"The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well.” - Ralph Waldo Emerson
I feel so very blessed to serve amazing people. I have been given the gift of being able to work with people at a really wonderful time in their lives. People share with me their hopes, fears, disappointments, accomplishments, and dreams. The people we serve bring a lot of wisdom to our relationship. I feel obligated to share what I learn from these folks because it has made my life better so I hope it makes yours a little better also.
One of the disadvantages of working with retiree's is that I am exposed to things like dementia, disease and death more often than the average person my age. I've attended funerals, memorials, and celebrations of life. I recently had the opportunity to attend a celebration of life for a client, and I wanted to share what I learned.
Attending her service made me wonder if there was a formula you could construct for living a life worth celebrating. These are a few takeaways I garnered on what that celebration formula might look like. Below are some of the things I experienced directly from our relationship as well as things I learned about her from the folks who were also in attendance at her service.
1) Touch - She had warm hands. Every time she came by my office the very first thing she would do was grab my hand with both of her hands look me straight in the eyes and ask, "How is your family?"
2) Ask questions & listen - Many people at her service mentioned that she was a good friend and great listener. She asked lots of questions and made you feel special and important. She genuinely cared about what was happening in your life.
3) Give - When she learned I enjoyed vegetable gardening, she sent me some heirloom tomato seeds from her garden for me to plant. Many told stories about how she would go out of her way to find out what people liked and then she would look for opportunities to be generous and give to others.
4) Care for people - Her son told a story about how when they were kids on a family vacation his Mom saw a man who looked homeless on a bicycle. She approached this dirty man, introduced herself and found out he was attempting to ride his bike around the world. She invited this stranger to their home, and he lived with them for two weeks before they helped him get to the next leg of his journey. He became a family friend, and they stayed in contact her entire life.
5) Have Fun - One neighbor stood up, who was responsible for managing the private gravel road they lived on. He said at the top of the road there were always deep grooves in the gravel because she liked to get in her 1967 convertible mustang, go to the top of the street and spin the wheels a few times before she would drive down the street. She stood a little less than five feet tall but had a GREAT BIG personality.
6) Believe - She believed in God and loved Jesus. What a comfort that was to her daughter as she stood before friends and family and said, "I know one day I'll see my Mom again in heaven." In my opinion her belief may have been one of the greatest gifts she ever gave.
The theme of the celebration was "love lives on". We were all given flowers to bring home and plant in our gardens. I hope sharing her story helps her legacy of love to live on. She had an impact on my life, and I hope this little snippet of her life may have an impact on yours.
The true cost of volatility
Have you ever realized that if you lost 50% of your money in one year due to a stock market corrections then it would require a 100% gain the next year to get back to even. Take a look at the math below
Let's say you have 1 million dollars invested in the stock market, and the market crashes. You lose 50% in one year. Now your 1 million dollars is only worth $500,000.
Many people make the mistake in thinking that because you lost 50% in one year, you only need to earn 50% the next year to get back to even. But $500,000 x 50% is only $250,000 so at the end of the year you have $750,000 whereas a 100% return brings you back to even $500,000 x 100% = $500,000.
Once you are retired you may need to draw money out of your portfolio every year in order to have the lifestyle you want. If you are drawing money out of your portfolio, and at the same time get hit with a serious stock market correction, then you are compounding your problems. It will make it that much harder for your portfolio to get back to even.
This is why it is so important to make sure your income plan is as secure as possible, and why you should consider using both active and passive investment strategies in your retirement investment plan to help try to reduce the overall volatility in your portfolio.
I've learned from working with retirees that a 50% gain in one year wouldn't really change their life. It just gives them more money and perhaps they take an extra trip or so. But a 50% loss in one year can not only be unnerving but devastating and create a lot of sleepless nights.
The emphasis in retirement should be on income, preservation of principal and earning a fair return to outpace inflation.
Let's say you have 1 million dollars invested in the stock market, and the market crashes. You lose 50% in one year. Now your 1 million dollars is only worth $500,000.
Many people make the mistake in thinking that because you lost 50% in one year, you only need to earn 50% the next year to get back to even. But $500,000 x 50% is only $250,000 so at the end of the year you have $750,000 whereas a 100% return brings you back to even $500,000 x 100% = $500,000.
Once you are retired you may need to draw money out of your portfolio every year in order to have the lifestyle you want. If you are drawing money out of your portfolio, and at the same time get hit with a serious stock market correction, then you are compounding your problems. It will make it that much harder for your portfolio to get back to even.
This is why it is so important to make sure your income plan is as secure as possible, and why you should consider using both active and passive investment strategies in your retirement investment plan to help try to reduce the overall volatility in your portfolio.
I've learned from working with retirees that a 50% gain in one year wouldn't really change their life. It just gives them more money and perhaps they take an extra trip or so. But a 50% loss in one year can not only be unnerving but devastating and create a lot of sleepless nights.
The emphasis in retirement should be on income, preservation of principal and earning a fair return to outpace inflation.
How much risk should you take with your retirement investments
Many financial experts seem to agree that as you get older you want to begin shifting away from high risk investments and begin to transition to more conservative less risk investments. The primary reason is the cure to the volatility of the stock market is time. The more time you have on your side, then the more risk you can afford to take because you have plenty of time to recover from a severe market sell off. As you approach and transition through retirement, you may not have enough time on your side to recover from a significant market downturn.
The other risk you face is inflation. Inflation tends to be a slow moving train, but a very real risk if you just bury your money in a can in the back yard because your dollars just wont buy as much in the future. So it's really a balancing act to keep enough money in an at risk position to help you ward off inflation while not having so much at risk that a severe market correction could could cause you to have to change your lifestyle in retirement.
How much risk should you be taking with your investments now that you are retired? One common rule of thumb is called the one hundred minus age (100-age) rule. This rule says if you are 60 years old, then you would subtract 60 from 100 and get 40. So 40% of your portfolio should be invested with risk, and 60% should be allocated toward more safety. Whatever your age, this is how much of your money should be invested in safer, less risky portfolios. So if you are 70 you would have 70% allocated toward safety and 30% allocated toward risk. Some people who are more comfortable with taking more risk will use the formula of 110 - age. If you are 60 years old, then using this more aggressive formula you might have 50% of your money at risk.
The problem with this rule of thumb is everyone has different size thumbs. While this rule may provide some guidance on how much risk you should be taking in your portfolio, a much better solution would be to create a comprehensive retirement plan and allocate your resources between safe and risk investments based on what you really need to accomplish instead of generic rules.
I remember meeting with a gentleman several years ago who had a couple of million dollars set aside for retirement. After completing a comprehensive retirement plan, we found if he just earned a 4% return every year, then he would be in great financial shape for the rest of his life. Knowing that he could accomplish all of his goals with just a 4% return gave him the freedom and peace of mind of knowing that he could have all of his money allocated toward safety without having to worry about the whims of the stock market.
Remember a general rule of thumb like one hundred minus your age may be a good starting point for having a discussion about risk vs safety in your diversification strategy but it should be just that - a starting point.
Also featured in Parker Financial's May e-newsletter. To subscribe to our e-newsletter please send an email to info@parker-financial.net with your full name & email address.
The other risk you face is inflation. Inflation tends to be a slow moving train, but a very real risk if you just bury your money in a can in the back yard because your dollars just wont buy as much in the future. So it's really a balancing act to keep enough money in an at risk position to help you ward off inflation while not having so much at risk that a severe market correction could could cause you to have to change your lifestyle in retirement.
How much risk should you be taking with your investments now that you are retired? One common rule of thumb is called the one hundred minus age (100-age) rule. This rule says if you are 60 years old, then you would subtract 60 from 100 and get 40. So 40% of your portfolio should be invested with risk, and 60% should be allocated toward more safety. Whatever your age, this is how much of your money should be invested in safer, less risky portfolios. So if you are 70 you would have 70% allocated toward safety and 30% allocated toward risk. Some people who are more comfortable with taking more risk will use the formula of 110 - age. If you are 60 years old, then using this more aggressive formula you might have 50% of your money at risk.
The problem with this rule of thumb is everyone has different size thumbs. While this rule may provide some guidance on how much risk you should be taking in your portfolio, a much better solution would be to create a comprehensive retirement plan and allocate your resources between safe and risk investments based on what you really need to accomplish instead of generic rules.
I remember meeting with a gentleman several years ago who had a couple of million dollars set aside for retirement. After completing a comprehensive retirement plan, we found if he just earned a 4% return every year, then he would be in great financial shape for the rest of his life. Knowing that he could accomplish all of his goals with just a 4% return gave him the freedom and peace of mind of knowing that he could have all of his money allocated toward safety without having to worry about the whims of the stock market.
Remember a general rule of thumb like one hundred minus your age may be a good starting point for having a discussion about risk vs safety in your diversification strategy but it should be just that - a starting point.
Also featured in Parker Financial's May e-newsletter. To subscribe to our e-newsletter please send an email to info@parker-financial.net with your full name & email address.
Learning to be content
I recently read the following verse. "I am not saying this because I am in need, for I have leaned to be content whatever the circumstances. I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. I can do all this through Him who gives me strength." Philippians 4:11-13
I don't know if I am the only one out there who struggles with being content. When my business is so busy I barely have time to eat lunch, I wish I had more time to myself. When the business slows down, then I wish I had more people to see.
When it's been raining for a long time I can't wait for the sunshine. Then by the end of summer, I can't wait for a little bit of rain.
When I am at home, then I think about work. When I am at work, then I think about home.
Does anyone else struggle with being content?
I don't know if I am the only one out there who struggles with being content. When my business is so busy I barely have time to eat lunch, I wish I had more time to myself. When the business slows down, then I wish I had more people to see.
When it's been raining for a long time I can't wait for the sunshine. Then by the end of summer, I can't wait for a little bit of rain.
When I am at home, then I think about work. When I am at work, then I think about home.
Does anyone else struggle with being content?
Irrational Exuberance
Robert Shiller is an American economist and professor of economics at Yale University. According to his wikipedia profile he is ranked among the 100 most influential economists in the world. I was recently reading his book "Irrational Exuberance" the second edition when I read the following under the heading, "Retirement Plans Should Be Put on a Sounder Footing."
On page 222 he writes, "Authorities who are responsible for pension plans (including agencies like the Pension Benefit Guarantee Corporation in the United States or the Pension Protection fund in the United Kingdom) should come out strongly against over-reliance on the stock market. They should instead recommend greater diversification and suggest that a substantial fraction of balances be put into safe investments, such as inflation indexed government bonds. They should promote inflation-indexed retirement annuities and urge retirees to take the retirement income in this form."
In my book I describe how ultra-conservative retirees can create an income stream by laddering annuities and adjusting their income for inflation. Of course I wrote my book after Robert Shiller wrote "Irrational Exuberance," but it sure is validating when one of the top economists in the world writes that our government should urge the use of inflation-indexed retirement annuities.
On page 222 he writes, "Authorities who are responsible for pension plans (including agencies like the Pension Benefit Guarantee Corporation in the United States or the Pension Protection fund in the United Kingdom) should come out strongly against over-reliance on the stock market. They should instead recommend greater diversification and suggest that a substantial fraction of balances be put into safe investments, such as inflation indexed government bonds. They should promote inflation-indexed retirement annuities and urge retirees to take the retirement income in this form."
In my book I describe how ultra-conservative retirees can create an income stream by laddering annuities and adjusting their income for inflation. Of course I wrote my book after Robert Shiller wrote "Irrational Exuberance," but it sure is validating when one of the top economists in the world writes that our government should urge the use of inflation-indexed retirement annuities.
Budgeting in retirement
I recently met with some affluent and successful retirees who came to see me with some questions on cash flow. They had income of more than $100,000 per year, yet they felt like they didn't have enough income to enjoy the lifestyle they had grown accustom to. I asked them to tell me the very first thing that comes to mind when they hear the word budget. One said it had a negative connotation and meant having to cut back. The other one said budgeting was financial discipline and being prudent. Most of us would probably agree with one of these two statements.
With all of the nonstop chatter in Washington, DC these days about sequestration and budgeting, the last thing you probably want to read is an article about budgeting. This topic tends to make most people cringe. One of the things I've learned by working with very successful and very wealthy people is it doesn't matter how much money you make or how much income you have because many people tend to increase their lifestyle expectations as quickly as their income increases. A good friend of mine is fond of saying that the luxuries of the past become the necessities of today, and sometimes the most difficult part of budgeting for a married couple is getting both people to agree upon a budget.
Budgeting is simply taking the time to make a conscious disciplined decision about how you will spend your money. The alternative is to spend your time wondering where your money went. During our years of accumulating wealth many of us budget so we can save more. But once you have retired, the emphasis isn't so much on trying to save as much as possible as it is trying to figure out how much you can spend without having to worry about running out of money. Budgeting in its most basic sense is simply an exercise of comparing your income vs. expense.
The easy part of a budget is understanding how much income you will have. But as you prepare to transition into retirement, you will need to have a solid handle on how much money you spend every month. Doing so will help you determine if you have saved enough to support your retirement lifestyle goals and give you a foundation for structuring an income plan that will provide you with the confidence you will not run out of money in retirement.
Most people have a hard time carrying around a notebook and recording every penny they spend. So if you are comfortable using technology, then you may want to consider using only your debit card for three to six months in conjunction with a program like Mint.com. Mint.com tracks all of your purchases and pulls all of the information from your checking and debit card accounts to help you categorize and track all of your spending. When my wife and I went through this exercise, we were surprised to see just how much of our money Central Market was getting every month. One of the advantages of tracking your spending using a tool like Mint.com and your debit card is it makes it easy to discover where every penny is being spent. When you mix cash into the equation, then creating an honest assessment of just how much you are spending on the little things becomes difficult, and sometimes the little things are what can create big problems. Benjamin Franklin said it best, "Beware of the little expenses; a small leak will sink a great ship."
Your goal when developing your personal monthly budget is to get a solid grasp of how much money you need every month to pay for basic living expenses. Take into consideration any bills you pay quarterly, semi- annually or annually such as property taxes and insurance. Once you have a clear picture on just how much you need every month then you can start to have some fun and find out how much more you want for things like travel, play and spoiling your grand kids.
Our government has a good track record of making sure our dollars have less purchasing power every year. If you visit the bureau of labor and statistics inflation calculator, then you will find that $10,000 dollars in 1970 has the same purchasing power as $59,350.52 in 2013. So while you may need $6,000 per month in 2013 to have the desired lifestyle, you need to make sure your income plan is flexible enough to be able to adjust to rising costs in future years.
While most people focus on maximizing their income, I've also had the good fortune of working with some folks who choose to take a hard look at reducing expenses. One couple in particular comes to mind. They wanted to reduce their expenses, but didn't want to reduce their standard of living. After two years of research and travel, they decided that their dollars would stretch much further by living abroad than they could by living in Kitsap County. Today they enjoy a moderate climate in what's known as an ex-patriot community where people from all of the world retire. They say the culture is great, and the weather is incredible. Everyone who lives in their community are all transplants from around the globe, and they are looking to make new friends so they have a vibrant social life. They have a better lifestyle at a fraction of the cost.
Ultimately a budget allows you to understand your basic expenses so that you can construct an income plan to help you get every ounce of life out of the dollars you have accumulated. Retiring without a budget is like taking a road trip without a map. You may reach your destination, but the trip will likely be expensive, wasteful and create a lot of unnecessary worry. Visit my blog at Thriving-in-Retirement.com on the resources page to download a budget data gathering form to help you get started on creating your personal budget.
Also printed in the Kitsap Peninsula Business Journal April 2013 Issue.
IRA Required Minimum Distribution Table
To calculate how much you need to take from your IRA you might want to visit the IRS website or consult a tax adviser. It would also be a good idea to review publication 590 to see which table you need to use for determining your withdrawal. Most of the people we have worked with over the years seem to use Table 3, which is the uniform life time table listed below. People who use this table are either unmarried owners, married owners whose spouse is not more than 10 years younger, or married owners whose spouses are not the sole beneficiary of their IRA.
To calculate your IRA Minimum Required Withdrawal you would take the value of your IRA from December 31st of the prior year and divide it by the distribution period. For example: your IRA had a $100,000 balance on December 31st last year, and you are currently 71 years old. You would determine your IRA RMD by dividing $100,000 by 26.5, and you would need to take a distribution of $3,773.59.
A question we are often asked is, "What percentage do I need to withdrawal from my IRA to meet the required minimum distribution." In the example above, we show you the correct way for determining your required minimum withdrawal, but just to satisfy our curiosity we backed into the numbers to show approximately what percentage you would have to withdrawal to equal the correct withdrawal rate. We are including the chart showing the percentages below merely as an interesting side note, and you should not use these numbers for calculating your required minimum withdrawal from your individual retirement account.
As always be sure to get expert advice before taking a distribution to satisfy your RMD. I'd hate to see you end up with a 50% penalty. This article was written on April 1, 2013 and it is possible that the information in this post may change. So again please consult the IRS publication 590 and a qualified tax adviser before taking action.
Before you plant a seed.....
The United States government created a system that rewards you for deferring your taxes in the early years, but when you retire you had better be ready to pony up for that deferral. To put this in perspective pretend you are the new owner of an orange grove. On the day you planted your first seed, the government came to you offering the following deal: You can either pay taxes now on each seed you plant today (like a Roth IRA), or wait to pay taxes on every orange you harvest for the rest of your life plus when you are dead, we are going to continue to tax your kids as they continue to pick oranges off these trees you are about to plant (like a traditional IRA). Your choice.
Before Mr. Orchard Farmer makes a decision, he may want to consider that marginal income tax rates are at some of the lowest rates our country has ever known. He might also consider that our national debt is over 16 trillion dollars and growing. The interest alone on our debt is currently our country's fourth largest budget item. Our social safety net systems like social security and medicare are beginning to get clobbered by the largest generation in history at a time when medical costs are skyrocketing. Instead of trying to figure out ways to cut back, our government is adding to these social safety nets with things like part D prescription drug coverage for seniors and mandatory health insurance for every person in America. We are not trying to reduce the size of these programs instead we are adding to them.
So Mr. Farmer which option will you choose?
Before Mr. Orchard Farmer makes a decision, he may want to consider that marginal income tax rates are at some of the lowest rates our country has ever known. He might also consider that our national debt is over 16 trillion dollars and growing. The interest alone on our debt is currently our country's fourth largest budget item. Our social safety net systems like social security and medicare are beginning to get clobbered by the largest generation in history at a time when medical costs are skyrocketing. Instead of trying to figure out ways to cut back, our government is adding to these social safety nets with things like part D prescription drug coverage for seniors and mandatory health insurance for every person in America. We are not trying to reduce the size of these programs instead we are adding to them.
So Mr. Farmer which option will you choose?
Clarity
I met with a dear client of mine today whose doctor had relayed some bad news. A couple of months ago she was diagnosed with lung cancer. This really caught her by surprise because she's been healthy her whole life, and she has never smoked. The tumor in her was growing instead of shrinking with her treatment. She will be starting a new treatment, and hopefully it works.
She had come into my office because she wanted to update the beneficiaries on her retirement accounts based on her estate planning attorney's recommendations.
She said a couple of things to me that really impacted me. She said the hard part about all this was the impact it is having on her adult children. I asked her if there are any big trips or anything she wanted to do with her family. She said, "No, just getting to spend as much time with them as possible. That's what it's really all about."
She said one of the great things about getting sick and knowing that you're sick is so many people reach out to you, contact you, send you letters and come by your house to drop things by. She said, "I really feel loved." She also commented that some people aren't lucky enough to have this type of advanced warning.
It was a cold January afternoon. She looked out and said it was a beautiful day. I could just tell she really appreciated how beautiful the day was. As we were standing at her car door, the last thing she said to me was, "Jason do what you want to do. Don't wait to live."
Are you waiting to live?
She had come into my office because she wanted to update the beneficiaries on her retirement accounts based on her estate planning attorney's recommendations.
She said a couple of things to me that really impacted me. She said the hard part about all this was the impact it is having on her adult children. I asked her if there are any big trips or anything she wanted to do with her family. She said, "No, just getting to spend as much time with them as possible. That's what it's really all about."
She said one of the great things about getting sick and knowing that you're sick is so many people reach out to you, contact you, send you letters and come by your house to drop things by. She said, "I really feel loved." She also commented that some people aren't lucky enough to have this type of advanced warning.
It was a cold January afternoon. She looked out and said it was a beautiful day. I could just tell she really appreciated how beautiful the day was. As we were standing at her car door, the last thing she said to me was, "Jason do what you want to do. Don't wait to live."
Are you waiting to live?
Overcoming the fear of retirement
One of the top search queries bringing people to my blog is "Overcoming fear of retirement." Ultimately I don't think people are really afraid of retirement, but like most of us we are resistant to change. A transition into the unknown can shake us out of our comfort zone and create uncertainty, which can lead to fear and stress.
I remember in late 2004, we had just found out that we were expecting our first child. My wife and I had been trying to have children for eight years. So this was amazing, wonderful, spectacular news. We were overwhelmed with joy, but at the same time for me there was stress associated with transitioning into the unknown. Every morning for the entire week after we found out I'd get a bloody nose while in the shower. While we were both extremely excited and happy, I was also very nervous and fairly stressed about the responsibility of becoming a Dad.
I have learned from working with many pre-retirees and retirees that the prospect of retirement can bring a similar sense of anticipation and joy. It can also also cause stress and fear as people begin to prepare for the transition into the next phase of their life. Many of the people we work with have been leaders in business and in their communities. Oftentimes their identity is associated with what they do, who they've become in their career and how much they have accomplished. Transitioning into retirement makes them realize that they are not their job. They also realize that regardless of how much they have saved most people are concerned it may not be enough, and now they need to redefine their identity and focus on what is truly the most important thing in their life.
There are two things I think most people could do to help them overcome the fear and stress of retirement.
The first thing I would recommend doing is sitting down and writing out a purpose statement for this next phase of their life. I went through this process for our firm last year, and it was an incredibly clarifying. The rewards of being intentional about designing your life in a way that is clear concise and meaningful can really provide clarity of purpose and help you decide how you will spend your most valuable asset, your time. When I sat down to write the purpose statement for our firm I asked myself and my team three things:
#1 Who are we?
#2 What are we going to do?
#3 Why are we going to do it?
You could apply these same questions to your retirement. I'll warn you this is not an easy exercise. It took me several months to really dial in our firm's purpose statement and every word has significant meaning. Our purpose statement answers all three of these questions and is only one sentence long so it is easy to memorize. This statement is now the foundation for every decision we make. Imagine what it would be like to wake up every morning in retirement and have that type of clarity.
The second thing you can do to overcome the fear of retirement is to have a written financial plan. I recommend sitting down with an adviser who specializes in working with folks transitioning into and through retirement. Finding an expert to help guide you along this path will do a couple of things: First your adviser is not emotionally involved in the prospect of your retirement so he or she should be able to give you objective advice, and second your adviser may know of techniques or strategies that you have not considered simply because they've helped hundreds of others preparing for the same transition
A good retirement plan will look at your budget, cash flow, taxes, income, assets, estate planning and insurance to help paint a picture of what your financial life will look like on a year by year basis as you transition into and through retirement. A good retirement plan can help answer the question of "have we saved enough?" and alleviate the concern of running out of money in retirement. A good retirement planner should ask you the question, "What is the purpose of this money," and you should be able to answer that question.
Hiring an expert retirement planner can help you understand the rate of return you need to earn on your money in order to achieve your goals and help you craft an asset allocation, diversification and income strategy to help you achieve that goal with as little volatility and risk as possible. And ultimately a written retirement plan will help provide you with confidence.
When you go through this process of defining your purpose statement for your retirement, and you do the hard work of answering those 3 questions outlined above, then you will discover clarity. With a written financial plan for achieving your retirement lifestyle goals you will achieve confidence. Ultimately once you have clarity of purpose and the confidence to know the numbers are going to work, then my hope is you will experience freedom. Freedom to do the things you want to do, to be with the people that matter the most to you, to be free from worry, fear and greed; and ultimately freedom to have an impact in this world so that one day you might be greeted with "well done good and faithful servant."
Click the highlighted link if you would like to read Our Firm's Purpose Statement.
Also printed in the Kitsap Peninsula Business Journal May 2013 Issue.
I remember in late 2004, we had just found out that we were expecting our first child. My wife and I had been trying to have children for eight years. So this was amazing, wonderful, spectacular news. We were overwhelmed with joy, but at the same time for me there was stress associated with transitioning into the unknown. Every morning for the entire week after we found out I'd get a bloody nose while in the shower. While we were both extremely excited and happy, I was also very nervous and fairly stressed about the responsibility of becoming a Dad.
I have learned from working with many pre-retirees and retirees that the prospect of retirement can bring a similar sense of anticipation and joy. It can also also cause stress and fear as people begin to prepare for the transition into the next phase of their life. Many of the people we work with have been leaders in business and in their communities. Oftentimes their identity is associated with what they do, who they've become in their career and how much they have accomplished. Transitioning into retirement makes them realize that they are not their job. They also realize that regardless of how much they have saved most people are concerned it may not be enough, and now they need to redefine their identity and focus on what is truly the most important thing in their life.
There are two things I think most people could do to help them overcome the fear and stress of retirement.
The first thing I would recommend doing is sitting down and writing out a purpose statement for this next phase of their life. I went through this process for our firm last year, and it was an incredibly clarifying. The rewards of being intentional about designing your life in a way that is clear concise and meaningful can really provide clarity of purpose and help you decide how you will spend your most valuable asset, your time. When I sat down to write the purpose statement for our firm I asked myself and my team three things:
#1 Who are we?
#2 What are we going to do?
#3 Why are we going to do it?
You could apply these same questions to your retirement. I'll warn you this is not an easy exercise. It took me several months to really dial in our firm's purpose statement and every word has significant meaning. Our purpose statement answers all three of these questions and is only one sentence long so it is easy to memorize. This statement is now the foundation for every decision we make. Imagine what it would be like to wake up every morning in retirement and have that type of clarity.
The second thing you can do to overcome the fear of retirement is to have a written financial plan. I recommend sitting down with an adviser who specializes in working with folks transitioning into and through retirement. Finding an expert to help guide you along this path will do a couple of things: First your adviser is not emotionally involved in the prospect of your retirement so he or she should be able to give you objective advice, and second your adviser may know of techniques or strategies that you have not considered simply because they've helped hundreds of others preparing for the same transition
A good retirement plan will look at your budget, cash flow, taxes, income, assets, estate planning and insurance to help paint a picture of what your financial life will look like on a year by year basis as you transition into and through retirement. A good retirement plan can help answer the question of "have we saved enough?" and alleviate the concern of running out of money in retirement. A good retirement planner should ask you the question, "What is the purpose of this money," and you should be able to answer that question.
Hiring an expert retirement planner can help you understand the rate of return you need to earn on your money in order to achieve your goals and help you craft an asset allocation, diversification and income strategy to help you achieve that goal with as little volatility and risk as possible. And ultimately a written retirement plan will help provide you with confidence.
When you go through this process of defining your purpose statement for your retirement, and you do the hard work of answering those 3 questions outlined above, then you will discover clarity. With a written financial plan for achieving your retirement lifestyle goals you will achieve confidence. Ultimately once you have clarity of purpose and the confidence to know the numbers are going to work, then my hope is you will experience freedom. Freedom to do the things you want to do, to be with the people that matter the most to you, to be free from worry, fear and greed; and ultimately freedom to have an impact in this world so that one day you might be greeted with "well done good and faithful servant."
Click the highlighted link if you would like to read Our Firm's Purpose Statement.
Also printed in the Kitsap Peninsula Business Journal May 2013 Issue.
Too fast or not loud enough?
I was sitting in my drive way warming up my car, and I turned on the radio. I adjusted the volume so it was at the perfect level. As I began driving down the street I noticed the faster I went, the harder it was for me to hear my radio, and of course my way of correcting the problem was to reach down and turn the radio up higher to drown out the noise. The faster I went, the louder I would have to turn up the stereo. It made me think about life. Perhaps the problems we encounter in life are not a result of the music not being loud enough, perhaps we are just going too fast to be able to appreciate it.
23,725 Days
I recently had the good fortune to read the book 20,000 Days and Counting by Robert Smith. I tend to read a lot of books and even though we are only a few weeks into 2013 this book has been my favorite read so far. The book is a short read. You can finish it in one setting, but it is full of great insight.
I recently met with a gentleman who was 65 years old and ready to retire. Did you know that if you live to age 65, then you have lived 23,725 days? The average life expectancy for a man age 65 is approximately age 82. If he is fortunate to live to life expectancy, then he has 6,205 days to live.
I asked this gentleman how he envisioned his retirement? How would he like to live out the final 6,205 days of his life. What is most important to him? As he sat back in his chair and looked up to the ceiling, he shared how he wanted to travel more, enjoy time with his wife, spend more time volunteering with his church, connecting with people who were important to him and he wanted to be more involved with his grandchildren.
Like so many people I never once heard him say, "Jason, I cant wait to spend my retirement years sitting in front of my computer managing my investments".
One of the things I've learned over the years and was reminded of when I read Robert Smith's book is often times the people who hire us do so, not because we can manage their investments better than they can, but rather they hire us because they don't want to waste their time on an activity that isn't their absolute best use of their most precious asset, their time.
I recently met with a gentleman who was 65 years old and ready to retire. Did you know that if you live to age 65, then you have lived 23,725 days? The average life expectancy for a man age 65 is approximately age 82. If he is fortunate to live to life expectancy, then he has 6,205 days to live.
I asked this gentleman how he envisioned his retirement? How would he like to live out the final 6,205 days of his life. What is most important to him? As he sat back in his chair and looked up to the ceiling, he shared how he wanted to travel more, enjoy time with his wife, spend more time volunteering with his church, connecting with people who were important to him and he wanted to be more involved with his grandchildren.
Like so many people I never once heard him say, "Jason, I cant wait to spend my retirement years sitting in front of my computer managing my investments".
One of the things I've learned over the years and was reminded of when I read Robert Smith's book is often times the people who hire us do so, not because we can manage their investments better than they can, but rather they hire us because they don't want to waste their time on an activity that isn't their absolute best use of their most precious asset, their time.
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