How My Hip Surgery Got Me Thinking about What I’m Retiring To

I had my hip replaced last month.  After spending three days in the hospital, I spent a couple weeks at home recovering.  And I was bored.  Really, you can watch only so many reruns of Gun Smoke or CNN’s nonstop coverage of Trump and Comey before all your energy is depleted.  The hospital certainly isn’t a resort, but, unlike my house, it’s buzzing with activity.  Just ask anyone who’s ever tried to settle into a long nap during a hospital stay.

Anyhow, I’m on my way to a full recovery.  While I was home, however, I had time to think.  That is, think about my retirement.  Not that I’m planning on retiring any time soon, but my recovery has given me time to envision what I want my retirement to look like.  And that vision doesn’t include old TV westerns.

Most of us don’t spend nearly enough time thinking about what we want our retirement to look like.  Instead, we tend to create this grand vision of what we think retirement will be like.  Most of us have been misled to believe that retirement is nirvana with endless days playing golf or sitting on a beach sipping drinks with umbrellas.

If you’re 5 to 10 years out from retirement, now is the time to start exploring the meaning of your work.  What role is work playing in your life? If you’re like most, you tend to undervalue the benefits of work in your life.  They go well beyond collecting a paycheck.  French researchers have found a link between delaying retirement and reducing the risk of Alzheimer’s and other mind-robbing diseases.  For each additional year you work, you reduce your risk by 3.2 percent.  What’s more, working longer also contributes to longevity.  On a recent retirement webinar, the facilitator cited an 11% (!) increase in life span for each additional year people work.  As an investment advisor, I’d say that’s a pretty good return.  What it all comes down to is staying engaged.  It’s the engagement with life that helps prolong life.

Let’s be clear.  Just because you’re leaving work, doesn’t mean you’re retiring.  Sure, you know what you’re retiring from, but what are you retiring to?  Our parents’ generation maydownload (1) have said, “When I retire, I’ll never work again.”  But today’s retirees are striving for more of a balance.  Most people are happiest when they find the perfect balance between purpose and pleasure.  Ironically, our pleasure (or leisure time) draws its meaning from work.  For instance, we all know someone who can’t wait to hit the golf course on the weekend.  His tee times are usually earlier than he’s rolling out of bed during the work week.  But golfer beware:  there’s a diminishing law of returns on leisure.  And when we retire, every day will not be a Saturday.  The thing you’re looking to for joy and fun can over time make you grumpy.  Do you really want golf to become your job?

In the past, my clients may have asked “Do I have enough money to retire?”  Or “Have I had enough?”  Now, clients are more apt to ask “Will I have enough to do?”  All of us, whether we’re a multimillionaire or someone who will be living on little more than our social security, will have the exact same amount of time to fill each week—168 hours.  If you don’t have a plan for maximizing your time, the next stage of your life may not be as fulfilling as you had envisioned.

Finding powerful reasons to get up in the morning will be as important in your retirement as funding it.  Don’t confuse leisure with happiness.  People tend to lean on leisure for fulfillment.  But we really can’t be happy without pleasure and purpose.  There are plenty of people who wake up seeking pleasure only to return to bed empty.  Successful retirees do things that they’re curious about.  They do things that bring value to others and meaning to themselves.  They’ve explored the meaning of work in their lives and find a way to make it a part of their retirement.

Two Schools of Retirement Income Planning

My job description is pretty straightforward: Manage your money so that it will last as long as you do. Making that happen, though, isn’t as clear-cut. In my business, there are traditionally two opposing positions about creating retirement income plans. One is guaranteed income, and the other is investing your money. The first, of course, is all about safety. For clients who are risk adverse, guaranteed income might be the better way to go. For those, however, who want to maximize their wealth by seeking a higher possible return, there is the Total Return philosophy. The latter is holding a diversified portfolio* of stocks and bonds with no guarantees on what you will earn. I’m not an all or nothing person. I believe that you can live your best life now and have the quality of life you desire later by integrating both philosophies.

First, let’s define what I mean by guaranteed income. Maybe I shouldn’t call it “guaranteed” because nothing is guaranteed in this life. “Safety-first” may be a better description. Nevertheless, it comprises Social Security, defined benefit pensions, bond ladders, reverse mortgages and possibly income annuities. The objective of a safety-first retirement income planning strategy is to ensure that your monthly expenses–the necessities–will be met whatever the market conditions are. This safety-first strategy may sound appealing to you, but most safe investments do not keep pace with inflation. Prioritizing your goals is the main ingredient of this strategy.

In contrast to this risk-adverse strategy is holding a total return-driven portfolio comprised of the right mix of stocks, bonds and cash. We’re talking about asset allocation which doesn’t guarantee that you won’t ever lose money but may keep the losses palatable. Here the objective is to maximize the likelihood of successfully meeting your overall lifestyle goals and attempting to outpace the ever-rising cost of living. However, designing the best asset allocation model or portfolio can be complex. You need to look at your time horizon and your tolerance to risk. Your mix of stocks and bonds should be determined by the amount of money you need to withdraw from your accounts.

I’ve been helping people retire for nearly 30 years and know that investing during your retirement years is trickier than saving for retirement. Retirees tend to worry that their money is at risk in the stock market, or they’re not being conservative enough. Outliving their money is an even greater worry. However, as you near retirement age, you should be weighing personal concerns with other realities that you may not have considered. For instance, we’re living longer. It’s not unusual now for retirement to last 30, even 35 years. Also, the cost of living continues to rise. Factoring in an average historical inflation of 3%, your retirement income needs may triple over a 30-year retirement! If you’re 80 years old, I doubt you want to go back to work to support your lifestyle.

Balancing all these factors can be challenging. For sure, you don’t want to be financially teetering in your retirement. That’s why I advocate for using both schools of thought in creating retirement plans. Guaranteed income acts as an insurance to cover your monthly expenses, and a return-driven portfolio, with solid investments, may give you a better opportunity of not only increasing the value of your portfolio but outpacing inflation.

Retirement income planning is a long-term strategy for helping you sustain your lifestyle. It’s really about helping to make sure that you won’t run out of money after you retire and that your money keeps pace with inflation. If you’re five to ten years away from retiring, consider meeting with a fee-based financial planner to design a quality retirement plan that will lay the foundation for your retirement income. You want to be ready for the ordinary costs and the uncertainties in the next stage of your life.

* While there is no assurance that a diversified portfolio will produce better returns than an undiversified portfolio, and it does not assure against market loss, a diversified portfolio may reduce a portfolio’s volatility and potential loss. In reference to general account obligations and guarantees, such as is present with some annuities, the ability for the insurance company to meet these obligations to policyholders are subject to sufficient capital, liquidity, cash flow and other resources of the insurance company. A bond ladder, depending on the types and amount of securities within the ladder, may not ensure adequate diversification of your investment portfolio. This potential lack of diversification may result in heightened volatility of the value of your portfolio.

Retiring On Purpose

I ran into a friend recently who’s a hairdresser. He’s been in the business now for 50 years and has seen it all from the bouffant to the bob. After owning his own salon for as many years, he’s looking to sell it—on one condition: He stays as an employee. Despite being nearly 75, he has no plans to retire. Like he says, “What would I do every day?”

His story’s not that unusual. According to a June 2016 Pew Research Center analysis of employment data from the federal Bureau of Labor Statistics, more older Americans – those ages 65 and older – are working than at any time since the turn of the century, and today’s older workers are spending more time on the job than did their peers in previous years.

This is a new era of retirement revolution. Pensions and corporate stewardship have gone the way of the dinosaur. For some, not working isn’t an option; however, many are choosing to stay in the workforce—and thriving. As someone who’s been helping people retire for the past 25 years, I’ve witnessed the change in attitudes first-hand about retirement. Today I’d be negligent if I planned a client’s retirement assuming that he or she will be leaving the workforce at age 65. As a financial planner, I must get a sense of my client’s true age. By that, I mean his biological age, not his chronological age. For instance, I may have a client who’s 62, but he feels more like 50. He’ll have no intention of retiring in a few years. Like my hairdresser friend, he refuses to be defined by his age.

For me, the planning has evolved from retiring to retiring on purpose. We’re living longer, and we want to stay relevant. If you’re 5 to 10 years out from retiring, finding a reason to get up in the morning will be as important as the financial planning. Think about it: What if every day was a Saturday? Sure, the first several might seem blissful with days spent on the golf course or shopping at Target, but after a while, you’d probably get bored. Carlos Santana, the famous guitarist said, “The only thing that has ever made me feel old is those few times where I allow myself to be predictable. Routine is death.”

Besides keeping you alive (That’s true. Oregon State University found that people who continue to work past 65 have an 11% lower chance of death from all causes), the benefits of working into an older age are numerous. Of course, there are the financial benefits. The more years you work, the less money you’ll need take out of your retirement accounts. And you can delay taking your Social Security. For each year you delay between the ages of 62 and 70, your benefits grow by 8% annually.

The mental benefits are just as important. Working longer keeps your mind sharp. Like the saying goes, “Use it or lose it.” It also keeps you connected to other people, decreasing the chance of isolation. Moreover, and perhaps most important, working can give you a purpose, a sense of identity, a reason for getting up in the morning.

If you still need a little inspiration or motivation to retire on purpose, just look to some of these stars in their 70s: Helen Mirren, Robert DeNiro, Betty White, Morgan Freeman, Dick Van Dyke, Al Pacino, Mick Jagger. Like Mick said, “How Can I Stop?”

Retirement is an Artificial Finish Line

I received the following alert on my phone from the New York Times this past weekend: “Today’s women are much more likely to work into their 60s and 70s often full-time. And they’re doing it because they enjoy it.”

This may not mean much to you, but as a financial advisor who’s been helping people retire throughout most of my career, I appreciated the notice. It reaffirmed what I already know: Retirement is an artificial finish line.

Women and men are discovering that retirement is not a natural life transition. It’s an idea that’s been inflicted upon us by corporations and society. We’ve been indoctrinated into thinking that when you turn 65, it’s time to punch out and live a life of leisure. This may have worked for the previous generation, but that mindset is no longer sustainable. Pensions and institutional stewardship have gone the way of the dinosaur, and today more than ever we have to assume control over our own retirement planning.

Retiring is about more than just having enough money, though. It’s a major life transition that many people struggle with, and the struggle often has more to do with a static lifestyle than not receiving a regular paycheck.

Think about it: No one teaches us how to retire. I really don’t know of any retirement training classes being offered. On the other hand, retirement planning is a service that’s plentiful. But that’s more about funding your retirement; it’s not about creating a vision of what you want the rest of your life to look like. In fact, finding powerful reasons to get up in the morning during retirement will be as important as the financial planning.

This past week, Aretha Franklin announced that she’s retiring. In a statement she said, “I’m not going to go anywhere and just sit down and do nothing. That wouldn’t be good, either.” Well, if it’s not good for Aretha, it’s not good for you, either. What Aretha is really aiming for is a balance. A balance between vocation and vacation. That’s what we should all aim for to enjoy a successful retirement. After all, I don’t think any of us want to withdraw completely from the track of relevance.

To achieve a healthy balance between vocation and vacation requires planning. Did you know we’re more apt to spend time planning a two-week vacation than we are to spend time planning a possible 30-year retirement? Unlike a vacation, retirement is not the ultimate destination anymore. Stop buying into the destination myth because your life isn’t going to stop moving the day you retire. I’m reminded of that commercial in which everyone is assigned their own personal retirement number. The people in the commercial are so happy to know how much money they’ll need to retire that they write it on a large cardboard sign, attach a stick to it and carry it around with them all day long. Well, if my client’s life means nothing more than a number, then the planning will be about the destination. But let’s not reduce our lives to a story of numbers. Our lives are about more than that.

For most of us, working will no longer be an “all or nothing proposition.” It will be more of a “how much” proposition. In planning for a successful retirement, one with a balance between vocation and vacation, we need to start asking ourselves questions beyond money. How will you invest in yourself and your time?

Do You Want to Retire to a “Happy” Country?

Retirement is habitually pictured and presented as a happy time in our lives. The phrase “the golden years” evokes images of carefree retirees golfing under blue skies or walking along the beach enjoying their newly found free time. I doubt if many of us visualize happy retirees wearing parkas and trudging through slushy streets. Most of us tend to associate a happy retirement with either moving to or vacationing in a sunny climate, certainly not retiring in colder, northern Scandinavian countries where the sun may not even rise for three months during the year.

However, when the United Nations (UN) ranked the 10 happiest countries in the world, 8 out of 10 were located in higher latitudes in the Northern Hemisphere, and five were in Scandinavia. Sweden was ranked #10 and Denmark was #1. (Sweden, by the way, is the best country in which to grow old). The two exceptions to the colder climates were Australia and New Zealand. The United States ranked 13th overall.

What makes these countries happy is multifactorial (and blue skies don’t seem to matter). The UN considered countries based on dynamics such as equality, per capita GDP, social support, life expectancy, perceptions of corruption, individual liberties and how citizens rate their own lives within their home country. Many of the top 10 share certain traits like generous social benefits including health care and education. The countries also are electoral democracies where civil rights are abundant and revered. Other traits are small populations and ethnic homogeneity.

Some economists think “happy” is too touchy-feely to define, so the Legatum Institute, a London-based nonpartisan think tank, set out to rank the happiest countries in the world through the creation of a prosperity index. Each country is ranked on 89 variables sorted into eight subsections: economy, entrepreneurship, governance, education, health, safety, personal freedom and social capital. And once again the Scandinavian countries of Denmark, Finland and Sweden led the pack equally with Switzerland and the Netherlands close behind.

In addition to reasons previous stated, the Legatum research found another important “happiness” factor which is key: the fostering of entrepreneurship and opportunity. Legatum’s researchers concluded that a country’s ranking in this area is the clearest proxy of its overall ranking in the index. This translates to low business startup costs, lots of cellphones, plenty of secure internet servers, a history of high R&D spending and the perception that working hard gets you ahead. Wow! To me, these countries sound like a Bernie Sander’s pipe dream.

Good luck, though, if you want to retire to any of these “happy” cold climate countries. Most are homogeneous and discourage immigration because they don’t want to pay healthcare for older U.S. retirees. I know this because I had a retired client whose daughter and son-in-law moved to Australia, one of the happiest countries. My client wanted to move with them but could not because Australia did not want to pick up her healthcare tab.

Regardless if you live in a cold climate country or warm climate country, we know our happiness is much more than our day-to-day weather or having prosperity. In my profession, I’ve seen people with a lot of money live in lack and people with little money live in abundance. Happiness is ultimately about enjoying good health. After all, “health is wealth.” It’s having independence and being able to take care of yourself. I think we’d all agree, though, whether we’re donning snow boots or flip flops today, that happiness is as simple as having good times with your friends and family. In my next blog, I will discuss countries which welcome American retirees. Hint: the weather is warmer, and your dollar will stretch further!

5 Fundamental Facts You Should Know about Social Security

10,000 people reach retirement age every day in America. Yet, many go through their working lives without giving much thought about Social Security; it’s a payroll reduction that they might read on their pay stub. Besides, it’s complicated, and retirement seems like a long way off. The truth is, though, Social Security could be one of your largest assets and when you choose to collect can impact your lifetime benefits.

Here are five fundamental facts that you should know about Social Security:

1. Age matters. The Social Security retirement age is not 65. The age that you can start collecting full retirement benefits is 66 for people born between 1943 and 1954. The official retirement age gradually rises to 67 if you’re born in 1960 or later. It’s important to get the official retirement age right because there’s an additional eight percent financial bonus for each year you delay collecting benefits through age 70. If you retire before the official retirement age, your benefits will be reduced.

2. Income matters. Working can reduce your benefits. If you haven’t reached full retirement age, your Social Security benefits can be reduced if you earn more than certain amounts. For instance, in 2014, you’d have lost $1 in benefits for each $2 you earned over $15,480. You don’t lose the money forever, though. After you reach full retirement age, the reductions will be added on. If you work past your full retirement age, you can keep all your benefits despite how much you make.

3. Celebrate 10 years. You can collect retirement benefits from your ex. That’s right, if you and your ex were married for at least 10 years. Also, if you’re the one who’s trying to collect, you must be single and 62 years old. In fact, you can collect your ex’s benefits while putting off collecting your own.

4. You don’t fit into a box. For sure, the Social Security Administration will do its best to guide you through the process but don’t rely solely on its advice. As I’ll often say about financial planning, no one fits into a box. The Social Security Administration is not designed to provide advice on the best strategy for you. Get input from an objective financial planner. You don’t want to leave money on the table.

5. It’s a big part of your plan. Sure, we have funding problems with Social Security, and it’s easy for workers, especially millennials, to dismiss it. But most experts agree that some form of Social Security will always be in place even if the benefits are lower. Seriously, I doubt if any politician, even Donald Trump, will vow to repeal Social Security this campaign season. That said, you want to be clear about your options. For most retirees, it’s their largest source of income. What’s more, Social Security decisions can affect your other important financial planning issues such as taxes. You want to get it right.

Give Your Kid a Million Dollar Graduation Gift

The springtime rites of passage are here: baseball, post season basketball and “pomp and circumstance.” College graduation ceremonies are starting to take place, and maybe you’re wondering, “What gift should I give my new college graduate?” An electric razor, an iPad, a security deposit for an apartment? Here’s an idea: How about helping your kid become a millionaire? That’s right, a millionaire!

It’s actually easier than you think. First, set up a Roth IRA for your college graduate. Then, make certain that you or your graduate (if he or she’s landed a job) fund it by contributing $3,500/year. After 45 years and assuming the investment gets a 7 percent non-guaranteed return, the account will be worth a little over one million dollars. Mind you, that’s one million tax free dollars for your young graduate at retirement.

A brief primer on Roth IRAs: one must have earned income to contribute to one. So if your college graduate is living at home, not working and doesn’t find employment for several years, he or she can’t do a Roth. Conversely, if they earn a small amount of money–say $3,500–they are eligible for a Roth IRA, and you (the parent) can make the contribution from your money. I suggest, though, that your child contributes a portion of the money to have “skin in the game” and ultimately takes over 100 percent of the contributions.

Many people will say, “Let’s wait until my child is more mature and start the contribution 10 years from now.” However, what most people don’t realize is that waiting 10 years at the same contribution level and the same 7 percent return results in an account worth about $500,000. In other words, waiting ten years and missing $35,000 in contributions cost your kid a half million dollars! Ouch. In my business, we call that the time value of money.

So as you’re pondering a graduation gift, you may want to consider giving your child an investment that will give them security and peace of mind through their golden years.

8 Tips on How NOT to Outlive Your Money

By now, you might have seen the February 23 issue of Time magazine with a picture of an adorable baby looking back at you. The headline reads, “This Baby Could Live to Be 142 Years Old.” The baby looks as surprised as you. How is that possible?

Well, consider this. In 1900, if you told someone they could live to be 79 years old (today’s average life expectancy), they probably would have carted you off to the funny farm. Because in 1900, the average life expectancy in the United States was only 47 years old!

So, yes, we are living longer, and for the sake of this conversation, let’s stick with what we know. That is, today’s life expectancy is 79 years old. Of course, people who take care of themselves and have access to good medical care can live into their mid-nineties. That’s the good news. But it can be bad news for our money. Think about it. If one were to retire at age 65 and live to age 95, his money has to support him for another good thirty years. In these days of shrinking pensions and threats to the solvency of Social Security, that is no small task.

So, here are my eight suggestions on how to not outlive your money:

1. Delay retirement until age 70. This allows you to delay taking your Social Security benefit until age 70 which, by the way, is the highest payout.
2. Start saving at a young age. If a 25-year-old starts saving 10% of his income for retirement, he will likely be a millionaire by the time he is 70 (unless #3 occurs).
3. When you change jobs, don’t cash in your 401k to buy stupid stuff. A great way to sabotage your financial future is to cash in your retirement account and start over. Time will start working against you instead of for you.
4. At retirement, consider some form of guaranteed lifetime income. There are many options. So speak with your financial adviser to find out if one is appropriate for you.
5. Don’t forget to factor in the increase in the cost of living during your retirement years.
6. Make “zero” your retirement number. Yes, that’s right—“zero” as in zero debt. Pay of all non-productive debt before you retire
7. Retire in a foreign country. Many countries especially in Central and South America want you to retire there. They will not tax you on your retirement income, and the cost of living is much less expensive compared to the US.
8. If all else fails, marry a teacher or civil service worker. They usually have pretty good pensions!

Excuses! Excuses! Number 3

“I want to live for today.  Tomorrow will take care of itself.”  That’s one more short-term excuse we use to rationalize behavior that defies our long-term intentions.

Think for a moment about all the things you plan for in life:  a wedding, a family beach vacation, a trip to the wellness spa.  Even this week’s dinner menu.  Yet, we’re so reluctant to adequately plan for our retirement, and most people simply aren’t saving enough money to fund their retirement.  We don’t put the time or energy into it that, say, we may put into our next yoga class.  In fact, we’re encouraged to be present, to live in the moment.  But I’m here to tell you that you can live in the moment and be mindful of your savings.

As someone who’s worked in the financial service industry for twenty-five years, I know that most of us struggle to save money.  We just don’t know how.  Even more, we don’t know how much money we should be saving.

Now some of you might be saying:  I’ve got a 401(k) plan.  That’s fine, but did you know that the average balance of today’s 401(k) plans is around $40,000? Even more troubling, only two percent of 401(k) participants who are 60 years of age or older have more than $250,000 in their 401(k) accounts. Let’s put that into perspective:  It would take one million dollars for a 65-year-old to generate $40,000 of annual income.

Sure, we can blame these grim numbers on the stock market doldrums over the last ten years, and that’s partly true.  Still, what it boils down to is that we as a nation are not saving enough.  Worse, 35 percent of Americans say they don’t even contribute to any retirement accounts!

So what should you do?  Well, some people in my industry might tell you to quit your daily latte habit. You can then save the four dollars and put it towards your financial goals. Let’s get real here…that ain’t going to happen! So my best advice to you is to pay a visit to a fee-based financial advisor.

Is it because a fee-based advisor can get you a better return? Possibly, but that isn’t the point! A fee-based advisor will tell you how much you need to save for your long-term intentions such as a home, college, or retirement, and then hold you accountable to do so!

Yes, it’s natural for us to want to live in the moment.  Nothing, though, will take you out of the moment more than having to chase money, having to chase a lifestyle you once enjoyed.  Save now so that in the future you can stay in the moment. And as I always say:  you may not run out of money, but you may run out of lifestyle!