A financial plan that is.
If your financial life is more complicated than "how much ya got and can you live on 4% of that?" you need a plan.
There are so many ruinous mistakes that can be made from spending too much, spending from the wrong spot first, investing too conservatively, investing too aggressively, somehow creating a tax problem, not understanding inflation, not knowing how to assemble a portfolio, make good decisions about social security, know whether you need some sort of insurance product, not having a back up plan if the first three years of your retirement looks like 2000-2002...any others?
This is not a pitch to hire anyone but for you to either empower yourself to do the job or if not to find someone who can help you.
I do think the work can be done on your own. It is not easy, I know I have a lot to learn about the topic. Portfolio management (what I do) is not financial planning. I know a lot of questions and few answers which would not cut it. The fewer moving parts in your financial life obviously the easier making your own plan will be.
The first building block of our plan is that we live below our means. This is something I have touched on many times here. We live in a modest cabin that we love and have no plans to "trade up."
I have faith in the 4% rule of thumb (5% is very reasonable too). Whatever we put away, we'll have to get buy with 4%. Planning for a certain number is fine but if you "need" $2 million but you end up with $1.5 million...4%. This is a personal belief of mine so I understand any disagreement with this notion.
Tying in is the idea of saving as much as you can. This probably means that some years you won't save enough and some years you will over save. You can only do what you can do but chances are we all need to stretch a little bit in this regard.
I'll repeat that this is not easy at all but it is not impossible. Maybe deciding whether you need help or not needs some uncomfortable introspection but one way or another you need to map it all out. The idea here is giving yourself the best chance for however you define success.
Wikinvest Wire
12 comments:
Roger, I can't access your columns at Real Money. Am I the only one having problems, or is the site down?
thanks for the heads up, I just tried and was able to get to my most recent, the one about RSX. I have another one going up today or tomorrow about CGW.
Can you leave another comment with what browser you are using and the version and I will pass it on to them.
TY
Thanks, I'm using Firefox 2.0
Conservative living: One of the things I enjoy about living in a wealthy area is the amount of waste, as the McMansioners try to impress each other.
Just this week I brought home a one year old like-new Maytag dryer I got for $90. And yesterday I brought home an immaculate LaZboy recliner for $200 from Craig's list. Last month added a Herman Miller filing cabinet abd Steelcase bookcase for 20 cents on the dollar, all like new.
As the Starbux-sipping soccer mom's decide the 2 year old Escalade is getting old and they'd hate to have to vacuum it, I'll be watching the ads. Or maybe it'll be the Benz-Lexus-Bemer fireballs with cell phone surgically attached, deciding they really wanted gray instead of silver and the new model as 25 more HP. Send 'em my way boys!
And I'll take you Gold miner shares as well, as you all pile into FXI.
Roger, your comments about having a financial plan and the 4% rule are spot on. I retired with a "plan" in 2000 but as the market continued to tank in 2000-2002 I had to be flexible enough to modify my plan (they can't be written in stone) and I had to have the discipline to not spend more than 4% of my assets per year even though it meant spending less for the first few years of retirement. I probably spend more time than the average retiree doing financial planning/management since my wife and I live off of our investments rather than a big pension. I think that more and more retirees will be in this situation going forward. Your advice is straight forward and smacks of common sense.
I'm the firefoxer and I'm finally in at Real Money, thanks for your concern. Looking forward to your new column.
There's that wonderful analogy regarding caloric intake--if you have to eat that cupcake, then you have to run 3 miles to offset it. I think that thinking about spending and how spending x will translate into y amount of invested capital.
Anything that one does to concretize concepts helps reinforce the learning and hopefully modify behavior. I would no more spend $4 a day on a cup of Starbuck coffee than I would stick my hand in a meat grinder. Of course, that sort of discretionary spending will put one's retirement savings in a meat grinder.
You should be in the running for the financial Ben Franklin of the 21st century.
Not bad company. All of us here should make an effort to help others begin to get a financial life and resulting self-respect.
My real estate operation just took on a 40 unit project through a tax credit program. After cleaning the premises up, my goal will be to have one half of the tenants off welfare and into gainful employment (through education and a motivation program I have used elsewhere)within eighteen months, to the consternation of the Feds who have a vested beaucratic interest in keeping clients in the welfare program.
Confidence, self-respect, education in a trade and saving plans that are as simple as "spend less than you receive" have a profound effect on chronic welfare tenants, some them fouth generation public assistance recipients. An added benefit is that quite a few I have worked with over the years have become Republicans in philosophy. They refuse to be patronized as "victims".
I listened to Paul Merriman's radio/podcast over the weekend and he interviewed Bud Hebeler, a retired executive from Boeing who made a second career studying and writing about retirement planning. He wrote the J.K. Lasser's retirement planning guide and has a new book out called Getting Started in A Financially Secure Retirement. Merriman called it the best book he ever read on retirement planning.
http://tinyurl.com/2kevh8
Hebeler also has a website with a few articles and downloadable spreadsheets. http://www.analyzenow.com/
He strongly feels 70% to 80% income replacement targets are too optimistic because inflation in retirement (mostly due to accellerating healthcare costs) is much higher than pre-retirement.
This guy is a MIT grad, whiz engineer type who loves to crunch numbers and skewer financial planners for dispensing bad advice. I'll probably order his book this week.
I'm 58 years old and I have never bought a new car of the lot. Last September I bought a used Subaru Forester with 7k miles on it for almost 5k off the original price.
I have about 13k miles on it now with over 20k miles of full warranty left. I have done the same thing with the last 5 cars I've bought.
Roger,
Just ran across your blog for the first time. I am a practicing CFP (just launched a blog of my own)and could not have said it better myself. I am going to subscribe to your feed and follow your posts. Keep up the good work!
Art Dinkin
Great site, a trove
I recommend the "three percent rule" (3% taken out of your retirement funds, upon retirement, will result in your funds outliving you), not the 4% rule, since it has a higher probability of success, in particular if the Aging America = Disaster crowd is right (they probably aren't, but just to be safe).
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