Category Archives: Funding Retirement

Starting A Business The Frugal Way: 7 Savvy Tips You Need To Know

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Starting A Business The Frugal Way: 7 Savvy Tips You Need To Know

 

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Clever ways to keep costs down when starting up your own company.

So, you’re considering launching your own company? Having your own business venture will give you somewhere to focus your time and energy and the prospect of seeing a healthy return on your investment is rather exciting too. Shows like Dragon’s Den and The Apprentice may lead us to believe that a considerable sum of money is required for a successful startup, but that’s not necessarily true. Here are seven top tips for launching a business while on a budget.

1. Utilize your skills

This may seem like an obvious one, but starting a business in a sector where you have interest and expertise is always going to set you in good stead. Also, consider that your business could be service-based rather than product-based as this will keep your overhead costs to an absolute minimum. If you’re a dab hand in the garden, for example, why not offer your gardening and landscaping skills locally? Or perhaps your career was in finance, so you are able to pitch yourself as a bookkeeper.

2. Seek out investment

You can definitely start a company on your own with only a small amount of capital behind you, however if you have a more ambitious business plan or are very short on startup funds, there are many ways of gaining a little helping hand. Crowdfunding sites like Kickstarter and Crowdfunder are great tools – they are platforms for you to pitch your idea on in order to receive funding from friends, family and other unknown investors, which will eventually help you to launch your business. You could also look into the possibility of government schemes and local funding being able to assist you.

3. Make mutual business deals

A major way to save on costs is by organising trade-offs with other businesses – this move will require you to be quite pro-active and maybe even a little bit brazen, but it’s true when they say  ‘if you don’t ask, you don’t get’. Let’s imagine you’re setting up your own B&B and you contact the local paper to invite them to come and review your facilities. If they say yes, they will be getting a lovely complimentary stay and you will be getting some free advertising – win, win. Or perhaps if you know somebody who’s good at website design, you can get them to design your site for you in exchange for use of your services.

4. Advertise for free

As a startup, you might not have the funds for traditional forms of advertising, but that doesn’t mean that you can’t advertise. Exploit the powers of free promotion through social media. Social media users make up 37% of the entire world population and total 2.8 billion people worldwide, so that’s the place to get your brand noticed. Set up pages on any social media sites that are relevant to your target market and offer discounts and giveaways to gain new followers straight away. Also, it’s important not to forget the power of word of mouth – tell your friends and family about your new business venture and get them to spread to the word!

5. Acquire a sponsor

Start by making a list of brands that you affiliate with and think up ways that you could promote their brand. This could be in the form of banners on your website or marketing signs at events. You can even suggest promoting their products – for example, if you own a tutoring service, you could team up with a local bookstore. If you send your students there for books, they may be able to offer initial sponsorship to help your business get off the ground.

6. Minimize waste

From packaging to printing, you need to be savvy with your resources because the small things can quickly add up. A good way to save money (and help the environment) is by going paperless. Many companies and consumers are used to e-correspondence now, so why not eliminate as much printed material as you can? Also, it’s worth considering dropshipping ­– this is where a retailer doesn’t have a shop or warehouse and the products go directly from the supplier to the buyer. By using this method of shipping, you won’t have to rent out a warehouse or pay for packaging, meaning you will save a substantial amount.

7. Budget branding

The great news is, creating coherent business branding can be done with minimal cost. There are so many websites out there for reasonably priced business cards – you’ll be sure to find great deals on Vistaprint, and the same goes for logos on Logo Shuffle and Logo Shines. Remember to create a consistent brand image, which means using the same logos and brand colours across all of your commercial channels and social networks. The next step is getting it out there into the world for potential consumers to see – this can mean placing it on your work clothing and even your vehicles so that your logo becomes locally recognised.

Now you’re all set with the advice you need to start a business the frugal way, it’s time to take the plunge and become the entrepreneur you’ve always dreamt of being. Who knows, you may just be able to fund an early retirement.

This is a contributed post to Leisure Freak by the awesome author Kayleigh Alexandra.

Kayleigh Alexandra: Content Marketer & Ecommerce EntrepreneurKayleigh Alexandra: Content Marketer & Ecommerce Entrepreneur

Passionate about writing for the startup and entrepreneurial audience, I love to share my insight into the world of ecommerce and digital marketing. I hope to inspire others to start their own journeys and share their stories. Find me at MicroStartups.

A Happy Retirement: Making the Biggest Purchase of Your Life

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Is Your Motivation Challenged When It Comes To Saving for Retirement?

I think everyone deep down hopes to one day have a happy retirement. But it seems that people have a problem saving for it. After all, it is a consumer driven society with lots to spend money on. To get started saving and stay motivated it’s time to rethink how we look at our retirement. Think of it as our life’s biggest purchase and just like any other purchase it will be limited by our available cash.

The bummer when buying your retirement is that unlike other big lifetime purchases like our education, home, car, etc., a decent and happy retirement can’t be financed. We simply cannot wait to the last-minute and plop down a 10% to 20% down payment and borrow the rest to get what we need or want. It takes assets.

The other happy retirement equation that needs answered is knowing the retirement basics, features and options we REALLY want to have. Our retirement features and options has costs associated to them just like any other large purchase we make. We have to complete some product (retirement lifestyle) research and save as much as we can to buy the retirement we want. If we don’t it’s simply settling for the retirement we end up with.

A Decent and Happy Retirement is Years in the Making – So is a Bad One

Surprisingly, although 80% of Americans work for employers offering some kind of retirement program, only 32% of these employees are saving for retirement. 

What are they waiting for?

A Happy Retirement: Making the Biggest Purchase of Your Life
Nope! Retirement money won’t come from heaven

OK I get it. Life happens, wages are stagnant, there are student loans, too many cool things to buy and do, etc. There are just too many reasons to ignore saving for retirement and put it off for later. Retirement is too far into the future to think about now. WRONG!

When it comes to saving for retirement, procrastination is our worst enemy. Saving something, even if it starts out as a small amount will be better than not saving anything. Especially when done earlier instead of later when time is on our side. It is a personal win-win with no downside. On the other hand not saving anything guarantees a worse retirement outcome.

Saving For Retirement is Putting Aside Money For YOUR Life’s Biggest Purchase.

You Do Want to Buy Something Nicer?

Nobody intentionally goes out to buy a bad education, house, car, or you name it. Who in their right mind would roll up to the grocery store cashier with only $25 to their name and $200 of needed groceries in the shopping cart. But when our money is short we do end up settling for what we can afford.

We have all had to settle a time or two for something either less than wanted, less than needed, or on the crappy side of things. Try doing that every day for the rest of your life.

There should be Social Security to help us with our retirement purchase. But it was never meant to be our retirement’s only source of funding. It would be very challenging to have a nice happy retirement purchased by Social Security alone. So ask yourself. Do you want to buy a crappy retirement? Are you OK with settling for a low quality of life over what might be decades?

Retirement is YOUR life that inevitably awaits you. Ignore or delay planning and saving for retirement all you want. It only hurts and limits you when it becomes your time to buy it. We can put retirement off for only so long.

We must rethink of it as our life’s biggest purchase and prioritize it as such. At some point everyone alive will have to buy a retirement. Either on their terms or not.

The Goal Should Be a Happy Retirement

Buying A Retirement You Will Want

Setting Your Retirement Base

Don’t let the numbers get in your way. We all hear the financial industry claims that we need to have enough to provide 80% (give or take) of our final income for retirement. Taking that number to get a retirement savings estimate would intimidate and demotivate any positive action for most folks. The big objective is to start saving something. You don’t have to set a savings goal to start. But eventually it is necessary to understand where you are and how you are doing.

Here’s what I did.

When buying something big there is always the base price. Then the cost rises when features or options are added. The same goes with our retirement.

The happy retirement base price is having our basic lifestyle costs covered. That being food, shelter, utilities, insurance, taxes, etc. The way I look at it is that not being able to cover these basics lifestyle needs is certainly a bad and unhappy retirement.

That base price can vary depending on where we live and other basic retirement lifestyle choices. Just like a big automotive purchase. Choosing a base Ford or Chevy will have a base cost or price before adding any features or options to it. We have to make sound retirement choices.

Setting Base Happy Retirement Goals

Figure out what your monthly budget will be to cover your basic needs. Use your current monthly basic costs. Then look at it for areas you will probably see reductions or increases and make adjustments. For example:

  • Staying put or moving somewhere cheaper.
  • Health Insurance. This is hard to figure given today’s political climate but assume it will be higher until Medicare kicks in.
  • Taxes. Probably lower than paying while working.
  • Transportation costs. No more commute may reduce the amount you will pay for fuel, maintenance, and insurance. More vacation road trips may cause this amount to break even or add to it.
  • What we are retiring to. Must-have activities of passion and interests that have costs associated to them. For example, hobbies and travel.

Set a realistic base model retirement estimate. Then do the math. Hopefully it is much less than the 80% of current salary. This will help set your base retirement purchase price and be used to set your base happy retirement savings goals.

Keep in mind that at some point social security will also be there to help pay those happy retirement basics. Get your Social Security estimate and plug that into your equation to reduce savings needs. Also subtract out any expected pension coming your way. ( I had to mention it even though unlikely today)

Based on the 4% retirement withdrawal model  you can simply take the yearly amount you estimate your savings will have to cover and multiply it by 25 to reach a retirement savings goal to shoot for. Remember that even if you don’t make your goal you are far better off than if you did nothing. Beat it and you have options. The future price of our happy retirement that we save for may vary as time goes on just like anything else. Make necessary adjustments.

Happy Retirement Features and Options

I love features and options but some are worth a lot more than others to me. I separated these out from my retirement savings calculations because I really don’t have to have costly add ons. Especially those that don’t really add anything to my happiness value. I would enjoy having some but I don’t need them to meet my basic happy retirement requirements. They are my wish list items that I used to set my highly optioned happy retirement savings goals. For example:

  • Travel. World travel wasn’t part of my base retirement but would be a nice-to-have if finances allowed.
  • Hobbies. For instance I have an active automotive hobby and would love to increase my participation which would mean more travel costs than my base happy retirement allows for.  
  • Sports. I always wanted to learn how to play golf but it does have costs to play.

Everyone’s valued options and features list is different. Just do a self assessment of things you enjoy doing now and wish to do in retirement. Figure out what the cost is. Then add it to your base retirement to calculate your highly optioned happy retirement estimate.

Consider Living Your Retirement Lifestyle Now

We decided to live our retirement lifestyle years before we retired early. We didn’t waste money on anything that didn’t meet our happiness values. This allowed us to reduce our monthly costs, pay off all debt, left more money to save, and gave us time to create a sustainable and enjoyable lifestyle.

In my case, our base retirement purchase number was more like 30% of our last salary. A lower base retirement lifestyle cost means needing less assets to pay for it.

When it Comes Time To Purchase Your Retirement

When the time comes to buy your retirement you will definitely get what you can pay for. Some get to choose when retirement is. For others it comes when they least expect it, ready or not. Hopefully there is enough assets to buy a happy retirement that covers all the required basics.

Having a successful retirement savings outcome increases the possibility of buying a retirement with valued features and options. As long as the base retirement is covered then being able to add from the wish list becomes an option. Limited only by what you can afford. Just like any other big purchase.

If a little short then anything saved will allow you to possibly fill the gap through cutting lifestyle costs or landing a part-time gig. That beats being far short with no money and few alternatives.

In Closing

It’s a consumerist world and culture that we live in. Buy this, buy that. This article is all about ending the procrastination and seriously getting started with saving for your life’s biggest purchase – YOUR retirement.

  • Motivate yourself by looking at retirement as something you want to buy for yourself, not just settle for.
  • Figure out how much you can dedicate to retirement saving.
  • Increase your retirement savings rate over time as conditions allow.

Never stop saving for the biggest purchase of your life. Saving anything is better than nothing. When the consumerist world calls your name and tempts you to stray from your retirement savings, remember that nobody else is going to buy you a happy retirement. Having a happy retirement is all on us to figure out and pay for ourselves.

What You Need to Know About Your Finances before You Hit 60

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Know About Your Finances by age 60

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Retirement. What was once little more than a word, a concept that didn’t really matter much to us when we were young is now of vital importance. As we get older and as retirement age gets closer and closer, we begin to realize that every financial decision we have made in the past has brought us to this point in time.

For some of us, this will be a gratifying feeling because we know we’ve made most of the right decisions along the way, and for others, it will be terrifying because we haven’t taken this whole retirement business quite as seriously is we should have done. No matter which camp you fall into, if you’re under 60, you still have time to make some real changes that will make a difference to your quality of life during retirement.

Here are some important things you need to know right now if you want to make your retirement the best it can be:

How Much Longer You’re Expected to Work

If you want to know how much cash you’ll have to play with and what you’ll need to do between now and retirement to make things better for yourself and your family, you need to know when you’re expected to retire. On average, current Americans retirees quit work at the age of 65, but new retirees have been getting older and older in the past few years, with approximately 37 percent of all workers saying that they are likely to work past 65.

For many, working longer is a good option as it enables them to build up more savings for retirement, but if you work in a` very physically demanding job, or have health issues, it might just not be possible. Whatever your circumstances, you have to honestly appraise your ability to work and then take a close look at your finances to see what can be done.

When the Best Time to Trigger Social Security Is

Another thing that you need to know as you approach the age of 60 is when you should start claiming social security benefits. So many Americans trigger this benefit at the wrong time and end up with too little money to support them at the end of their lives. The best time to trigger Social Security is as far from now as possible. You see, the longer you delay claiming them between the ages of 62 and 70, the amount you’re due rises between 6 and 8 percent, which means you’ll be entitled to quite a bit more if you can hold out. I know this won’t be possible for everyone, and any future changes to the benefit might make things different, but right now, working longer or living off savings and private pensions until you hit 70 is the smart choice for most.

How Much of Your Income is Guaranteed

For many retirees, their Social Security will be the only guaranteed source of income they’ll get, but if you have any traditional company pensions, there is a good chance that you will be entitled to other sources of guaranteed lifetime income. You can find out if this is the case by talking to Human Resources and asking them to provide you with a statement for the benefits and pensions you’re due.

Once you know what you’re likely to be entitled to, you can start looking at your expenses to see if you’ll have enough to live on or if you’ll need to start saving more. You might also consider buying an annuity, which will give you a fixed income throughout your retirement. This is an increasingly popular option, which has helped countless retirees to better manage their money after leaving work.

What Your Safe Withdrawal Rate Is

 what you need to know about 401k

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If you’re not lucky enough to have a guaranteed lifetime income, and you’re going to have to make the cash in your 401(k) last as long as possible throughout your retirement, now is the perfect time to sit down and work out how much money you can safely withdraw each year, so that you don’t completely drain your account. This isn’t always easy because you don’t exactly know how long you’ll live, but if you work on the basis that you’ll live another 30 years after retirement, that should give you a good place to start.

A common way of managing the 401(k) used by many retirees is to withdraw no more than 4 percent of the balance each year. This is the best way to increase your odds of not running out of cash in that 30-year period after retirement, but it’s not a guarantee, and many financial experts are now recommending that this figure is dropped to 3 percent annually.

When to Concentrate on Paying Off Debts

When you’re planning for expenses in advance, not only do you need to know how much money you’ll have coming in, but you also need to know how much debt you’re likely to have. More and more people are retiring while still in debt, and this really isn’t ideal because it drains so much of their precious retirement income needlessly.

If you don’t want to be like them, you need to work out when is the right time to work on paying off your debts. If you’re fast approaching 60, that time is probably now. Start by paying off your most important and expensive debts, like mortgages, overpaying if you can, and then work your way down to smaller debts, which won’t change or mess with your future security quite so much.

Whether You Can Afford to Stop Paying Life Insurance

Most young people with their own families take on term life insurance policies because they are more affordable and because they will normally expire when they are no longer needed. If you are approaching 60, it’s the perfect time to take a look at your life insurance policy and determine whether you need to extend it, switch it with another policy or let it lapse completely.

A lot of people don’t want to let their life insurance lapse because they’ve been paying for it for so many years, but the thing is, a life insurance policy isn’t like a savings account, and that money hasn’t been building up – you’ve just been paying for the right to get a large payout for your family should you pass away before your time. If your children are now living their own self-sufficient lives, your mortgage is paid off, and you don’t need to worry about money in your retirement, there is a good chance that you can let that life insurance policy go and save the monthly cost for your retirement. Just be sure to talk it through with your family first.

Your Possible Future Medical Bills

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In recent years, a lot of retirees have gotten into serious financial difficulties because they have not properly considered any future medical expenses they could be expected to pay. Retiree health benefits are just not as common as they once were and because we all seem to be living longer, medical problems are pretty much a given for most retirees, which means that it’s probably sensible to look at purchasing a good medical insurance policy to see you through your twilight years, and that means you need to account for the premiums in your retirement financial planning.

Are you approaching 60? Have you been thinking more about your retirement? What plans have you put into place?

How Long Will We Live? The Retirement Planning Downer

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When it comes to retirement planning the downer part or aspect comes down to the big question. How Long Will We Live? Nobody lives forever and the flip side of that is the bummer to talk or think about. That being, how long before we die. If only we knew because it is important to get-real about our own longevity chances as it plays a huge role in our retirement funding equation. From savings goals to overall withdrawal strategy. Getting it wrong can cause an unnecessarily delayed retirement date or worse, retiring and then eating through all of our savings before we leave the planet.

How Long Will We Live?

Why It’s Important to get the ANSWER right.

I admit to avoiding contact with life insurance and long-term care sales persons. I just hate hearing the pitch. Dealing with our death is the downer part of any financial planning. It needs to be done but most of us hate to deal with it.

With retirement planning the issue of our eventual death adds a different aspect. Instead of deciding to buy life insurance to cover our premature departure from the planet, retirement planning requires our figuring out our probable longevity to make sure we don’t overspend or unnecessarily under-spend our retirement funds while in retirement. After all, we all want as enjoyable of a retirement as we can afford to have.

Getting OUR answer as close to “correct” as possible means having an appropriate retirement plan. Coming up with a likely life expectancy age allows us to make more informed withdrawal and investment decisions.

If I knew we only had 10 years left to live I would certainly rethink our budget and life plans. There would be a lot of different financial decisions made than if I came up with another 35 years of living to do in retirement.

It is not pleasant to bet on our own longevity. However this downer part of retirement planning is extremely necessary. Even though it isn’t easy or an exact science there are ways to make an educated guess (scratch that) prediction.

So how do we answer the question of how long will we live?

I mentioned in my post “My Disappointing Retirement Financial Plan” that my financial planner started off by running the numbers to support us until age 100 for me and 105 for my wife. I then came up with better age numbers.

How Long Will We Live for retirment planning
John Garfield lived to age 39. Geraldine Fitzgerald to 92.

Sure, if you have the portfolio to carry you to age 100 or beyond when running your numbers through a retirement calculator  then go ahead and use age 100. But many of us don’t have that kind of retirement financial backing to get a calculated result guaranteeing a likely 100% chance of funding success or one with a minimal chance of failure.

I have never met anyone age 100 or have known of anyone in our family that has lived that long. Yet according to data at the U.S. Census Bureau it seems there are now 70,000 people over the age of 100  in the United States. That is twice the number of Centenarians than there was 20 years ago. Do I think my wife and I will too? Not likely.

If not age 100, how long will we live?

The 3 steps I used to answer that question. 

Family History- Of course everyone’s answer will be different. First look at your family history. That is the first clue. Then look at your family’s health and habits.

  • Was there something there that shortened their longevity and health?
  • Do you share in the same health and/or habits? Live healthier than they do/did?
  • Do you have relatives living well into their upper 90s and beyond?

Obviously this isn’t an exact science but it is easy to see if longevity runs in the family.

Actuary Table – Another thing to do is look at the Federal actuary tables  to see what they predict. They are pretty good at this game. Social Security, insurance annuities, all kinds of financial decisions are made as far as payout based on the fed’s actuary data.

This data is just where the majority of people will fall. Obviously some win and live longer and some lose by leaving the planet earlier. It’s just a number to show the law of averages and where you can get a base line longevity number to compare to your family’s longevity history.

Longevity Calculator – We all love to run our numbers through retirement calculators. I use the free FIRECalc all the time. It allows for changing our thoughts on longevity to see our portfolio’s chance of lasting as long as we will. There are now longevity calculators to help us getting a little closer to the big answer to the how long will we live question so that we work with the right length of time.

I used the free longevity calculator Livingto100.com.  It will have you enter in specific personal aspects of your life like your health and health habits, family history, etc. Basically it has 40 questions to answer and it provides an educated longevity prediction result.

Answering the questions requires taking the time to be honest about your habits, not your hopeful health habits. Rerun the numbers using changes in your lifestyle if there are areas you want to improve in and see how it impacts your longevity results.

The questions cover the following areas:

  • The age of your parents/siblings now or the age they passed away.
  • Whether you smoke or used to smoke and at what age you quit.
  • Your diet regarding vegetable, fruit, red meat and processed meat consumption.
  • Your height and weight.
  • Your dental hygiene habits. Particularly whether you floss your teeth since gum disease is a predictor of heart troubles.
  • Do you exercise and if you do how often.
  • Your Water, coffee, and alcohol consumption.

The longevity calculator runs your answers and comes up with a probable longevity age to use in our retirement planning.

Making Sense of the numbers. Finding the right age to use.

Nothing we do to figure our longevity number will be absolute. We won’t really know until we actually expire. We can take some comfort knowing that the age we come up with will be better than just picking a number out of the blue.

What I did was take the numbers I got by using family history, the actuary table, and the longevity calculator results and then rounded-up the highest of the numbers I found.

For example: The history of longevity for males in my family – Mid-40s to Early 70s. Actuary table shows age 81 for me. Longevity calculator resulted in my predicted age 87.

I then rounded up my highest number found of 87 to age 90 to use for my retirement plan. Running my numbers through the retirement calculator with an age of 90 for me and 95 for my wife shows a 100% chance of funding. Running calculations using an age 100 for me and 105 for my wife as my financial planner first used came up with a less-than 100% success rate. That is why having a realistic number (age) to use is important in planning.

In Conclusion

Do I really think I will make it to age 87? Not really. Not when I consider what I have seen in my family history. But it’s best to plan for the higher number. Trying to figure out the “how long will we live” question or in other words figuring out the age we will likely die by is the downer aspect of retirement planning but one worth trying to get right.

It is also a real motivator to live a well-lived life on our own terms. Early retirement is doing just that for us.

Have you taken the time to figure it out? You know, answering the how long will you live question.

My Disappointing Retirement Financial Plan

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The Numbers are in and for what I paid I am less than amazed. My Disappointing Retirement Financial Plan results are mostly due to there being a huge disconnect between the financial planning industry and those who live a frugal lifestyle. I also see another trick being deployed. One that even the new fiduciary rules to protect investors can’t stop. This trick makes a big difference in the retirement financial plan calculation results as to the likelihood of long-term funding success.

The results were a little delayed as they had to be reworked. Due to what they call a misunderstanding in our projected funding needs.

This misunderstanding occurred even though I carefully printed out our yearly budget needs.  It included everything from day-to-day living expenses to travel and gifts. They took it upon themselves to add considerably to it. All because of what they said are normal spending trends.

I had to remind them that I didn’t make a huge salary during my career and was able to retire early at the age of 51. I think I understand what OUR NORMAL spending model is and that is the one that counts.

I had also included some one-time planned expenses for a home remodeling project, a trip to Hawaii this year, and replacing our primary car within the next year or two. That too was used as a basis to create a higher yearly expense-need. Which was added to our budget as “normal” for retirement spending.

Financial Industry Disconnect with Frugal Living

Retirement Financial Plan ResultsThere is a disconnect between what the financial planning industry sees as “normal” and the way we live in our frugal lifestyle. That disconnect along with the deployment of their new trick caused our retirement funding results to only have a 55% success rate of not running out of money during our retirement.

Their “Normal Spending” misunderstanding added an extra $12,000 a year to the budget. An over 23% increase. That was then also indexed for inflation over our retirement in their final retirement financial plan success calculations.

After some back and forth I agreed to allow them to replace the $12,000 with $3,000 to be added to my budget as a worst case scenario. They reran the retirement financial plan calculations that was then reviewed at a later date.

My Disappointing Retirement Financial Plan Results

I had mentioned in a recent post “Is it Worth Paying for a Financial Planner?” that I had paid $1,100 to have them look at everything. Then for them to come-up with a comprehensive retirement financial plan when looking at mine and my wife’s combined portfolio. My expectation was that they put a plan together that is better than I could on my own.

In the end I felt let down and disappointed. It was for the most part ho-hum and as far as I am concerned any investment actions and moves that were recommended to be taken now should have been covered under my existing wrap-fees that I pay for my portfolio management.

I have under 2 years left on my SEPP 72t arrangement  that sends me a check each month to fund a large part of my early retirement.  I knew that there would be reasons to delay making any major changes or plans until after that expires.

That said here are the high-level highlights of my retirement financial plan:

Once my SEPP is over and IRA withdrawals are penalty free, finalize set-up for my retirement income structure.

Stagger the risk of our accounts to set up a steady income stream while protecting against market downturns.

The target amounts listed below can be adjusted if income needs change (i.e. sell to downsize our home). The structure below is in place so if our portfolio suffers a loss, we can draw down cash and give our investments time to recover.

  • Keep 1 year of withdrawals in cash.
  • Keep a 2nd year of withdrawals in short-term bonds.
  • Invest 5 years of withdrawals in a medium term portfolio. Use this account to replenish cash as it is withdrawn (interest, dividends & systematic selling).
  • Invest remaining funds for the long-term.
Sigh………

There were some investment change recommendations and a call to have me put my cash reserves under their control. I could request cash from them as needed and they would send me a monthly check to cover budget expenses above what my 72t funds me with.

That was recommended to get us used to living on a budget and used to living within a monthly allocation.

HELLO! I think we can handle that just fine.

I more or less paid $1,100 to tell me what I could have done myself. The juicy details that I had hoped these professionals would have supplied are on hold for a couple of years until after my SEPP 72t ends.

After adjusting their $12K budget misunderstanding my final results now show a 78% success rate of retirement funding. However as I will explain below that is because of their little trick that seems hard to get them to shake.

Financial Advisor’s Retirement Financial Plan Trick

So what is the trick? Their retirement financial plan trick is this. Everyone will live to age 100. Or at least that is the only way to run the numbers. Also assume maintaining the same spending rate with inflation until the end.

OK, I get it. I understand why that might be the advised way to run everyone’s numbers. In reality I think it only causes many financially responsible people to delay retirement and/or over-save for retirement.

I say financially responsible people because those who haven’t saved much are so far off from having enough for a fully funded retirement that it doesn’t matter what age is used.

Use Realistic Longevity Numbers

With the first run of our numbers and their mistakenly inflated budget I pointed them to what I had supplied about family longevity. My father had the record age for men in my family at age 70. We have an issue with cancer that seems to run in the family. On my mother’s side men were even worse off but for reasons related to WW2. So longevity unknown. The Federal actuary table  predicts for me age 81 which I think would be a fair number to start with and to round-up from.

My wife’s grandmother and great-grandmother on her mom’s side lived independently until just before age 90 and both passed soon after with a few months in nursing care. On her father’s side her grandmother only lived until her early 80s. The Federal actuary table predicts for my wife age 84. Far from age 100.

With a corrected budget model already in place and having them rerun the numbers with age 90 for me (of which I believe is a stretch) and 95 for my wife our calculated success rate through over 600 investment cycles on their proprietary calculator now came up at 100%.

What about keeping a constant spending rate?

The other trick is taking a stance that spending will stay at the same level plus inflation throughout retirement. I truly believe based on what I have seen with our parents and grandparents that spending significantly drops as we age. A study by Ty Bernicke, CFP  fully details this issue. Our world shrinks and we just don’t feel like putting up with all the BS or health issues to travel. People also don’t seek out entertainment like we do when we are younger.

There is something to be said of medical cost rising and filling that decreased spending void but that isn’t a sure thing. Someone could also make the case of including a new Global Warming homeowner’s insurance policy cost to our budget or any other guess at what other future costs will come to us in retirement requiring us to pad our savings even higher.

Is There Any Value to my or anyone’s Retirement Financial Plan?

I think there is some value because it does add a second set of eyes and a professional view of what we want to do. I run my numbers through the free online Monte Carlo type retirement calculator FIRECalc  using different retirement lengths, spending, and investment strategies and see very promising numbers. It uses over 100 investment cycles in its calculation.

  • When paying for a retirement financial plan we also must have some financial sense so that CFPs don’t take the road of applying generic social norms to spending if we are people who aren’t into unbridled consumerism.
  • We have to be proactive and challenge any CFP assumptions that may automatically be taken that are not necessarily true for us. In my case age 100 calculations.

I believe when digging through my retirement financial plan results that I can see some value even though nothing specific is being detailed or established for another couple of years.

That said, I don’t feel that what I did get warrants a $1,100 price tag. I will definitely not be paying them again for another retirement financial plan anytime soon and will argue that much of what they did tell me should have been covered under my wrap-fees. I explained my feelings over the results and they are keenly aware that I know enough that they cannot just meet with me on auto-pilot

Final Thoughts

If we are going to pay for a retirement financial plan then it is important to understand what our retirement lifestyle is really going to be. I have a few years of early retirement under my belt so I could easily call-out my financial advisor on their spending assumptions and calculation errors.

Having a realistic grasp on life longevity is another key factor for a solid retirement financial plan. Too long and even though it is a nice thought it may cause delaying retirement or other changes that negatively impact our retirement plans. Too short and without careful monitoring we can run out of money before we run out.

I am not taking a position that CFPs default to age 100 in their retirement financial plan calculations because of some sinister plan. Although it has crossed my mind that having as much money as possible for as long as possible under CFP control does reap higher yearly wrap-fees for the financial planning industry.

Developing a retirement financial plan is serious business but not an exact science. There are many unknowns. It should be based on sound personal details and logical assumptions.

In the end it will be up to us to make it work and will need constant monitoring over the years.

Have you ever paid for a retirement financial plan or plan to in the near future?

Is fear a good retirement saving motivator?

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Is fear a good retirement saving motivator? I began to think about the power of fear and how it can influence every aspect of our lives, both good and bad. Obviously a rational dose of fear can keep us from doing something stupid and dangerous. However irrational fear may hold us back from reaching our full potential in whatever we are doing or trying to accomplish. Either way fear is a powerful and primal emotion. That is what has me wondering, is fear good for motivating us to save for our retirement?

Is fear a good retirement saving motivator? If so, What Fear?

Is fear a good retirement saving motivator?I think our retirement fears can be a good retirement saving motivator as long as it is balanced. By that I mean a healthy balance of fear of the worst and fear of not being able to have the best that we want and have planned for. Fear as a retirement saving motivation should be seen as a Team that has a good balance between Offense and Defense.

  • Offense – All the things we want to accomplish in our retirement. To Score The Dream
  • Defense – All the things that we do not want to happen in our retirement. Defend against a negative outcome.
Fear – Team Offense

Anyone planning for their Retirement should understand that the best retirement plan is about what we are retiring to. We should understand what that is and what it will take to fund that dream retirement lifestyle.

My offensive fear was that I wouldn’t be able to live my life on my terms. I wanted to retire early and often. I wanted to only pursue opportunities that I had interest in and was passionate about doing. To do that I wanted which meant being able to leave my corporate career with its 24 X 7 demands. It had inflexible and restrictive work requirements. I wanted a life where I could have uninterrupted time for my highest priorities that are about spending more time with my family and changing to a passion-driven lifestyle.

I also wanted to do all of this while I was young enough to fully engage in everything that I wanted to do. I have hobbies, volunteering, and travels I want to fully experience. My fear was that I would either get my ticket punched to leave the planet due to all the stress or wait so long that age related health issues would keep me from what I wanted to accomplish.

My offensive fear motivated me to save so that I could live the lifestyle that I wanted to live in retirement and retiring early enough to fully enjoy it.

Fear – Team Defense

The other side of retirement planning is saving enough to have a retirement far better than just existing. Having a healthy fear of running out of money or not having any in the first place is a strong retirement saving motivation to do something. Having the fear of ending up old and/or in poor health and unable to support ourselves should be everyone’s fear.

Worst case scenario stuff – Lingering away in a nursing home and not a good one either because of a lack of funds or running through all our money and then ending up there anyway.

Fear of not having enough money down the road many years into retirement in later life is a defensive team fear.

Balanced fear is a good retirement saving motivator

Surely retirement saving needs to look at both sides. Without the defensive fear I would have retired too early and without a clear way to fund late life needs. A strictly defensive fear mindset means I may have stayed in a unfulfilling and demanding career far too long and delayed living the life I wanted and was saving for. I would have retired with regret of a life spent poorly. Balance is important.

Our fears shouldn’t keep us from living our lives, making plans, dreaming, setting high goals, and moving forward. Fear is only bad if we let it stop us from reaching our full potential. Metaphorically cowering in a corner is not the way to let fear rule us. We have to recognize it and take the necessary course of action. In this case the motivation to stay engaged with a retirement savings plan that covers everything that we need to cover.

Closing Thoughts

I believe a little fear goes a long way. I left a comment on a blog post that had me wonder and inspired me to write this post. It was a great read by Yetivesting, What Motivates You To Save. 

So let me ask you, is fear a good retirement saving motivator?

Are your retirement saving motivations more strongly fear-team offensive, defensive, or balanced?

Early Retirement is like leaving the Casino when ahead

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My Father-in-law told me, Do Not Let Greed Delay Your Retirement, Early Retirement is like leaving the Casino when ahead. My father-in-law passed away suddenly a year ago and today has me remembering his wise advice. His is a cautionary tale that stuck with me and contributed to my own early retirement story. I was still several years away from my early retirement goal and my father-in-law had only been retired for a couple of years when he offered his advice to me.

Early Retirement is like leaving the Casino when ahead – Odds Favor the House

Your Employer Can Change the Rules

My father-in-law worked for United Airlines on their Ramp Services Crew. His career was about loading bags and freight with a mind to keep the plane’s cargo evenly distributed, de-icing planes in the winter, and everything else that they were to do. 30 years into his job that provided awesome travel benefits he could retire with a full pension, his 401K, and a bunch of United Airlines stock given to employees instead of salary raises. As he explained, only after you retired could you cash out of that stock and diversify (before new rules about employee stock holdings).

At age 58 he was still healthy and although he had plans of retiring and traveling the world on the retired airline employee travel benefits he decided that by staying a few more years he could build up more savings and collect higher social security later on.

A few years pass and some freight shifts during loading a plane and injures his back. After medical treatment and some rehab he returned to work but his back was never the same. He hung in there a few more months until he hit 35 years of service and retired.

Aside from health issues associated to his back injury something else happened during those last months while he was getting ready to retire. United Airlines filed for bankruptcy. His company stock representing years of raises was all but wiped-out overnight. You don’t get a warning so you can quickly retire and sell your stock (that would be insider trading). So he counted his blessings and retired with his pension. Soon afterward United Airlines ditched their pension and handed it off to the PBGC which came with a reduced monthly benefit.

Your Health Can Change

6 months after retiring he found out he has bladder cancer. After surgery and other cancer treatments it was successfully removed but left him tethered. He needed to always be close to a rest-room which made the thought of traveling less attractive to him. Still feeling blessed for beating cancer he couldn’t help but to think what if. “What if I had retired when I was 58 with my 30 years? I would have been able to sell that stock and travel as we had always planned.” What if indeed.

As he told me, “I got greedy and should have left the casino when I was ahead”. Ahead in both retirement money and health. He knew of my early retirement goal and then warned me, “Don’t Let Greed Delay Your Retirement because your future is unknown”. He then said he didn’t believe in crying over spilled milk but knowing what he knows now he would have left as soon as he could. The old hind-sight dealio for him but great advice for me to chew on.

Cancer would have still visited him but they would have had a few healthy years to get out and do all the traveling they had long-planned to do.

Leaving the Casino When Ahead

I did take his advice to heart. We don’t know what our future holds for us. Early Retirement is like leaving the Casino when ahead. If you stay too long or linger eventually the House will win. The “House” or “Casino” is the system of life in the modern world. The system where we work doing things other than what we really want to do by trading our time for money.

We choose financial responsibility as our game of choice which is our gamble to winning a chance to have as much time as possible HAPPILY LIVING free from needing to work.

We gamble that financial responsibility will pay off and we will be able to follow our passions and our interests before our slowing through aging, decreased health and then leaving the planet with our inevitable death.

With the anniversary of my father-in-law’s passing it is something that I have thought a lot about lately.

Do Not Let Greed Delay Your Retirement – The Temptation for More Money

There are the internal factors like greed and fear at work tempting us to work longer, save more, and delay our retirement for more money. There are also the externally applied messages to feed our greed and fear.

  • Messages telling us we need huge sums to retire with the same lifestyle we have when working.
  • Messages telling us we need to delay retirement to get bigger Social Security checks.
  • Messages telling us we need to plan on funding retirement until age 100.

Early Retirement is like leaving the Casino when aheadThese generic messages can cause us to look at what we have and decide to risk doubling down to have even more. Gambling our decreasing time for more money. Some folks pull it off but many lose. The odds favor the house. Life is finite. We burn through our time no matter how much is left, great or small. Most people have to burn through their time because they don’t play the game well (spending foolishly instead of saving/investing, heavy debt, making bad financial decisions) or have a long run of bad luck (poor work opportunities or underemployed) where the cards never came up for them. However if we do play well and have luck fall our way then we should resist greed or fear and know when to leave the casino when ahead.

Early Retirement is like leaving the Casino when ahead – Know When Enough Is Enough

This article isn’t about being financially reckless and pitching a career without first having done all that needs to be done to fund our retirement. Beating the House and winning with early retirement means we had just enough good luck and have played the game well through practice, commitment, and learned skills. We gambled with our earnings by saving and investing instead of seeking instant consumerist gratification. Gambling that we are going to hit the jackpot of retirement and have a greater tomorrow. If we are fortunate we will have retirement earlier than most who are spending time in the casino.

With the constant generic messages of needing more and more to retire comfortably we should take that in stride and run our own numbers.

Everyone’s retirement lifestyle and lifespan is different.

We can’t exactly pinpoint our lifespan but we do have clues.

  • Our relative’s health and lifespans
  • Our current health
  • The actuarial lifespan estimates

We can account for the chances of longevity and hedge that bet either with our investment bucket strategy or by throwing in a QLAC if we want a longevity annuity.

Knowing how much we need to live our retirement lifestyle and how much we have wisely invested tells us whether we should exit the casino. It allows us to put our winnings to the test and know when enough is enough. I like to use the free Monte-Carlo type Retirement Calculator by FIRECalc. We can’t know when enough is enough until we finish running our own unique and specific numbers.

Having the right focus isn’t greed

Some believe that people who become frugal and super savers are money focused and greedy. I think they miss the point. If there is greed to be found in financial independence and retiring early it is in our wanting to cherish our time and not waste any more than we have to stuck in the rat race. We are time focused not money focused. Time is what we all gamble with. Greed comes into play when we lose sight of that and stay in the Casino far longer than we need to.

Final Thoughts

I miss my father-in–law. My father who I also greatly miss had passed away years earlier at an age below actuary lifespan estimates. Both of them succumbed to a form of cancer. Another piece of the casino’s bad luck that many of us may have a run of.

I have got a few calls lately from recruiters wanting to pitch opportunities that are aligned with the encore career I retired from not long ago. I admit the temptation of earning some extra cash and its high paying salary. I am all about retiring early and often.

It stokes some interest but only until I think about this game of chance I would again be playing. Re-entering the Casino and gambling my time for extra cash. Doing something that I am not passionate about and the entire time hoping I will still have time tomorrow to follow what my passions and interests are, living life again on my terms. I retired from that work for a reason because it no longer interests me. Why gamble with my time?

Once we know when enough is enough and have the smarts to leave the Casino while we are ahead we get the other prize brought by our won financial independence: Removing money from our life’s decisions. We can make decisions made at our spirit, our heart, our soul’s level.

Do you have any thoughts about Early Retirement is like leaving the Casino when ahead?

Voodoo Retirement Planning

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It is far too easy to fall under the spell of seeing exactly what we want to see and enter into Voodoo Retirement Planning. Especially if we are short of generally accepted retirement savings goals and really want to retire or stay retired. Voodoo Retirement Planning is any retirement planning strategy perceived as being unrealistic and ill-advised. OK, I am taking the definition of Voodoo Economics and applying it to retirement planning. I just like the sound of it and who can resist saying or writing the word Voodoo.

As I posted earlier I am in early retirement and I have paid my financial planner. Paid him to create my ongoing retirement plan. I should get the results in a couple of weeks. I could research and lay out something myself and believe me I do all the time. But I decided to pay for professional advice because it is far too easy for me or anyone to enter into Voodoo Retirement Planning.

Voodoo Retirement PlanningPlease let me explain.

With Voodoo Retirement Planning there will be just enough factual truths to make people miss the dangers. There is no magical voodoo retirement plan that can safely allow anyone to retire on insufficient funds for a lifestyle that will cost more than the acceptable withdrawal rate. There is a lot of information available from all kinds of sources. How that information is presented and how we accept it plays into how far we go into uncharted or ill-advised strategies to make things work for us.

That “acceptable withdrawal rate” also adds to the allure of the Voodoo Retirement Planning spell. Experts can’t even agree what that safe withdrawal rate is. Most say it is 4% with yearly inflation adjustments. While others claim it should be 3%. Then there is the argument that by foregoing yearly inflationary increases it can easily be up to 5%. The latest is that it can’t be a “set it and go” withdrawal rate. It must be adjusted each year based on portfolio performance. Any confusion in acceptable retirement planning practices can be used to add legitimacy to a Voodoo Retirement Plan.

The Signs of Voodoo Retirement Planning

First off. If we have enough financial knowledge and we find that our gut feeling is it is too good to be true. Then it probably is. We must activate our skepticism and tread carefully. Go in with open eyes, not blindly in a zombie trance toward an easy meal. That said there can be just enough truths to a Voodoo Retirement Plan to lure anyone in.

Changing Portfolio Return Assumptions to Meet Targeted Needs

Voodoo Retirement Planning starts here and it is backwards to what should be done in a sound retirement plan. Sound plans start with what your portfolio can safely support. Support funding for a long amount of time. Or at least just long enough. If our targeted and needed retirement funding will need a 7% withdrawal rate from our portfolio. Then changing the portfolio investment return assumptions to generate +7% to create our retirement plan is a potion for disaster. It is no more than voodoo magic. Magic giving the false illusion of it being a sound plan. It is a Voodoo Retirement Plan based on wishes instead of sound estimates.

Whether it is a 5% or 10% total portfolio withdrawal rate wanted to get the desired retirement income amount, reality should dictate what the sustainable withdrawal rate and strategy should be. If that reality is not enough. Then we have to adjust our lifestyle cost or contribute more to the portfolio before fully retiring.

Over allocation of high risk investments to hit Voodoo Retirement Plan return assumptions

To get the returns to make taking a high withdrawal rate appear legitimate. Voodoo Retirement Planning will make the case for having too much invested in high risk assets. Asset investment diversity gets overlooked for the case of higher gains. Using long-term trends may make sense when looking at overall market performance for these high risk assets over very long periods of time. However if our retirement falls in a long bad market cycle or cycles. Then those long-term trends mean nothing to us. We or should I say our portfolio is the living dead as far as retirement funding goes. Nobody wants to hear the portfolio cannot support what we need to retire on. So the pitch is the fund can grow itself with a very high risk investment strategy.

Using historical returns to lock-in a strategy and return assumptions

Historical return statistics are great for seeing the past performance. But that doesn’t mean they will repeat in exactly the same fashion during the years we are in retirement. Voodoo Retirement Planning will embrace the stats that support the unrealistic income needs. As an example, look at government bonds. Historically it will come up that they return 5% to 6% a year. But there is no way we can expect that today or even in the near future. Using assumptions like that in our calculations to support a higher withdrawal rate is going to kill a portfolio. The same goes for short history stats for hot new asset classes. Some may sprint within just a few years to a fast start with high growth. However jumping on new asset classes using those figures to make our going forward portfolio return assumptions is a crazy-scary plan.

In Closing

We need to create a sound retirement plan while living with unreliable financial return assumptions. To do that we should run multiple diversified asset classes with reasonable return scenarios through our calculations to understand all the different possible outcomes to our retirement plan.

By doing this we can test our plan to give us a higher feeling of plan confidence. We can gauge what our retirement funding risk really is. It also allows us to create worst case contingency plans to counter bad portfolio return cycles that may/will come up.

I also feel that for some people there is a huge benefit, myself included, in having a second set of eyes. Eyes belonging to someone professionally trained in financial planning. With a trained brain to recommend the best retirement plan. In my case it will add a lot a comfort in knowing that we aren’t under the spell of some bad Voodoo Retirement Planning assumptions.

Voodoo Retirement Planning can be very tempting. It is nothing more than telling us exactly what we want to hear. Not based on sound, fully factual, or sensible assumptions.

Have you ever been tempted by a too good to be true voodoo retirement plan?

Is it Worth Paying for a Financial Planner?

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Is it Worth Paying for a Financial Planner? Is there a solid return of value for the cost to have a financial planner manage our portfolio and/or develop our financial or retirement plan? Certainly the internet makes possible our ability to self-educate on almost any financial topic. Yet many still use a financial planner, including myself. Before you say anyone giving up hard-earned cash to a Certified Financial Planner (CFP) is a fool, let me explain some of the benefits of having paid professional financial advice.

Is it Worth Paying for a Financial Planner? There Are Benefits

I succumb daily to my curiosity and my need to continually learn. Part of that is researching financial related ideas and concepts. It is a big part of what brings me enjoyment in my early retirement. It is my brain exercise. With everything I know, information available through research, and whatever I can figure out on my own, does paying a CFP result in my having a larger return on my investments? Not just a larger investment return but also reduce risk. Can they deliver a more sustainable or better early retirement funding strategy than if I manage my portfolio on my own?

For me the answer now is YES.

In my daily research and learning I tend to gravitate to the things that interest me. However I hate looking at company financials, stock trending, sector performance measurements, etc. so I would do what most people do. I would just invest in broad market low fee index funds. Probably in an ETF variety. That isn’t a bad way to go but I know me and without my CFP there is some risk of my blowing it.

I have a little life-long problem called “Investment Risk Aversion”. Maybe it was my low-income upbringing where money never came easy and was never present. I know it is irrational. It totally defies the financial logic I have accumulated. That is my greatest benefit of paying a financial planner. Having a professional to act as a buffer between me and my portfolio. A professional team-mate to cool my jets when things get hairy in the markets like they have recently.

Removing Ourselves From Making Stupid Moves

There are many stories about people letting their emotions take control of their investment decisions. They end up selling low and buying high. They jump in and out of the market at the worst of times only to destroy their wealth.

Paying for my CFP means paying for someone with the education and certification to know more than I do. Not only that but they are required to continue their education and as a fiduciary planner they must recommend what is in my best interest, not what will generate their biggest commissions.

With my dislike of necessary financial digging required to pick, buy, or sell the right securities at the right time, along with removing my emotions from the equation, means there should be fewer errors in my plan and portfolio strategy. Certainly nothing is guaranteed but I believe having a professional on my team stacks the odds slightly more in my favor.

What should we look to get in return when paying for a Financial Planner?

Anyone investing and especially those who retire and depends on their portfolio to support and fund their retirement will need an income and investment strategy to be sustainable for the long-haul. It comes down to five key elements to make that happen:

  • Asset Allocation. The right mix ratio of Growth and Dividend Stocks, Short and Long-term Bonds, Managed funds vs Index funds, etc.
  • Withdrawal Strategy. A sustainable withdrawal rate, bucket approach, etc. along with what will generate that income for withdrawal.
  • Tax-efficiency. Portfolio and withdrawal strategy looking at the most tax-efficient way to tap portfolio funds from early retirement, the beginning of receiving Social Security, RMD, through late life retirement.
  • Product Allocation. Looking beyond traditional investment products like Stocks and Bonds. Taking into consideration guaranteed-income products when and where appropriate.
  • Goal and Timeline Specific Investing. Developing the strategy to fit our unique goals, risk tolerance, income needs and our timeline.

Making the correct decisions in these five key investment elements is the difference between success and failure. Go too conservative and you won’t generate enough income or have the growth to last your lifetime. Go too aggressive and you risk large losses during market turmoil as we have now or worse during anything close to what happened in 2008-2009. Allocate too little cash and investment income producing assets toward immediate income needs means selling low in down market conditions. Financial Planners are paid to deliver solid advice to cover all the five key investment elements. When paying a financial planner we should expect to have all five key investment elements covered in a way to match our specific and unique financial needs.

Paying a Financial Planner to Create the Plan

For a onetime flat-fee a financial planner can create a financial or retirement plan. Call it your personal financial road map. I did this when I turned age 40 and decided I wanted to retire early at age 50. I turned over a detailed list of all our assets, liabilities, income, savings, investments, number of kids and their ages; educational plans for the kids, life insurance, etc. and paid $600. In return I received a full plan on what it would take to get to my early retirement goals. I then followed the plan. I continued with my full 401K contributions within a new frugal lifestyle budget, a change from my conservative to a moderate investment allocation, and a savings/investment target. The plan also had me start to build up the recommended emergency fund. Then later I added Roth IRAs. It worked, I retired at age 51.

I wasn’t paying my CFP much in fees to manage my Roth and nothing on the money market emergency fund. I had a plan and just made sure I stuck to the asset allocation and savings target. Of course things changed and required my target numbers to increase with inflation all under my financial planner’s guidance.

Paying a Financial Planner isn’t an all or nothing deal.

Meaning you can manage your own portfolio using a mix of funds but pay a CFP to create your plan and cover the five key investment elements for you to follow. I call it Managing Our Own Portfolio but With a Little Help. In fact I just paid $1,100 to have a new comprehensive financial plan put together that includes both my wife’s and my portfolio, our early retirement funding, future plans, social security benefit strategy, and a tax-efficiency strategy. Basically covering the 5 key investment elements. I won’t have the results for a few weeks. I am hoping it wows me. If not I will have something to say about it.

That is where my accumulated financial knowledge becomes handy. I expect them to deliver something far better than I can put together if I am going to pay them for it.

I expect to see them give my best strategic mix of managed vs index funds, asset allocation, income and bucket strategy; social security strategy, Roth conversion and fixed income considerations; tax-efficiency advice including RMD and Social Security considerations, etc. All specifically created to fit my budget and early through late retirement needs.

The Problem with all the internet information to go it alone

Could I or anyone do this on their own? Yes and many do.

It should be easy to figure it all out because we all know that everything on the internet is true. NOT! Not everything someone posts online is going to be good advice for our specific needs. I think it is fair to say that there is a lot of information that is far from factual or accurate. The rule of online research is to question everything. Know the source and understand what is and isn’t going to work for you.

I have read impressive personal financial blogs that discuss their investment strategy and how they escaped the rat race. Real life financial examples of what it took to get to financial independence from frugal living budgets, paying off debt, ratcheted up savings rates, to their investment strategies. Well talked about low-cost index funds, dividend paying stocks and passive income strategies, etc. are commonly mentioned. There are promotional posts about using some of the known new investment companies to help us manage our portfolio. Think Betterment, Motif, etc. (non-affiliate links) of which from what I have researched are geared toward the DIY investor crowd and do a great job.

There is always the disclaimer, “I am not a certified financial planner and this post is for informational purposes only”. Whenever I mention anything “Investy” on Leisure Freak I do the same. Always keep that in mind before pulling the trigger and making changes to your portfolio or plan.

So to ask again, is it Worth Paying for a Financial Planner?

In the end the answer is yes if you don’t have the time, knowledge, confidence, patience or inclination to do the work yourself. We should care the most about our portfolio. Sometimes that means we need to pay a professional to help manage it for us. Especially if our financial situation becomes complicated, we need the emotional risk aversion buffer, or we just doubt we are able to manage our portfolio on our own. Just make sure your Certified Financial Planner is a fiduciary and hammer them down when we can on any wrap fees associated to the portfolio management.

Always keep increasing financial knowledge.

Is it Worth Paying for a Financial Planner?When attending meetings with any paid financial planner go in loaded with knowledge. We need to question and help them get an idea of what our risk tolerance is and our long-term requirements. I am the biggest pain in my financial planner’s keister. I ask a lot of questions and challenge them to make me understand their investment decisions. Generally I am happy and more knowledgeable when I leave a meeting than when I went in. So far I think it is worth paying for a Financial Planner.

That doesn’t mean I am going to always need or want to continue having them manage my portfolio to the extent they are now. Or maybe I will. It all depends on how much I learn going forward and how comfortable I get with handling things on my own. I need to feel confident that I can follow a professional plan and not add unnecessary risk or cause diminished returns. It will also depend on how well their overall management performance results are. One thing is for certain. I do enjoy not having to worry about managing my portfolio so it has been worth the wrap fee I am paying. That doesn’t mean I am not constantly asking about reducing fees. They understand that I can go somewhere else or go the self-managed route so there is a kind-of dance going on between us.

What are your thoughts on the question, is it Worth Paying for a Financial Planner?

New Tax Efficient Retirement Withdrawal Strategy

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A New Tax Efficient Retirement Withdrawal Strategy changes everything we have been told. Primarily about which funds to tap first for our retirement funding. Everyone has heard that we should always start our retirement funding by withdrawing from our taxable investments first. Then once those funds are depleted tap our Tax advantaged IRA and 401K retirement accounts. Finally our tax exempt Roth IRA funds would be tapped. Only if needed once our IRAs are gone.

It turns out that advice as being the best fund withdrawal strategy may have been a little too simplistic. It didn’t really consider the overall tax-owed-consequences vs. the delayed tax investment growth potential. The New Tax Efficient Retirement Withdrawal Strategy will squeeze another 4 to 6 years of retirement funding over what we have all been taught before.

The New Tax Efficient Retirement Withdrawal Strategy Reverses Everything

Research was done by William Reichenstein,  Ph.D., CFA*: Professor and Powers Chair in Investment Management, Hankamer School of Business, Baylor University, Waco, TX, USA. His results show that the conventional retirement fund withdrawal belief should be reversed.  This is due to long-term tax implications and their impact on retirement portfolio funding longevity.

What is the New Tax Efficient Retirement Withdrawal Strategy?

Simply stated. The new strategy is that we start by funding our retirement by first taking money from our tax-deferred 401K/IRA accounts. We limit those withdrawals to stay below the upper threshold of the 15% tax bracket. We then tap our non-retirement account savings/investments only when we need more than what the 15% tax bracket allows. Then lastly we should tap our tax exempt Roth investments.

The basic philosophy of this New Tax Efficient Retirement Withdrawal Strategy is this. A strategy where we never pay more than 15% in taxes.  (With the tax law changes that started in 2018, this would now be to stay at or below the 12% tax rate). That is where the increase in portfolio funding years is achieved.

Supporting examples were presented in William Reichtensteing’s research. If a retiree used the commonly known retirement fund withdrawal strategy. Meaning starting with their taxable investment funds before tapping their IRA/401K funds. They would run out of money in 30 years. However with his new approach the same portfolio would last 34.37 years. An advanced strategy that includes two Roth IRA conversions was shown to extend portfolio funding to 36.17 years.

The New Tax Efficient Retirement Withdrawal Strategy and Early Retirement

Clearly retiring early before age 59 ½ will present challenges due to early withdrawal penalties. To totally follow Reichtensteing’s New Tax Efficient Retirement Withdrawal Strategy takes using an IRS rule. To fund early retirement with an IRA and avoid the 10% early withdrawal penalty  a retiree is limited to what is allowed through the IRS SEPP 72t rules . The other penalty-free option is being age 55 or older to tap a 401K.

Early Retirement – What I Did

When I retired early at the age of 51 most of my investments were in tax advantaged retirement accounts. I did fund my early retirement lifestyle by using the IRS SEPP (Substantially Equal Periodic Payments) 72t guidelines. This means I receive a penalty free monthly amount from my IRA. In a way I was already using the New Tax Efficient Retirement Withdrawal Strategy. It was out of my own personal necessity. Not a premeditated tax efficiency move.

I have also since retired early from an encore-career. One where I grew my non-retirement taxable savings and investments. I use those after tax funds to supplement my 72t withdrawals. My 72t payments are limited to the initial IRS acceptable amount when I started it. They must continue for the 5 years or age 59 1/2, whichever is longer. There are no inflation adjustments for 72t payments.

In Closing

I’m always interested in new ideas and concepts when it comes to retirement. I always find it fascinating to discover things that buck the conventional thinking. I am a Leisure Freak after all. There is little that is traditional about my retirement thinking.  Check out Reichtensteing research  and his examples to see if you agree.

Please note. I am not a financial planner and only share this for informational purposes. Before you make any drastic changes to your retirement funding plans do your research. If you need help then seek the advice of a CFP.

Your thoughts and comments are welcomed. What do you think about Reichtensteing’s research findings?

Are you considering the New Tax Efficient Retirement Withdrawal Strategy?

Are you at least willing to look into it?