Retirement has a way of sneaking up on you. I retired
in 2009 after working more than 50 years. Many of my friends and contemporaries
have preceded or followed my ride into the sunset. Not all have done a good job
of planning their finances. A few have had the wind-luck behind their sails;
most have had to fight off the opposing wind.
The Espoused
Theory vs. the Theory in Practice
Financial analysts tell us that there are three
distinct phases to achieving our financial goals: (1) making money, (2) saving a
good portion, and (3) making what we
save grow.
Easily said, but not so easily done.
Most people are good at making a decent living. Those
with higher skills or better education tend to do better than those who have no
special skills or education. Those with entrepreneurial abilities often
outperform those who are more content with working for others. If a family has
two earners, that family will do better than the household with a lone earner.
Except for the lower 25th percentile,
Americans enjoy one of the better standards of living in the world. Unlike some
other countries, we do not have a mandated national pension system, just a
meager social security system.
Keeping or saving a good portion of our earnings is
where you find the biggest trap. We live in a materialistic society. We are
encouraged to spend. We are also encouraged to keep up with our neighbors.
Mortgages, leases, credit cards, and other debt instruments lure us to spend
most of what we earn, and sometime more.
It is a well-documented fact that the worst investment
people can make with any surplus is to do one of the three things: buy a second
home or time share, buy a boat, or buy an RV. Why? First, they rapidly depreciate
in value, and second, they incur taxes and significant upkeep costs.
Soon the government, banks, and insurance companies
claim most, if not all, of what you earn, leaving you in the red or with a paltry
surplus. Social security is the main savings outlet for most. A few will make
sure they also put something aside in the 401(k) or IRA. Public employees probably
can have the most generous t retirement nest egg.
Some employees in fast growing sectors of the economy can
earn stock options that can morph into sizable nest eggs. Of course, not all
stock options turn into blockbuster winners. In fact many lose their value once
the company falters.
Growing your hard earned savings is challenging. If
you did not save enough to begin, you are not going to be growing much. If you
do not have a solid investment portfolio, you risk having your savings shaved
off by inflation. If the equity in your home is your primary asset, you can
only grow by the percentage appreciation of real estate in your geographic
area.
Most of us are not financial wizards. Therefore, it is
wise to have a reputable wealth manager advise us as to our options, risks,
growth potential and tax consequence. What has worked for me is the following:
· Invest a
portion in tax-free high yield municipals.
· Invest a good
portion in stocks that pay qualified dividends (taxed at lower rate).
· Invest a
portion in high growth stocks.
· Diversify the
portfolio so that risk is spread across industries.
Upon retirement what really counts in my view is that
your income stream be as high as it was when you were working and with fewer
obligations. In other words, make sure you earn more than you did while
actively employed.
Downsizing
I dislike the term. To me downsizing is not a
strategy, anymore than outsourcing was during my working years. In fact, the
need to downsize is the realization or admission that we did not plan ahead
well and that we might have dissipated some of our resources.
Many upon retirement are forced to cut back on their
standard of living, housing, leisure options, and move out of their home. So,
in the golden years, they are encouraged to move to low cost areas, domestically
or internationally, so that they can stretch their retirement income.
I can live with downsizing as a result of health
issues. Moving to assisted living is certainly good for those who are in need
of ambulatory and/or care assistance. Now that we live longer, this option is a
must for some.
Rightsizing
I am all in on resizing our situation without
sacrificing the level of comfort we became accustomed during our glory earning
years. New rules must be put in place to make the transition work.
1.
Articulate
your priorities. For me, it boiled
down to a level of comfort I felt I had achieved during my career.
2.
Payoff your
mortgages. Eliminate any cash
outflows that include interest payments.
3.
Payoff your
credit cards. You do not charge what
you cannot pay off at the end of each month. Credit card interest is obscene.
4.
Buy out any
leases you might have for a car, boat, or RV. You keep these toys because you enjoy them and you use them, not
because they are good investments.
5.
Establish a
pro-forma budget. I don’t like to fly
blind. I want to know where my money goes, and whether I can afford to let it
go there.
Retirement should be the culmination of a life well
earned financially. You should be able to do what you always wanted to do and
in the style to which you are accustomed. It is not a time to tighten your
belt. It is a time to be comfortable.
After all, you cannot take your money with you. Give the excess to
charities or to help others in need. Encourage your heirs to earn theirs. Give
freely of your time to others who need to be mentored, coached, encouraged, and
supported. Many might have done so to help you.
Remember, for you, the future is now, not next week, next year, or later. It is now! Don’t postpone your
life.
Empty as much as you can your bucket list!
