Stay Focused

This days entry brings us back to one of the most important but often overlooked aspects of saving for, and planning for your ultimate retirement......staying focused.
It is very easy to let the CNBC talking heads and the economic outlook distract you from your ultimate goals. The drone of doom and recession has reached a fever pitch this week as it seems every news story asks the question... are we in, or, are we headed into, a recession? In planning for your ultimate getaway, do not let this distract you in the short-term from your longer term goals. I am 43 right now, and I am quite sure that there will be at least 2 more economic slowdowns or recessions before I reach 50. Nothing I have heard changes the fact that I need to save around $100,000 a year for the next 7 years and invest aggressively.
I ran a simple calculator to figure the exact details to get me to my desired goal. I would encourage you to do so as well. There are many simple calculators out there, but I'll provide the link to my favorite . I'm sure many of you will be suprised to find out how quickly your $1,000,000 runs out in retirement, but that is another post for another day. Today is all about taking action toward your goal.
It is important to keep in mind that the "retirement" that I speak of does not mean that you are sitting and doing nothing all day, or roaming the country club for the 5th time this week. The retirement that I speak of involves possibly running your own business from your home or office, but at a much reduced level of responsibility. This will allow you to maintain some level of income, but without the responsibility of a full-time or ownership position. If you have not opened or thought of a self-employed business is the day.

Remember - "Dreams determine what you want in life....Actions determine what you get"
Take action today!

The Retirement Guy

The Let's Retire at 50 Project

Let's retire at 50! Sounds great doesn't it. As many of you know, The Number by Lee Eisenberg is one of my absolute favorites, and after much thought and consideration, I think I have finally come to my number. Soon I will be leaving the comfortable striped suit and white shirt world of the bank for the absolute uncertainty of my own investment firm, and to work on my own. It is the single most exhilarating thing I have ever done, but at the same time leaves my wife and family with a sense of uncertainty about the future.

My crazy adventure into entrepenureship comes after serious consideration of the simple question - What did you not become, what do you regret not being? Right now I am 43 and I cannot imagine how dissapointed I would be at 65 if I had not given this a shot. Like all business owners, I think I have found something that people need to hear, that is not being given to them today.....a "niche" if you will. My simple plan for this business is to offer simple, great advice regarding retirement to the baby boomer wave that is hitting 61 this year. Tying together Social Security, Investments, Pensions, and Insurance is a confusing and sometimes complex problem many retirees face, and the opportunity with this is the beauty of my business - simplification.

All of this leads me to the Retire at 50 face my own number. I have decided my own number to be $5 million in investments, to produce $250,000 in residual income per year. I have greatly simplified my own numbers (I won't bore you with the details), and I urge all of you reading this to do the math and figure out what you need, and what your number is. The goal of my chosen number is an amount I think will provide a comfortable income for both me and my wife to travel and do what we choose to do in 7 years. The next 7 years of my life are going to be dedicated to many different businesses which will all lead to the comfortable retirements of all that I serve. My clients are going to be the ultimate beneficiaries of my project. The knowledge that I glean from others and can pass on to my clients will be infinately valuable.

This blogsite will be a window on this journey, as well as a journal on the trials and tribulations of running your own business. I will post much more often than I have, and I will keep the posts both entertaining and informative. If you go to my website now, you will notice that the homepage is now dedicated to retiring early. Post your comments often, and visit the website often.

Let's all retire at 50.....or sooner.

The Retirement Guy

Inflation - The Devil You Don't Know

Feb 11, 2007

This week I pen this column as a continuation of my last column "Living Longer is a Risk?", to study what I consider to be one of the most significant risks boomer retirees face....Inflation. Better the Devil you know than the Devil you don't is an old proverb that we will put to new use today as we study and compare the devil we know - today's low interest rates, to the devil we don't know - inflation.

Inflation is measured most commonly by our government as the Consumer Price Index. The Consumer Price Index (CPI) is a measure of the average change in prices over time in a market basket of goods and services. The Bureau of Labor Statistics releases CPI data monthly. The recent trend of inflation has been higher, albeit well contained in the Ben Bernanke range of comfort. The effects of inflation can be stated in terms of statistics, but probably the best illustration is in a real life example. Think of the first home you and your family bought...maybe some 30 or more years ago. Think of the price you paid (maybe this was all of the money you had in the world). Now, think of the price you paid for your most recent new car.....was it $22,000, $30,000, or even $42,000 for a new Suburban. This is a great real life example of the effects of inflation on the average consumer. Now imagine what could happen to your retirement nest egg if not properly invested to keep up with inflation, or worse yet, if your nest egg is emptied by some unforseen health issue.

Now let's dig further into the CPI statistics to see why your real life experiences with inflation recently do not match what the federal government says is a low and well contained problem. While several factors can result in the national CPI being different from your experience, one major factor is how you actually spend your money. Estimates of expenditures reported in the Consumer Expenditure Survey for each consumer good or service are used to produce "expenditure weights" for the CPI. These weights give each good or service in the CPI an importance relative to all the other goods and services in the market basket. For example, an increase of 5 percent in housing costs is more important than the same increase for telephone charges, because most consumers spend more for housing than for telephone service. Similarly, like most retirees, if you spend more on medical care and recreation, and prices rise sharply for these goods and services, the increase in your personal expenditures and personal price index would be larger than the increase for the average consumer. The CPI represents all goods and services purchased for consumption by a reference population BLS has classified into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows:


As you can imagine, the costs of medical care are significantly different for a group of thirty somethings than they are for a group of sixty or seventy somethings. This leads to a very different index of inflation with some startling numbers called the CPI-E. The Bureau of Labor Statistics has collected data from 1983 to the present on the basis of an experimental index (CPI-E) for Americans 62 and older. The index uses a "basket" of goods and services more relevant to this group, which spends more of its money on items—such as medical care— whose costs have grown more rapidly than other expenditure items.While the commonly quoted CPI is figured at 3% annual inflation (the increase for 2007 will be 3.3%), the CPI-E is slightly elevated at 3.38%. Specific expense categories such as food, apparel, transportation, recreation and education, all drop when moving between the and the CPI-E. There is an average 24% decrease in the amount of money spent in those categories after retirement. In the categories of housing and medical care, however, the CPI-E shows increases of 22% and 102%, respectively.

How should retirees estimate their retirement living expenses? The answer is carefully and thoughtfully, especially when taking into consideration the likely changes in spending habits that will occur as they age. Today's low interest investing environment makes the challenge even more difficult, as the natural reaction is to put your investments into "safe" low yielding money markets and CD's that barely outpace and in some cases don't even keep up with inflation. While there is no easy answer, the best advice is to seek a professional planner for a retirement plan that can outpace inflation and protect your assets.

The Retirement Guy

Living Longer is a Risk?

February 1, 2007

I begin writing this entry tonight with an admission that it is hardly a subject that we can cover completely, much less solve, in a few paragraphs. The importance of addressing the fact that you may outlive your assets is neither pleasant, nor is it something we want to admit, but we must focus on planning and managing our retirement resources in a manner that they do not expire before we expire. Boomer retirees have prepared themselves for a retirement similar to that of their parents and older relatives. They do, however, tend to underestimate the gains in life expectancy that have happened during their lifetimes. As a result, many boomers are now in danger of outliving their assets.

I recently read a paper put out by the AARP that covered the four pillars of retirement.
1. Social Security
2. Pensions and Savings
3. Post Retirement Earnings (think Wal-Mart greeter)
4. Health Insurance (both adequate and affordable)

Sadly, for the majority of retirees, Social Security is the foundation of their retirement, representing the only guaranteed income that most will have. According to the SSA, nearly 2/3 of beneficiaries get more than half of their income from Social Security. With this years COLA adjustment, the average benefit will now be $1044. Less than half of working Americans today have a pension plan, and less than half have no regular payroll deduction savings as well. I just heard on NPR's marketplace, that today consumer savings reached their lowest level (-1% if you can imagine) since the great depression of the 1930's, and many have retirement savings far less that sufficient to live in retirement three decades or more. The baby boomer set also carries the burden of having the most debt in addition to their lack of retirement resources. Many boomers will be blindsided, not knowing until it is too late that they have not saved enough to live a comfortable retirement.

Perhaps the largest concern for newer retirees, and an increasingly alarming statistic, is the declining number of employers offering health benefits. This is probably the most overlooked area of retirement planning, and one that could add anywhere from $400-$750 per month to adequately insure. Not mentioned in this pillar is long term care costs which many mistakenly believe are covered in their medicare.

Finally I will focus on the effects of inflation, which most only consider in passing as a line on the retirement calculators that we sometimes like to use. Most , savings, and other guaranteed sources of income (annuities e.g.) do not have COLA adjustments. Inflation that has been running at the average 3% rate we've seen in the last year will cut purchasing power in half over the course of a 15 year retirement. The danger, especially for those who depend solely on Social Security for their income is obvious.

Feel free to add your comments, or corrections where I am wrong. I will discuss in more detail the problems facing the boomer set regarding inflation in future posts. We are all going to retire at some point in our lives whether we choose to or not. Simple changes made early enough can have a profound impact on the happiness you will feel later in life. Simply put, save as much as you can, work a few years longer than you thought you would, and for God's sake pay off those credit cards! Links to Dave Ramsey are on the right. I highly recommend you visit his site.

Until Tomorrow

What's Your Number?

January 29, 2007

Tonight I would like to take a moment and recognize one of the best books I have read recently regarding the issues facing boomers in retirement. Lee Eisenberg's The Number focuses on our choices and dreams, not our investments and returns. Too often in planning, we focus on hard numbers produced in a vacuum without any understanding of what money means to us, or what we intend to do with it.

I have a link to the number to your right on my site, and I encourage you to look at his blog, buy the book, and most of all examine the issues brought up by the book. It is well worth taking the time early in your life to make decisions that could lead to a healthy and happy retirement. Sure, everyone wants a million dollars, but why do you want a million dollars, and how will it change your life? Will you still be the same person? What kind of person will you be? These are the issues and questions brought up by the author. This book is about money, but ultimately it's about the life you want, the life you don't, and the costs of each. The hardest hitting questions come at the end, and I will leave them for you to answer personally. I will however share with you my personal favorite.

You just found out that you have an incurable disease and have 24 hours to live. What did you not become?

The questions raised in this book are uncomfortable to ask ourselves, but if they are asked will lead to the most honest answers, because we cannot lie to ourselves. In the book, Lee talks about his fellow colleagues and how their number frequently changed throughout their careers. As they hit 100K, their number became 1 million. As they hit 1 million, it became 10 million. The point of the whole exercise is more self awareness rather than a specific financial goal.

So What's Your Number?

Something Wicked This Way Comes?

January 28, 2007

I write to you today as an Arctic cold front begins to grip the Midwest in it's clutches. Watching the news last night, the weatherman said it will be the coldest weather since 1994. I hope they are wrong. I don't know if my old Chevy Blazer can take such weather, and I'm pretty sure my old dogs can't. The unpredictability of weather leads me today to discuss the other great unknowable....the returns and in what order you will get those returns, on your investments in retirement. This is not a discussion about the merits of stocks or bonds, but rather, a discussion about the possible sequence of returns that you may receive from your various investments, and how withdrawals might affect your retirement savings. Like Mr. Cooger and the carousel in Ray Bradbury's "Something Wicked This Way Comes", we cannot ride backwards and reclaim lost time. We live in the here and now, and must make good decisions based on what we know now, or our decisions may spin the ride forward.

Now that you are near or in retirement, you will have to make a decision on where and how to invest your hard earned savings - a task made more difficult by the fact that your money will have to last for 20-40 years or more. It seems straightforward: invest in something that matches your risk tolerance with your time horizon to create a careful balance between asset growth and savings protection. What almost no advisor discusses with you is the impact of something that they have absolutely no control over - the sequence of returns you receive in retirement.To understand how important the pattern of returns is, imagine you average an 8% return for the last 25 years. An investment of $30,000 would have grown to $206,049 regardless of your sequence of returns in the accumulation stage. Now taking your $206,049 and beginning withdrawals based on 5% and increasing that amount 3% each year for inflation, the differences are stunning. With poor returns early in retirement, investor A runs out of money in 14 years, having withdrawn $167,334. Investor B who was luckier and retired during a period of great performance, was able to withdraw $375,619 over 25 years, and still have savings of $793,304. Surely I don't need to explain the importance of luck in your timing.

Here is a link to the Manulife site and the actual numbers

The purpose of today's exercise is not to scare you out, or talk you into investing in the market. Most of your advisors are well meaning folks who do the best for you that they can. It is important though, to see the impact of luck as you enter your golden years, and keep in mind that we've had four straight years of positive performance in the stock markets. We've started this year positive for a fifth........

Something Wicked This Way Comes?

The First Entry - January 27, 2007

Hello Boomer Retirees!

This blog is my chance to share the wisdom that I have gleaned over the years, and to provide you with a one-stop shop for retirement advice and information. While the first posts may be more of a hello and get to know you, I hope you'll check back daily as I add links and posts that will be updated with new and exciting information. This site is not necessarily about investments, but occasionally I'll put up a chart or two if I think they are relevant.

I know from the many posts that I read that there is a general feeling of uneasiness about Social Security, and I will try to touch on the subject often, and at length. I just read a great article in the weekend (Monday) issue of Investors Business Daily that discusses a question that frequently comes up in the course of my work with retirees - "Should I begin taking benefits at 62, or wait until I'm 65?" The question comes up often, and frequently I didn't have a good answer. The article goes into some detail about the breakeven point of taking SS at 62 vs. 65, and goes a long way toward answering this often asked question. I hope you will read the article and give more thought to a question that many only ponder in passing.

In future posts I'll try to intelligently address issues such as longevity risk, and introduce you to some of my favorite books and articles regarding the subject. I'll provide links to my favorite websites and newsletters online, and update you on current issues. My hope, as I sit here after having put my own children to bed, is to provide you with the best possible site for retirement information on the Planet. It will take me some weeks to do this, and I ask for your help. Those of you that have a favorite, feel free to add a post and a link, and let the rest of us check it out. The idea is the site will become a clearing house for information regarding retirement issues, and I hope to get better with each blog entry.

A little about the Retirement Guy. I am 42 (I'll be 43 this Tuesday), have two children and a wonderful wife who let's me chase my hobbies without complaining, work in the Midwest, don't eat as well as I should, and discuss retirement issues with clients daily. This site is as much about my own concerns for retirement as it is about yours. I recently read statistics that show that as many as 43 percent of those working to age 65 will be at risk of being unable to maintain their standard of living in retirement. That is a stunning statistic, and everyone should take note no matter what the age. I make a decent living, but I too feel woefully unprepared for the end of my working days. I know I am not alone (this is discussed daily) and I hope that a simple blog-site can begin the process of lowering the afore mentioned statistic.

I am near the end of my first entry. I would like to put a link to one of the best books I have read recently, called The Number by Lee Eisenberg. It is an entertaining blogsite with audio and a link to purchase the book. Happy reading.....enjoy, and most of all.

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