Retirement: A Full-Time Job

What Are You Willing to Give Up?

I met a really fun woman this weekend that is contemplating retirement.  She’s in her mid-60’s, and is planning on retiring in a year or two.  She told us about a recent conversation she had with her husband.  They realize they will have to give up some extravagances in retirement, but couldn’t arrive at any that they were actually willing to live without.

I knew when I retired I was willing to give up a housecleaner and a gardener, I knew I was willing to downgrade the luxury level of our travel, and at some point down the road, sell our vacation home.  When you work, you enjoy the luxury of a steady paycheck.  Which means you can pay people to take care of a lot of the things you don’t have time to do because you are busy working.  It means you can make your travels spectacular because you only get 3 weeks of them.  When you work, you can buy a little bits of time with money.

I listened to my new acquaintance as she went through the list of all the things she wasn’t willing to give up.  I was trying to think of something substantial to add to the conversation, something that maybe she hadn’t thought of that would be easy for her to give up, and my mind drew a blank.  Despite the fact that we spend three-quarters of what we spent before I retired, I couldn’t remember what it was that we had given up.  I couldn’t think of anything I was missing.

It just occurred to me this morning, that’s because what I really wanted before I retired was time.  I was willing to buy it, a lot more of it.  And if you aren’t craving that time, I mean really craving it, you will probably feel like that time costs too much.  It costs you a fashionable wardrobe, or luxury cars, or some manual labor.  It costs you a star or two on hotel rooms, or some legroom on a flight, or the latest iPad.   And if you didn’t actually crave that time to begin with, you might just wind up resenting all the gadgets you’re giving up.

Related Posts:

            How to Stretch a Travel Dollar in Retirement

            Downsizing to Retirement

            Downsizing to Recession

 

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You Can't Take it With You

It's recently occurred to me that when I'm in my 80's, my two-story, four bedroom house with a large yard may contain a few more toilets than I'll care to scrub in my advanced years.  I feel pretty confident of this prediction because I'm already tired of scouring the extra bathrooms in my life.

When I computed how much I needed to save for retirement, I didn't consider the value of my home, since the equity over my head doesn't really translate into money in my pocket.  One can argue the point that living somewhere rent-free is money in your pocket, but that would be ignoring the costs of maintaining and insuring said home, and in my neck of the woods, some pretty hefty property tax bills.

The other drawback of home ownership is that when you die with a house, you die with an asset you're not really going to be needing anymore (you know, since you're dead and all.)  In our case, that means we'll be dying with another 17 years of living expenses trapped in that asset, which actually could have come in handy while we were still alive.  More thoughts on this dilemma in my last U.S. News post, Three Ways Your Home Can Fund Retirement.

Downsizing, becoming a renter, or taking a reverse mortgage are all are fine solutions to the can't-take-it-with-you problem.  But if you are considering a reverse mortgage, be sure to read the fine print.  To avoid being kicked out of your own home before you arrive at your new destination six feet under, make sure you include both spouses on the loan.  Read this article at the New York Times for more details.

Related Posts:

   Smart or Just Lucky?

   Tripping on the Path to Retirement

   What About That Mortgage?

 

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What About That Mortgage?

When I retired in March of 2008, I still had a small remaining balance on my mortgage.   I thought about paying it off right when I retired, but decided to wait until later that year when the five years was up on the fixed period of our 4.75% rate.  I figured that was pretty cheap money so I would hang on to it until the rate made it more expensive.  The S&P 500 Index was around 1,300 at that time.

By the time the mortgage did adjust later that year, the S&P had dropped over 30%.  And instead of adjusting upward, the rate on my mortgage went down to 3.5%.  Instead of paying it off, I put that money in a 1-year CD earning 4.75%.  I figured I’d buy another year and decide what to do next year.

That year I watched as the S&P dropped to its low of 676 by March of 2009.  By the time our mortgage adjusted again, the S&P had worked its way up over 10% from the year before, and my mortgage rate was adjusted downward again to 3.25%.  At that point, there was no possibility of finding CD that paid more than that, but I wasn’t eager to part with a big chunk of cash in case the market stayed low for several more years.  I didn’t want to risk having to liquidate mutual funds if the market remained in the doldrums for the foreseeable future.  So I punted another year.

Good call leaving everything alone, by the time the mortgage adjusted again last year, the market was up another 15%.  The mortgage adjusted downward again to 3 percent which is where it sits right now.

When you are making the decision whether to deploy funds to pay off a remaining mortgage balance, you’ve got to consider the alternatives for that money.  In the case of a CD earning a higher interest rate than the mortgage rate, that’s a pretty easy decision.  In the case of putting that money in the market rather than in the mortgage, that can be a risky bet, but a consideration nonetheless.  Liquidity needs will also play a role in that decision.  

I have no crystal ball into the future, but if you are among those that believe inflation is going to be a big problem in the future, you may want to hedge your mortgage with Treasury Inflation Protected Securities.  Details on how to do that are in my post at U.S. News & World Report, Why I Didn’t Pay Off My Mortgage Before Retirement.

Related Posts:

            The Scary Impact of Inflation on Your Retirement Budget

            Are Retirees More Financially Agile?

            Has Retiring in a Recession Changed Me?

 

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The Marshmallow Test for Retirement

When I was a little, I made my Halloween candy last until Thanksgiving.   Witch or princess, I hustled for my loot, and lugged that plastic pumpkin home for safekeeping.  I still remember the box I had that held 24 cardboard compartments, perhaps originally housing a set of tall champagne flutes.  I used it to portion out my Halloween bounty so that it would last almost the whole month of November.  I divvied up the chocolate bars so there would be at least one every day, and then filled in with all the minor players like Sweet Tarts and Good & Plenty.

Turns out this says something about me.

MarketWatch carried an interesting article last week with some new research from the National Bureau of Economic Research.  Looks like our retirement savings crisis can be blamed on two culprits:  financial illiteracy and impatience.  J.P. Morgan’s Michael Falcon points out that while financial literacy is certainly lacking, the bigger problem is that “some behavior biases are so strong that they make us make bad decisions.”  Specifically, choosing immediate gratification over larger, long-term payoffs.

Vanguard’s Stephen Utkus explains that there is evidence this tendency may be hard-wired in some of us:

“The argument is that the executive function of the brain, the prefontal cortex, sometimes has difficulty executing long-term plans—either perhaps because the prefontal cortex might be deficient in some way, or because more automatic and visceral processes in the brain overrule it.”

Which reminds me of that book by Daniel Goleman, Emotional Intelligence.  It was a best seller back in the 90’s.  I loved its premise that Emotional Intelligence (or EQ) is more important to success than IQ.  I have no idea what my IQ is, but I’m pretty sure my EQ is higher, and the proof is in the Halloween box.

In the book, Goleman describes Stanford University’s marshmallow research.  Four-year-olds were given a marshmallow and told that they could eat it right away if they wanted.  However, if they waited until the researcher came back into the room, they could have that marshmallow and another one too.  Some kids covered their eyes, some sat on their hands, others distracted themselves from the marshmallow’s lure by singing or talking to themselves, thereby earning the bonus marshmallow.  Other kids devoured the marshmallow the moment the researchers left the room.

The study followed-up with these kids in high school and found that each four-year-old’s tendencies pretty much carried into their teenage years.  Further, the kids that delayed gratification had better grades and better SAT scores.  Generally the marshmallow test was twice as predictive of success as an IQ test.

Which leads me to believe that for those of you that didn’t actually ration your Halloween candy, you are going to have more success saving for retirement if you actually hate your job.   Because the faster you save for your retirement, the earlier the instant gratification of walking out that door.

Related Posts:

    Hate Your Job?  Join the Club!

    Retirement and the Magic Number 

    Happily Obsessed

 

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Money as a Renewable Resource

There is a bit of debate among my friends, family members, and blog readers as to whether someone can be earning money and be retired at the same time.  I don’t really care whether it’s called retirement, semi-retirement, or not retired at all.  My goal is to do what makes me happy even if, inconveniently, someone will actually pay me to do that.  Setting the controversial semantics aside, there definitely is a difference between the actual experience of “working in retirement” (I’m going to call it that because I need it to be a verb) and working before retirement.

Before retirement.  Before I retired-retired (where I gave up my well-paid, well-respected profession for the full-time pursuit of goofing off), money was a renewable resource.  Whatever I spent it on, it didn’t matter so much because there would be more of it coming in on the 1^st and the 15^th of the following month.   Luxury vacations, a house cleaner, or new clothes, whatever it was I spent the money on, it didn’t matter that much because someone was always giving me more of it after I spent it.

I was also saving for retirement, but for most of those years of working, losing that job would have meant that I would have had to go get another one to support myself.  Deciding that I wanted to walk out the door tomorrow was just not a practical option.

Retirement.  When I did walk out that door, I had a stash of retirement funds that would carry me through the next 50 years, if I only spent a set amount of it each year.  Money was no longer a renewable resource.  If I spent money on a housecleaner, that meant one less dinner out that week.  If I spent money on a week-long luxury vacation, that meant giving up a whole month of less luxurious travel.  And if I paid someone to mow my lawn, that would limit the number of jazz concerts I could attend that year.  Money went from a being a renewable resource to being a measure of exchanges.  I could spend up to my budgetary total, but spending money on one thing meant giving up another thing.

Working in retirement, semi-retirement, or whatever you want to call it.  When I was offered the opportunity to pick up some paid work a day or two each week, I couldn’t really see any downside.  If I hated it, I could quit.  If I liked it I could take that money and do some things I would want to do if only I had more money.  And I had an idea for what that would be.  For years I’ve been lusting after a little studio pied a terre in San Francisco.  While only 30 minutes away, I miss the energy of the city and would love a little crash pad for all those nights we head up for dinner with friends, or for jazz and symphony concerts.   I used to dream of owing a condo, but that’s too much commitment, that would tie me to the job forever (or require me to sell it if I wanted to quit.)  So I figured, I could take the money I make and rent a furnished apartment for as long as I liked the job.  That was part of the reason I took the job.

But a funny thing happened even after I picked up that retirement job.  First of all, I still think of money as a unit of exchange rather than a renewable resource.  If I spent the money on an apartment, that’s money I could have spent at a resort in Mexico.  Secondly, the reason I retired in the first place was to enjoy freedom, freedom to do almost exactly as I please.  If I rented an apartment, or hired a housecleaner, or spent the money on some other thing that upgrades my standard of living, I’d need money as a renewable resource again.  And for that, I would have to exchange freedom.  And that is why I won’t be spending much of the extra money I earn.

Because even if you don’t want to call it "retirement", I want the option of goofing off full-time available to me at any given moment.  I don’t want to lose my freedom, and part of that freedom is knowing that I could still decide tomorrow that I would rather have the extra time than the extra money.

Related Posts:

            Retirement as a Balloon Animal

            Am I Still Retired?

            Retirement and the Magic Number

 

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My 15 Minutes of Fame

Or more accurately my 1 minute and 57 seconds of fame.  I didn’t get the heads up before my commentary aired on American Public Media’s Marketplace show on Friday.  But you can listen to it on their website (just click on the orange “Listen to the Story” button.)

The segment is an excerpt version of my U.S. News Post, To Retire Early, Don’t Have Kids, which generated 600+ mostly angry comments over at Yahoo! Finance. 

For those of you visiting for the first time as a result of the piece, you’ll mostly find stories of adjusting to retirement here.  But if the topic of not having kids is what brought you over, here are a few related links:

            MSN Money:  Liz Pulliam Weston’s Will Kids Drag You to the Poorhouse

            The Center for Retirement Research at Boston College’s Do Parents Live it Up When Children Fly the Coop?

            MSNBC’s Secret to Marital Bliss?  Don’t Have Kids

            Musings on the childfree lifestyle at Childfreedom blog

            New York Magazine:  Jennifer Senior’s All Joy and no Fun

            Babycenter’s cost of raising a child calculator

 

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Love Me Some Irony

So I admit, I was in the mood to stir up a little controversy this week.  You have to be in the mood to stir up a little controversy if you decide to write about how you can save money for retirement faster if you don't have kids.

Usually I post a link to U.S. News to share my weekly post.  But this week, the comments over at Yahoo are so much more fun than the original post, I have to share it over there, "To Retire Early, Don't Have Kids."  (3/18/12 Update:  That link is no longer active so the gazillion comments are gone too.  Still, a few good ones left at the original post at U.S. News.)

By the age of 46, a child-free woman has heard it all.  The most frequent responses to my admission that I don't actually want kids are:  

1) that it's selfish not to have kids, and

2) that if I don't have kids, I will have no one to take care of me when I'm old.  

The comments on Yahoo are pretty consistent with my own experience.

Does anyone else see the irony here?  (Hint:  Go look up "selfish" in the dictionary and tell me if the definition doesn't read "having kids so they will take care of you when you're old.")

Related Posts:

My Path to Retirement

What Does Not Having Kids Have to do With Retirement?

From New York Magazine, "All Joy and No Fun"

 

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How Much Money Will You Need to Retire?

It's the question people generally focus the most time on when contemplating retirement.  Exactly how much is enough?  Tough question, but luckily someone else has done the homework for you.  The next best thing we have to a crystal ball is research published several years ago by William Bengen and Larry Bierwirth.

Bengen and Bierwirth were interested in determining not just what would happen to a hypothetical retiree’s portfolio based on historical averages, but what would happen to a retiree in any given 30-, 40-, or 50-year slice of time during the previous 80 years.  In other words, if you were unlucky enough to retire during the worst 30-, 40-, or 50-year periods in our recent history, what size nest egg would have been enough to see you through your golden years?

Their research has become the basis of much of the conventional advice on how much to accumulate for retirement.  For more details on that guidance, check out my post today at U.S. News & World Report, "How Much Money Will You Need to Retire?"

Related Posts:

Are Retirees More Financially Agile?

What Does Not Having Kids Have to do With Retirement?

Tripping on the Path to Retirement

 

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How Much Money Do You Need to Feel Rich?

In today’s jittery economy, what does feeling rich even mean?  According an article over at CNN Money.com, the most common definition includes “being able to live a comfortable life without having to work."  That would certainly be my definition, having enough to live the life that will make you happy.  How much is enough?

Well that’s where things get a little surprising:

“ ‘I’d like to have enough money so my family and I wouldn’t have to work anymore or worry about the necessities, and maybe travel a bit,’ said Deborah Veale, a Southern California resident visiting New York City.

“Veale said she’d need about $10 million to consider herself set.”

One women quoted in the article thought a “couple thousand dollars a month” would be enough, but another figured it would take about a billion.

I suppose the range of what is considered comfortable is a very personal thing, but $10 million?  A billion?  Is that really what it takes to be happy in retirement?  I’d say that’s possibly a tad bit overkill, and according to this article in the New York Times, that much may even hinder your ability to be happy.

This brutal recession has caused people to spend less and save more.  The personal savings rate is up to 6.4 percent now, up from the 1-2 percent range it had been for many years before the Great Recession.  Many recent studies have shown this change in consumption patterns may bode well for happiness levels.   The Boston Consulting Group recently reported that “recession anxiety had prompted a “back-to-basics movement,” with things like home and family increasing in importance over the last two years, while things like luxury and status have declined.”  And that’s good news considering a slew of recent research showing that experiences that connect us to others make us happier than accumulating stuff.

It’s not just that the stuff doesn’t make us happy, it appears that such wealth actually “interfered with people’s ability to savor positive emotions and experiences, because having an embarrassment of riches reduced the ability to reap enjoyment from life’s smaller everyday pleasures, like eating a chocolate bar.”

How much do I need to be happy?  Enough to live comfortably without worrying about a paycheck.  Does having that make me feel rich?  Yes, and with a whole lot less than a billion dollars.

Related Posts:

Downsizing to Retirement

Downsizing to Recession

What is a Comfortable Retirement?

 

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A Note About “Losing” Money in the Market

I’m sure you’ve been hearing a lot of people complain about how much they’ve lost in the market over the last few years.  Maybe you’ve been among them, I certainly have (here, here and here).  But the reality is, you haven’t really “lost” money unless you cashed in on those losses by selling stocks when they were down at those depressing values. 

Last week, I wrote about my experience watching the market drop 46% during my first year of retirement.  I retired with several years’ worth of expenses in cash, a healthy allocation to bond funds, some real estate, and the remainder in stock funds.  Which means, that while the market tanked, the "losses" in my own nest egg were far less dramatic.  That's the advantage of retiring with a diversified portfolio, in years of market turmoil, you don't lose money in lock-step with the market.

While the stock and real estate portions of my portfolio have yet to fully recover, my retirement nest egg is now only down 15% from the day I retired.  Having the cash and bond assets to draw upon meant that I wasn’t forced to sell stocks and real estate when the getting was bad.  Stocks have increased over 50% since those bleak days of March, 2009.  By not selling when the market was down 46%, I participated fully in those recovered gains. 

It wasn’t a cool head that prevailed, but the realization that I could not possibly pay my bills for the next 50 years if I sold all my assets and hid the cash in bonds, CDs, and my mattress. 

I certainly could have invested 100% of my money in those safer assets when I initially retired, but since, over long stretches of time, bonds outpace inflation by a lot less than stocks do, I would have needed far more in my nest egg to quit my job.  Delay retirement or accept some market risk.  I chose the latter. 

My thoughts on the subject over at U.S. News today, “Why Retirees Shouldn't Shun the Stock Market"

Related Posts:

            The Stock Market:  What a Difference a Year Makes

            Retiring in a Down Market:  It’s Not as Bad as I Thought!

Retirement Planning Risk:  Playing it Too Safe  CBS-The Retirement Beat

            Why Annuities Won’t Fix the Retirement Problem  CBS-Retirement Roadmap

           

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