Retirement: A Full-Time Job

Don’t Let Fear Paralyze Your Retirement Plan

 
It’s understandable that the prospect of retiring has become increasingly scary for a lot of people.  Emily Brandon’s recent piece at U.S. News explores some of the fears uncovered by a recent Financial Engines survey of 300 retired and soon-to-be retired people.  Unfortunately, this fear is causing some folks to simply throw up their hands in despair:

“Some individuals were paralyzed by the uncertainty and took no action in order to avoid making incorrect decisions. This inertia caused some retirees to choose conservative investments to avoid getting locked into something and not having access to their money.”

Whatever you do, don’t do nothing!

It’s true, there is a lot of advice out there on how much to save, how to invest it, and how to make it last—some of it conflicting and all of it overwhelming.  But that doesn’t mean it’s better to take none of it.  Standard rules of thumb have been getting a bad rap lately.  True they are not precise, but at least they give us a place to start. 

How much to save

Last week I wrote about the 4% rule.  Is it perfect?  Of course not, but it’s a great place to start.  It will give you a target.  All you have to do is adjust for your own circumstances.   

From paralysis to action:  Aim to save 25 times your annual retirement budget needs that will not already be met by Social Security if you are planning to retire near age 65.

How to invest it

Is the age-based rule of thumb for allocating your assets perfect?  You know what I’m going to say:  No, but it’s a good place to start.  Should your allocation between bonds and stocks be 30/70, 60/40 or somewhere in between?  It’s up to you.  There really is no wrong answer here, well, aside from putting 100% of it in stocks or bonds, or your house, or the mattress.  Start with the basics and adjust for your own risk-tolerance as explained in this article:  Should You Invest According to Your Age?

From paralysis to action:  Just pick an allocation, you can always change it.  Invest it in a diversified selection of low-cost index stock and bond funds. 

How to make it last

Rebalance your portfolio periodically.  I don’t even think this rule is controversial.  As the years go by, your target allocation is going to get out of whack.  The market will impact your allocation and so will your own withdrawals.  Rebalancing will force you to sell stocks when they are high and buy them when they are low.  You’ll also want to rebalance simply to shift to a more conservative allocation as you age.

My approach to asset allocation is to always have about 10 years of living expenses in bonds and cash so that I won’t be forced to sell stock mutual funds during market tumbles. 

Putting it all together

Let’s assume you are retiring at 65 and planning on a 4% withdrawal rate.  You will need at least 40% allocated to bonds (40/60 allocation) to have 10 years of living expenses in your bond allocation.   Assuming your portfolio returns about 2.5% over inflation, you will need to migrate toward a 50/50 allocation by your 75^th birthday to maintain a 10 year supply of liquid assets.  If you continue to periodically rebalance to keep that target of 10 years living expenses, your allocation would shift to about 70/30 by the time you are in your mid-80’s.

A recent survey showed that many people’s paralysis is causing them to make a different plan for retirement all together:  never retire at all.   My issues with that action plan are in my post at U.S. News this week, Denial is Not a Retirement Plan.

 

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Tips for Success from the Playground

Success is kind of like pornography, hard to define but you know it when you see it.  Putting aside, for the moment, the precise definition of success, is the achievement of it due to luck or hard work?  Or is it based on intelligence--what you know--or does it just boil down to who you know?  I enjoyed the commentary on the subject over at Sightings at 60 but in the end, I’m going with Penelope Trunk on this one.  It’s not how hard you work or how lucky or smart you are.  It’s how likeable you are.

Sure, success means different things to different people.  I spent 18 years at a very successful venture capital firm, and by successful, I mean by all definitions of the word.  At the end of that time, I was able to retire comfortably at the age of 44.  And I am fortunate to enjoy good health and the company of wonderful friends and family.  Actually that is the exact definition from Webster’s:  favorable or desired outcome.

I was a lousy college student, graduating with a GPA that’s not even fit to print, a fact which this New York Magazine article makes me feel a whole lot better about.  Let’s just say I’m no rocket scientist.  Why did they choose me for the job?  Why did they keep me around for so long?   Despite my sorry excuse for a GPA, why was I able to achieve success?  I think it’s because they liked me.

According to Harvard Business School faculty research likability matters more than you might think:

We found that if someone is strongly disliked, it's almost irrelevant whether or not she is competent; people won't want to work with her anyway. By contrast, if someone is liked, his colleagues will seek out every little bit of competence he has to offer. And this tendency didn't exist only in extreme cases; it was true across the board. Generally speaking, a little extra likability goes a longer way than a little extra competence in making someone desirable to work with.

Despite my poor performance in college, I was quite competent at my job.  But there are certainly many other candidates that would have been quite competent as well.  Now accountants aren’t generally known for their social skills, an over­­­used stereotype to be sure.  But it certainly doesn’t hurt to be one of the sociable ones.  Penelope Trunk explains:

As the need for social skills at work grows, the bar for good social skills gets higher. Until the 1970s, a smart child uninterested in playground politics was considered eccentric but okay. Since the 1980s, educators see the playground as essential training for the future, and kids who can't navigate are often sent to experts for extra help with social skills.

To this day, I am very good at the playground.

Related Posts:

Underachieve Your Way to Retirement

No More Performance Reviews

The Marshmallow Test For Retirement

 

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The Impact of Inflation: Your Mileage May Vary

Inflation is an expected part of our economic reality, but periods of significant inflation can be as harmful to a retiree as a stock market tumble.   Some people worry that the Fed’s “printing of money” will lead to runaway inflation.  So far, the reality is that the money supply has increased by less since the Fed began easing (5.51% per year), than it had during the period from 2000-2007 (6.22% per year).   Inflation was actually negative in 2009, and 1.64% in 2010.  But recent spikes in gas prices have sparked those fears again. 

Inflation has averaged 3.37% each year over the last century.  There’s no getting around the fact that inflation will have an impact on your retirement budget.  The basket of goods that you would have been able to purchase 30 years ago for $100 will cost you $283 today.  At that rate, the dollars you have now will only cover 35% of the basket of goods in 30 years that they buy you today.  Your retirement plan has to take inflation into account.  But your individual mileage may vary.

That’s because your own basket of goods may not look exactly like the basket of goods in the official inflation rate.   So far, my actual inflation rate has been negative each year of retirement instead of positive.  While I had assumed an inflation rate of 3.5% per year, my actual expenses have deflated, the second year being 1.5% cheaper than the first, and the third year being .5% cheaper than the second. 

While our health insurance premiums have gone up by 26% over the last three years, our property taxes have gone down by 11%.  At first glance, it would seem like this would have caused our expenses to go up.  But property taxes represent a much larger percentage of our budget than health insurance does, so the absolute dollar savings on those taxes far outweighed the increase in medical costs.  Gas prices have increased lately too, but that only represents 3% of our total budget, so they only have a marginal effect on our cost of living.

The other reason your year-to-year results may vary is because of your own behavior.   While 70% of our budget is for essentials like food and shelter, 30% is for discretionary items.  Like many folks, when the stock market dives or when gas prices increase, we cut back a little on discretionary expenses, like travel and entertainment.  It’s this behavior part of the equation that I talk about today at my U.S. News post, A Smarter Approach to the 4% Rule.

Related Posts:

            Downsizing to Retirement

            Downsizing to Recession

            Are Retirees More Financially Agile?

 

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Enjoying a Split-Personality Retirement

One of the things I have enjoyed about incorporating a part-time job into my retirement is the chance to get to be someone different from time to time.  As with many people, my career played a large part in defining who I was before I retired.  It was a major ingredient my identity.   It’s the same with retirement, really.  When I tell people that I am retired, the word retired conveys an identity as well.  People have an image of retirement, and whether that image accurately reflects how I live my retirement or not, it certainly identifies me in a particular way.

I’ve written about how hard it is to say what I “do” when I’m small-talking with a new acquaintance.  When we meet someone new, the small talk about our occupations is really just to gain context for getting to know one another.  It’s a jumping-off point for conversation.  Just as “finance-professional” didn’t really express who I was before I retired, “retired” doesn’t really cover who I am since retirement.  Having another dimension to my retirement gives me a chance to indulge in a bit of split personality.

Personality 1:  Writer/Blogger

When I first retired and would meet someone that I wasn’t likely to have an intimate on-going relationship with, I generally answered “aspiring writer” to those questions.  My hairdresser and my dental hygienist, casual conversations with strangers in waiting rooms and grocery lines, those are the relationships that I chose to convey this persona to.  And especially to hard-working folks that don’t like their jobs, I am usually reluctant to tell them I’m retired at such a young age.

Personality 2:  Retired

For people with whom I’m likely to build an ongoing, intimate relationship, “retired” seems to be the best way to categorize my life.  That’s why I can meet up with them at practically any time, why I have the time to read so many books, take so many classes, and travel so frequently.  If a person is going to really know me, they will ultimately wonder how I’m able to have such a flexible life, so I might as well explain that at the beginning of the relationship.

Personality 3:  Part-time venture capital CFO

I’m taking an angel investing class at our local university.  I tell the people that I meet there, that I work part-time as a CFO at a venture capital firm.  At the first class, we all introduced ourselves and explained why we were taking the class.  I’m taking it to get more enjoyment out of the experience of my part-time consulting gig.  Sometimes I resort to this persona in other situations as well, instead of the writer/blogger one. 

For some other advantages of incorporating a little work into your retirement, read my post this week at U.S. News, 10 Reasons to Work Part-Time in Retirement.

 

Related Posts:

     It’s Not Losing and Identity, It’s Gaining a Chance to Create a New One!

            Discovering Who I am Without Work

            How Do You Know You’re Retired if You’re Still Working?

 

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For the Secret to a Happy Retirement Ask a Woman

Women generally arrive at retirement with smaller nest eggs.  That’s due to a number of factors, including lower lifetime earnings and the fact that they tend to invest less aggressively than men.  While women have historically been less confident about their investing abilities, that’s beginning to change according to the 2011 Scottrade American Retirement Survey.  Sixty-nine percent of the women in the survey rated their ability to plan for retirement as good or very good, inching closer each year to this year’s 71 percent of men.

And since women have longer life expectancies than men, they will need even bigger nest eggs to carry them through retirement.  Which reminds me of the joke:  Why do husbands die before wives?  Because they want to.  I get it, but maybe it’s time for the men to learn something from the women:  How to achieve a happy retirement.  Besides a longer life-expectancy, women do have some advantages in this area.  That’s the subject of my post last week at U.S. News and World Report What Men Can Learn From Women About Retirement.  

 

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Nesting

The last couple of days I’ve been watching a Blue Jay pass back and forth with various twigs and mosses in her beak, skirting them off to an undisclosed location to build a nest for her upcoming family.  I’ve been working hard on my nest too, spending the last three days in the garden, weeding, pruning, and generally allowing the spring to show through. 

I pruned the Camellia that was blocking the view from the kitchen window.  I admired my handiwork this afternoon as I was making a cup of tea.  It seems my aggressive pruning has exposed the Jay’s nest though—I hope she will still use this one so we can watch her bring up her babies right outside our window.

Now that tax season has come and gone, my part-time consulting gig has become more part-time again.  I suppose that I could use some of that money to pay someone else to toil in my garden, but I am enjoying my commune with nature, and especially the satisfaction of gazing at my work, which I will do this evening over a glass of wine.

Sometimes I forget to appreciate the wealth of time retirement gives me.  Ironically, it’s having the part-time job that is actually rekindling that appreciation.  It’s also the thing that’s allowing me to slow down, relax, and do nothing, without feeling guilty about it.  In fact on the day of the royal wedding, I came home from work, poured myself a glass of wine, and indulged in hours of replayed coverage of the festivities, totally guilt-free.  Take that Glen Beck!

Related Posts:

            Working to Appreciate Retirement

            How Much Time is Too Much Time to Waste?

            In Praise of Slowing Down

 

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