We're quickly approaching Money Weekly's first birthday. Heck, I may even blow out a single candle on July 26 to celebrate. But mostly, I'll be thinking about the thousands of readers who make our weekly and premium publications possible, particularly those who have taken the time to provide no holds barred feedback. This milestone also got me thinking… If I had a magic wand and could instantly pass along a bundle of critical information to my peers, what would that message include? Since I don't have a magic wand, I had to distill a bit of my practical wisdom down to five points (no easy task).
#1. We Are All Pension Fund Managers Now
These days, unless you are a government employee, there is a 97% chance you will not retire with a pension. Instead, you probably have some sort of IRA or 401(k) and other personal savings that you will need to supplement those measly Social Security checks. We have all been thrust into the job of managing our own personal pension funds, so we might as well embrace the challenge and continue our financial education.
Learning how to manage our nest egg is the best educational investment we can make as folks in or approaching retirement. It makes little difference how we made our money; if we don't learn how to make it last, we'll end up back in the workforce or at the mercy of family members.
#2. Never Abdicate the Job of Managing Your Money
Many folks turn to a trusted financial advisor or stockbroker for help with their financial education. While it's certainly fine to collaborate with an advisor, we shouldn't slip into the trap of allowing someone else to look after our life savings. If you have an advisor, then you have to oversee him or her. If an advisor makes a big mistake, he loses a client—that same mistake could mean that you lose a major portion of your life savings.
I get very worried when a retired friend uses his lack of financial know-how to justify turning over his entire life savings to someone else. Some end up having good experiences, but they are the lucky ones. Look folks, if you're savvy enough to make enough money to retire in the first place, you can certainly learn how to manage it. At the very least you can learn how to manage your advisor.
The same principles apply when dealing with our children. While their integrity and honesty are not in question, everyone is more diligent with their own money. In short, lack of understanding is no excuse to avoid learning. We sure wouldn't let our kids pull that sort of excuse, so we shouldn't allow it in ourselves either.
#3. Inertia Is Expensive
Too many people waste energy fretting because safe investments like CDs and Treasuries no longer pay interest rates that keep up with inflation. If you are holding too much cash (everyone should have some cash) or low-interest CDs, you are losing a lot of buying power every year to inflation.
Even with the recent increase in interest rates, the best CD rates I can find are well below the current rate of inflation. It makes little sense to commit to a long-term investment that guarantees a loss of buying power. They can have all the FDIC guarantees they want, but at the end of the line, you'll be getting back less buying power than you put in.
Instead of fretting about what is not available, why not set aside the time and resources to find the good investment opportunities that are available? For me and many Money Forever subscribers, that means putting our money in safe, dividend-paying stocks with yields that outpace inflation, topped off with a few well-researched investments bought purely for their appreciation potential.
#4. It Takes Two
If you're reading this, chances are you are the more financially shrewd spouse or partner. Every couple divides responsibilities in their relationship—there's nothing wrong with that—but each spouse needs a basic level of financial know-how. Losing a spouse is hard enough. However, things can get really ugly when the surviving spouse has no clue about managing finances.
When a widow or widower is left flapping in the breeze, the first place many turn for help is their children. That can be a blessing or a curse, depending on the child. We have one friend who has a son who has been in the banking business for several years and is a good investor himself. Things are working out well in that case, but not everyone has that sort of good fortune. Nevertheless, take another moment to consider my earlier comments on never abdicating the job of managing your money.
My wife Jo has a friend, a recent widow, who announced to the ladies that she just had a CD mature. The “nice man at the bank” told her he could get her a really good rate on a five-year CD. The widow asked her son about it, as he was helping with her finances, and the son reassured her that the CD was a really good idea, particularly because it was FDIC insured. Her loving but ill-informed son meant well, but he has no financial background whatsoever. With even a little bit of research, he would have learned that the “really good rate” on the five-year CD was only really good compared to other CDs, but it wouldn't keep his mother in the black.
Jo's friend readily admitted to being scared and vulnerable. On a positive note, she did emphasize to her friends that they must learn about these things—with a heavy emphasis on now. Her husband had handled all of their financial affairs for close to 50 years of marriage, and she now wishes she had been more proactive in trying to learn. Her husband was a friend of mine and quite proud of having accumulated enough wealth to provide for both of them in retirement, but he stopped short of teaching his wife how to manage their money when he was gone.
Long ago, Jo was quite emphatic that leaving a nice nest egg for whichever one of us is left standing is only part of our job. Making sure the surviving spouse knows how to make it last is equally important.
#5. No Matter Your Age, Start Today
I get it: no one wants to hear advice like “eat your vegetables” or “never put off what you can do today until tomorrow.” That's because deep down, we all already know this stuff is true, and it can make us a bit uncomfortable. With that caveat, here I go: start planning today.
Way too many people wait until their children are grown and have left the nest before they start thinking about retirement. I refer to that time between an empty nest and retirement as “the race to the finish line.” That's one approach. However, demographic and lifestyle shifts are making that race shorter and harder to finish.
Baby boomers who married and had a family later in life have a huge challenge if they wait until their kids finish college to make a plan. My youngest son, who is a baby boomer, probably won't have an empty nest until he is 60. Getting out of debt is the first step most folks go through in retirement planning. For many that can take three to five years. Then they can begin to save and accumulate capital. If you wait until age 60 to start that process, you are way behind.
While many employers offer 401(k) plans or other tax-deferred retirement options, they are voluntary. In a recent article, I noted an Employee Benefit Research Institute (EBRI) study reporting that only 10% of eligible workers are making the maximum contributions to their employer-sponsored retirement plans. Of the 90% who are not, most said they needed that money to pay their bills… today. Too many of today's seniors lament not taking advantage of those options while they were still working. A few extra dollars a week adds up to a lot of money over the course of 15-20 years.
Every financial planner—and common sense—will tell you that those who plan early fare better during retirement. Those who don't are often surprised when they run the numbers and come up short of what they'll need to retire. For these folks, the next question is, “What can I do to get on track?” The sooner that process starts, the better the results. (Here's a look at how much it really takes to retire.)
There are too many 80-somethings working because they have to, not because they want to. As one financial planner said to me, “I have never had a single client complain to me that they started their retirement planning too early or saved too much money.”
If I Could Wave My Magic Wand…
I would tell my peers to wake up before it is too late. I would make sure they started accumulating real wealth as early as possible. This means taking a hard look at income and expenses, looking at how much they are saving now, and finding ways to save more. Then the fun part comes when you watch the balance on your retirement accounts go up and up.
Let's face it, folks: if we make it to 65, statistically there is a good chance we'll live for at least twenty more years. Retiring comfortably means having the time to do the things we enjoy without worrying about money. An educated retiree with a good plan is not only a good personal pension fund manager, but will also have plenty of time left over to enjoy the fun stuff.
The July issue of Money Forever was just released on Tuesday; it features a new addition to our portfolio—a company whose revenue has grown nearly five times in the last decade. And it's in a very defensive industry to boot. For more on this investment opportunity and access to all of our archives and special reports, sign up for your 90-day trial subscription to Money Forever today.
On the Lighter Side
This week is baseball's annual All-Star game, which also marks the middle of the season. My beloved Cubs are struggling once again and have begun to trade players in hopes of building a better team in the near future. I envy those fans who support a team trying to add that last player who might just get them into the World Series. I believe the Cubs are going in the right direction, but rebuilding a team is agonizing. On the positive side, when they do get turned around and start winning, it will be a whole lot of fun. I saw my first Cubs game in 1944, so no one can call me a fair-weather fan.
Folks, there are still a few days left to register for the upcoming Casey Research Summit at a discounted rate. You can save $300 by signing up now through July 21. If you'd like an opportunity to rub elbows with me—oh, and Dr. Ron Paul as well—then I urge you to reserve your space for the October 4-6 event in Tucson, Arizona sooner rather than later.
It's time to share some more of Andrea B.'s humor about retiring to different parts of the country. Let's start with New York.
You've retired to New York City if…
- You say “the city” and expect everyone to know you mean Manhattan.
- You can get into a four-hour argument about how to get from Columbus Circle to Battery Park, but can't find Wisconsin on a map.
- You think Central Park is “nature.”
- You believe that being able to swear at people in their own language makes you multilingual.
- You've worn out a car horn (if you have a car).
- You think eye contact is an act of aggression.
You've retired to California if…
- You made over $250,000 a year and still can't afford to buy a house.
- The fastest part of your commute is going down your driveway.
- You know how to eat an artichoke.
- You drive your rented Mercedes to your neighborhood block party.
- When someone asks you how far something is, you tell them how long it will take to get there rather than how many miles away it is.
- The four seasons are: Fire, Flood, Mud, and Drought.
Until next week…