I have found that very few people actually track their balances and most do not have a way of doing a savings forecast.
Both are required for success.

In regard to the second point about understanding your goals, I would direct you to the famous quote by Yogi Berra that “if you don’t know where you’re going, you might not get there.” These are not minor points. If you know where you are and where you need to be, you can gain the information and insights that will allow you to manage to the results you are after. If you know neither, then managing to a goal will be difficult and you may not get there. Welcome to Yogi’s world!

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Posted by: drdata921 | September 20, 2013

How Did I Get HERE?

In a mere twelve hours, the unthinkable will happen. I will turn 66 years old. Will it be OK or is it a clear move to the dark side. In how I perceive myself, I am really only early 30’s tops. I can’t be old because I don’t feel old and as important, I don’t think old. I am not set in my thought patterns and not really set in my ways. However, when I look into the mirror the white beard and salt and pepper hair reveals the truth. I don’t look 66, but I am clearly not 30.

At this point, I am not retired. However, this is more a result of the 2008 economic meltdown than the will to work forever. Thanks to our friends on Wall Street for making the choice to work so easy. You guys are the best!

OK, this post is not meant to be a rant bemoaning inevitable aging and the vagaries of the financial system. It is meant to point out some realities. I can say that I am 66 and if that doesn’t depress me nothing will. OR, I can say that I am 66 and the truly exciting part of my life is about to begin. Because, in reality, I think that is the truth.

What’s my evidence? Consider this:

– Financial freedom is close at hand. In the past, if I were laid off from my job, I could be in dire financial straits fairly quickly. However, now I have a Social Security and Pension safety net, as well as retirement savings to cushion the fall. Think of the freedom that provides not available earlier in life.

– Time to pursue other interests. Post-retirement, I will have the time to pursue a number of interests that I don’t have time for now. There are so many interesting things to do. Now, I will have the time to explore. I will go from two day weekends to seven day weekends. Or perhaps, it’s two days of weekend perpetually tacked onto five days of vacation. It is my choice how to fill the time and I have a very long list of activities and goals that I wish to accomplish.

– Control over where you live. For the past thirty years, I have moved with the job. Some locations have been better than others, but largely it has not been a real choice. If you want to progress in your career or move to a better situation, you move where the companies want you to move. Now, I will move once more. However this time, I have chosen a location that my spouse and I are truly excited about.

– Opportunity to start the psychological journey of renewal. See if you recognize this. You were hired into a job because of the strengths that you brought to the table. However, once you got there, the company continually pointed out your weaknesses. You MUST work on your weaknesses if you are to be promoted. After 30 years of this – trying to conform to the ”perfect employee” vision of some HR madman (or lady) you suddenly realize that you have lost your personal uniqueness and identity. “Who am I and what do I stand for?” For me, this has led to two conclusions: 1) I was a much better and happier person before I began down the career path and 2) One of my most important “projects” in retirement is to rediscover who I truly am and to return to that happier state. I will soon have the time to embark on this most important of psychological journeys.

Once I started to consider the advantages, 66 didn’t appear to be the tragedy that it did at first. It really looks like a time of freedom and exploration. It is a new beginning that I can take advantage of.

I invite comments on this post. I think that a lot of the time, we think that we are alone. You may feel that no one else is going through the same crises that you are. However, I would bet that this is wrong. The only real differences among people I would guess is how we interpret and react to these lifestage changes. I haven’t always been an optimist, but I think that this is the way to go at 66. Besides, I will soon be free – what’s there to be depressed about.

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