NewRetirement Covering retirement, Social Security, how much you need to retire, best places to retire, Medicare, and all aspects of retirement planning. Mon, 26 Oct 2020 18:15:51 +0000 en-US hourly 1 NewRetirement 32 32 The Best Places to Retire: 24 Lists and Quizzes Plus Tips for Making the Best Relocation Decision for You Mon, 26 Oct 2020 16:29:57 +0000 We all love reading lists of the best places to retire.  They interest us and they make us think about what is possible in retirement. However, deciding if one of the best places to retire is in your own home or somewhere far away is a really BIG decision. Why Relocate for Retirement? Days in…

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We all love reading lists of the best places to retire.  They interest us and they make us think about what is possible in retirement. However, deciding if one of the best places to retire is in your own home or somewhere far away is a really BIG decision.
best places to retire

Why Relocate for Retirement?

Days in a hammock on the beach?  Fishing mountain streams? Long afternoons with the grandkids?  Where you live in retirement will determine what you will do and with whom, which are big factors for your well being.

Where you live is also a HUGE financial consideration.  Might relocating enable you to spend less? Release home equity? Reduce taxes?

There are lots of reasons to think carefully about where you’ll live in retirement.

Below are some resources to help you decide:

  • 18 of the best Best Places to Retire lists
  • 6 Quizzes to help you choose the best places to retire for YOU
  • A list of considerations for deciding whether to relocate or stay put
  • The top reasons why most retirees end up staying in their own homes

Here Are 18 of the Best “Best Places to Retire” Lists

Best Places to Retire in the United States:

Kiplinger: Kiplinger looked at cost of living, poverty rates, well being scores, population data and retirement taxes to identify 50 communities throughout the United States.

Forbes: Forbes Magazine identifies 25 places which they “believe offer excellent retirement value—that is, a high quality of retirement living at an affordable price.”

U.S. News and World Report: to identify the best places to retire, U.S. News looked at the 100 largest metropolitan areas.  The top criteria used were: “the happiness of local residents, housing affordability, tax rates and healthcare quality. ”

Retirement Living: Retirement Living has identified five off the beaten track communities that stand out as great for retirement.

Bankrate: Bankrate ranks all 50 states for retirement.  Number one? South Dakota.  The worst? New York.

WalletHub: WalletHub has different results about the best states for retirement.  Their number one? Florida.  The worst state to retire? Kentucky.

Quirky Retirement Locales:

If you have a hobby, there is probably a place that is ideal for your interests!

Best Places to Retire Abroad

If retirement abroad interests you, here is a 5 step plan for making it happen.  And, here are some ideas for great locations:

  • U.S. News: U.S. News had identified 10 global locations that they consider ideal for retirement.
  • International Living: Quoted in Time, Money Magazine and most of the big publications, International Living is considered the expert on retirement abroad.  International Living grades countries on 8 different criteria.
  • Bankrate: Bankrate has identified 10 cheap places to retire abroad.
  • Live and Invest Overseas: Lists and tips for retirement around the world.
  • NewRetirement: Explore some unexpected places to retire abroad.
  • Blue Zones: Explore the “Blue Zones” — places where people live the longest.

Best Places for Retirement Taxes

The Center on Budget and Policy Priorities has extensive research that finds that state taxes have a negligible impact on interstate moves.  As many people move to low tax states as move to high tax states and a “miniscule share of people report that they moved because of taxes.”

The data suggests that people do not move to improve their tax situation.

Taxes, in reality, are very complicated. For example, some places are better for income taxes, but you pay more in sales taxes.  Therefore you want to be vigilant when moving for tax purposes.

Best Places to Retire if Healthcare is Your Primary Concern

Commonwealth Fund: This site has easy to use charting that lets you click on a state or county and see the ranking for how well healthcare is performing in that area.

Use 6 Best Places to Retire Quizzes and Calculators

Instead of reading lists using other people’s criteria for the best places to retire, why not figure out a location that is really the best for YOU.

Here are a few best quizzes and calculators to help you determine the best places to retire:

Best Places for You to Retire in the United States

Zillow: The tool determines the cities and towns that best match your criteria: including weather, low crime rates, proximity to entertainment, and access to health care.

Best Place to Retire: This site offers a calculator that asks 12 questions to help you find the best place for you to retire.  Activities and amenities are well covered in this search. The results are nice in that they give you a lengthy list of options to compare.

Sperling’s Best Places: The questions in this calculator include taxes and cost of living and the quiz is quick and easy, but you are only given one result.

Best Places for You to Retire in the World

TheEarthAwaits:  If you have ever dreamed of living abroad, this is an extraordinary site.  There is so much information about so many different destinations.

ExpatInfoDesk: The Expat Info Desk is owned and run by a team of expatriates. Each one of them has successfully relocated to cities throughout the world including Russia, Ukraine, Poland, South Africa, China, USA and India.  The site offers articles, guides and a forum.  The concept here is good, but it is unclear how active the user base is.  You might be better off visiting a travel web site like TripAdvisor that has so many users.

Best Calculator for Assessing Financial Impact of Relocation

The NewRetirement Planner is a sophisticated and powerful retirement planning calculator. It enables you to run countless scenarios on more than 200 different criteria. You can compare housing, medical, cost of living and tax considerations for one location vs. another.

So, Should You Stay or Should You Go? What is Really Best for You?

Where you live is a really important and serious consideration for your retirement.

  • Housing is usually your most costly expense and most valuable asset.
  • Housing and your community has a huge impact on your overall quality of life.

Here is a four step process to figuring out what is best for you:

1. Assess Your Goals for Retirement Before Searching for the Best Places to Retire

Lists of the best places to retire are fun to read.  And, they do highlight very important considerations like healthcare, cost of living and more.  However, those lists aren’t designed exclusively for you.

If you are considering relocating for retirement, you should probably start by asking yourself questions like:

  • Why am I looking to relocate?  What is wrong with your current location?
  • What do I want out of a home?
  • Who do I want to spend time with?  If the answer is near your grandchildren, then you might prioritize locales near where they live.  Is it important to you to live near like minded people or in a more diverse environment?
  • What do I want to be doing?  Some passions like surfing or skiing are location dependent.
  • What legacy do you want to leave?    Will your  location enable you to fulfill what you want to leave behind?
  • Where do you want to live vs where do you want to travel?  Sometimes people confuse a great travel destination with a great place to live.  Assess the differences for your own values and how you expect to spend your time.
  • Are you downsizing or upsizing?  (Downsizing is popular in retirement as a way to cut expenses.  However, nearly one third of retirees actually upsize.)
  • How important is healthcare quality and the costs of those services?

2. Examine Your Finances to Determine the Best Places to Retire for You

Perhaps the MOST important criteria for determining the best place to retire, is assessing what you can really afford.

Most people are not as prepared for retirement as they would like to be and housing is usually the biggest cost for any household.  If you currently own your home, it may also be your most valuable asset.  So, the decision of where to live is hugely significant for your finances and could make or break your budget.

You might want to consider using a Retirement Calculator to determine what you can afford and try different scenarios.

The NewRetirement retirement planning calculator makes it easy to try different retirement housing scenarios.

  • Start by entering some initial information and then see where you stand.
  • Then, try different what if scenarios.  What happens to your retirement finances if you relocate to a more affordable home. Upsize to your dream home? Would you consider a reverse mortgage?
  • The NewRetirement tool also let’s you also look at the zip code comparison information to compare financial averages.

3. Get Creative — Think Outside the Box

Maybe your ideal retirement destination is too expensive, have you considered thinking slightly outside the box regarding your housing?

Trailer Parks: Time Magazine recently featured a story about how trailer parks are “The Home of the Future” — particularly for retirees.  Charles M. Becker, an economist at Duke University, says: “Trailer parks can be thought of as gated communities for people who aren’t so wealthy.”  These communities often have tons of amenities — golf courses, swimming pools, tennis courts and more — that may be very appealing to retirees.

Tiny Homes: The tiny house phenomenon might be another way to make an expensive locale more affordable.

Housesharing: Getting a room mate is another way to increase affordability of certain locations.

4. Visit First

You don’t need to — nor should you — decide where to retire today.  Figuring out the best place for your retirement can be a fun years-long project.

Do some research, take some vacations to your targeted destinations and then try it out for a longer period of time.

You could rent out your existing home using a service like AirBnB and give your target destination a six month trial.

Despite All These Great Places to Retire, Most of Us Want to Stay Put

Despite the popularity and proliferation of the best places to retire lists, most of us stay put in our homes for retirement.  According to the U.S. Census Survey data, very few seniors moved between 2014-15:

  • 6% of 55 to 59 year olds relocated
  • 4.5% of 65-69 year olds relocated

Why don’t more of us try something new?

Here are seven of the real reasons why we either move or choose to stay in our homes for retirement.

1. Friends, Family and Community

What is more important in life than relationships?  Most of us have established close friendships in our existing communities and we do not want to lose those connections.

Sometimes though our families have moved away.  And, this may be a strong motivator for those of us who actually do move in retirement.  A AARP study found that 80 percent of adults 45 and older believe it is important to live near their children and grandchildren.

A Merril Lynch study found that nearly 30% of relocating seniors say that their reason for moving is to be closer to family.

2. We Like What We Know

It is not your imagination, science has found that we become less open to change as we age.  And, moving is one of the biggest changes we can experience.

In your current home, you probably have everything dialed in the way you like it.  Do you really want to figure it out all over again?

4. Home is Where the Heart Is

Our homes hold so many memories and so many hopes for the future.  Some of us originally bought our homes with dreams of special occasions with family.  We have experienced so much in our homes and we may want to continue those traditions.

We dream of grandchildren around the fireplace or in the backyard.

5. Moving is Stressful and Can Be Expensive

Downsizing is possible and can be a really good move for your retirement finances.  However, relocating is not always a money saver.  Finding a home that costs less than where you live can be difficult, and moving costs, sales commissions and upgrades can be costly.

However, if moving to one of the best places to retire entices you, it might be worth it.

6. Stuff!

Too often our homes are less about where we live and are more about being a storage facility.

We often have a lifetime of stuff in our homes and many people don’t want to move because they simply don’t want to deal with all of their furniture, heirlooms, books, knick-knacks, photos, clothes, papers, etc…

However, the best selling book, “The Life Changing Magic of Tidying Up,” suggests that decluttering brings joy.  Joy is a good goal for retirement and purging stuff from your life might make a move possible.

7. Familiarity with Existing Healthcare

Most of us have been with our existing doctors for quite some time.  It can be scary to think about starting from scratch.  However, healthcare quality and costs vary greatly across the country and world.

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Overcome These 12 Big Financial Planning Mistakes (You Have NOT Seen a List Like This) Thu, 22 Oct 2020 21:35:15 +0000 Very few people are experts at managing their finances, planning retirement, building wealth, and ensuring a secure future. Effective money management is often perceived as being: 1) too hard, 2) not immediately important, 3) something you can tackle next year or 4) too expensive (if you think you need to hire an advisor).  In fact,…

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Very few people are experts at managing their finances, planning retirement, building wealth, and ensuring a secure future. Effective money management is often perceived as being: 1) too hard, 2) not immediately important, 3) something you can tackle next year or 4) too expensive (if you think you need to hire an advisor). 

In fact, studies show that less than 30% of Americans have a long-term financial plan.

However, effective financial and retirement planning is important and it can be easy – especially if you know the mistakes to avoid.

Here are the 12 of the worst financial and retirement planning mistakes and easy steps you can take to overcome them today. Like right now even!

Mistake #1: You Think Retirement Planning is All About Your 401(k)

When you ask someone if they have a retirement plan, the most common answer is  – “Yes! I am saving into a 401(k).”

No doubt, this is fantastic. You absolutely need to save. Saving money is a foundational element of a retirement plan, but it is far from everything you need to consider and it is not necessarily the key to your long-term wealth and security.

A retirement plan is a written document showing all aspects of your current and future income, expenses, debts, and assets.

A retirement plan is a detailed roadmap to your financial security now and forever.

How do you get this detailed roadmap?  Forbes Magazine called the NewRetirement Planner a “new approach to retirement planning.” It is an easy-to-use, comprehensive, do-it-yourself planning system.

These tools make it easy and convenient to create and maintain a detailed and flexible retirement plan. Get started now…

Mistake #2: Thinking a Quick and Simple Retirement Calculation is Sufficient Planning

Retirement calculators are everywhere on the internet. And they seem reliable. They come from all kinds of reputable (and not-so-reputable) companies.

Beware of These Simple Tools! You can NOT be assured of a secure future using one of these simple retirement calculators.  These simple tools use hundreds of assumptions and averages that do not reflect your situation! There is no way you are “average” on all aspects of a complete financial picture.

Mistake #3: You Aren’t Aware of All the Levers You Have For a Secure Future

Retirement savings are a critical component of a retirement plan. However, your savings are not the only important element of your future security. In fact, you might be surprised to know that savings may not even be your most valuable lifetime asset.

Other decisions you make and the assets you have are often far more valuable than the sum of your savings.

For example, did you know that:

Delaying the start of Social Security can literally gain you hundreds of thousands over your lifetime?

If you own your home, you can tap your home equity for retirement, gaining you more thousands – if not millions to use for retirement?

Planning to reduce expenses in retirement can dramatically improve your retirement cash flow? (Downsizing or retirement abroad could also enhance your lifestyle.)

Accelerating debt payoffs can sometimes be a better use of money than saving into your 401(k)?

Careful tax and retirement income planning can also gain you hundreds of thousands over the course of your life?

Passive income is an increasingly popular strategy for boosting wealth? What’s more, you may want to consider how interesting retirement work can keep you mentally and physically healthier (and wealthier).

There are Literally Hundreds of Other Levers: There are hundreds and hundreds of inputs that go into creating a detailed and complete retirement plan – and many of these levers will have a higher lifetime value than the sum total of your savings and investments.

The NewRetirement Planner has more levers than any other online resource – the tools go well beyond savings and investments.

Mistake #4: You Worry that Savings Are the Only Route to Retirement Security

You don’t need to despair if you fear you aren’t saving quite enough for retirement.

Everyone can find a path to a secure future. It may take a bit of compromise and trade-offs, but it is possible.

The NewRetirement Planner is detailed enough with over 250 possible inputs to enable anyone to find their own unique path to financial security – and a happy retirement.

Mistake #5: You Don’t Think of ALL Financial Decisions as Retirement Decisions

We make big and small financial decisions all year every year. Do you:

  • Get the pumpkin spice latte or make coffee at home? 
  • Get take out or boil pasta for dinner?
  • Splurge on the Hawaiian vacation or go camping? 
  • Buy a used car or a new luxury import?
  • Buy the house with the extra bedroom and three-car garage or something more modest?

Your answers to all of these questions and every single financial decision you make will have an impact on your current AND future finances.

Most people think of these decisions as a monthly budget or a short term financial planning issue. However, every bit of money you spend, save, or earn culminates in your retirement security.

Mistake #6: You Think of Finances as Simply Inflow and Outflow

It may be useful for you to think about your finances not as a monthly inflow and outflow, but rather as a big pool that you fill up or drain over your entire life. Think in terms of the lifetime value of your financial decisions rather than simply how it impacts you today.

You see, in life, you have a finite amount of time to create a finite amount of money. That money is used to fund your entire life.  Spending more now, means that you have less to spend later.  Saving more now means spending less in the near term, but more in the future. 

Creating and maintaining a detailed retirement plan is a great way to visualize and manage your total pool of resources over your entire lifetime.

Dive in! Get your pool started now with the NewRetirement Planner.

Mistake #7: Prioritizing Money Over Your Time

Can You Retire Earlier?

Most people are worried about their ability to pay bills and save for retirement.  However, how you spend your time – the kind of work and leisure you do and how early or late you choose to retire – are what is truly important.

Time is the key factor if you believe that happiness and fulfillment are the measures of success.  Study after study have shown that how you spend your time is what results in your happiness – not how much money you have.

It is not uncommon for someone to toil away at a job they don’t like in order to save enough money to gain financial freedom.  But it doesn’t have to be this way. Options include:

  • Working more for a shorter period of time to get to an earlier retirement
  • Achieving passive income sources
  • Working less, for potentially less money but more freedom 
  • Finding work that feels like play
  • Spending less now (or in the future) to retire earlier
  • Tapping into resources and opportunities beyond savings that can help you achieve an earlier retirement

Use the NewRetirement Planner to explore different scenarios for work, passive income, reduced expenses, and more to discover how to best use your most valuable asset – your time.

Mistake #8: You Don’t Treat Your Retirement Plan as a Living Document

Okay, let’s say you are doing better than most and you already have a written retirement plan. That’s fantastic. However, the real trick for more wealth and security is to keep it updated.

Your retirement plan should be a living document, and retirement planning needs to be an ongoing process.

Too often people meet with a financial advisor or do an online retirement calculator and think that their job is done.

Unfortunately, things change. There are external factors that impact your finances (stock markets, real estate prices, inflation, etc.) as well as internal factors (like your health and family, goals).

Any detail can have a big impact on your personal retirement plan.

The NewRetirement Planner makes it easy to keep up with all changes in your life and immediately see how any new developments impact your short- and long-term financial health.

Mistake #9: Overlooking Some of the Biggest Retirement Costs

Getting your retirement plan right means visualizing your future and creating plans for all potential expenses.

For most people, the biggest overlooked cost is healthcare spending.  Out of pocket medical costs can often total nearly $300,000 – more than the lifetime value of your Social Security income.

The NewRetirement Planner helps you account for all of the expenses you might overlook. The system even helps you create a detailed and personalized estimate of your out-of-pocket medical costs and helps you plan for the possibility of needing long-term care.

Mistake #10: You Don’t Have a Plan for Turning Savings to Income

You have spent your whole life working and saving money — paying down your mortgage and putting some away for retirement.

Retirement IS the time to spend it. This is a HUGE perspective shift and something that people find problematic. Figuring out an efficient way to spend your money while making sure that you don’t run out can indeed be tricky.

There are tax considerations, required minimum distribution rules, figuring out how to make your money last as long as you do (no matter how long that turns out to be), growing your money while minimizing risks, and many other considerations.

The NewRetirement Planner can help you plan and create a holistic retirement income strategy.

Mistake #11: You Aren’t Prioritizing YOUR Future

According to the Caregiving Action Network, more than 65 million people, 29% of the U.S. population, provide care for a chronically ill, disabled, or aged family member or friend during any given year, and they spend an average of 20 hours per week providing care for their loved one.

According to a survey by T. Rowe Price, about 52% of parents surveyed felt that it was more important to help their child pay for college than to save for their personal retirement. Similarly, 53% of participants said that they would rather take money from their retirement fund if it meant that their children would not have to take out student loans.

Paying to help your aging parents or your children may not be the “wrong” decision, but in many cases it can really hurt your chances of having a secure future.

Think inter-generationally. Use the NewRetirement Planner to document family costs and see what happens to your short and long-term finances with or without these particular expenses. Strategizing how to pool resources across generations means more long term wealth for everyone.

Mistake #12: You Haven’t Thought Through What is Really Important to You

Do you want to hear something kind of depressing? Adults aged 65 and older spend threefold more waking time watching TV than young adults. And, what is worse, they enjoy it less. In the American Time Use Survey, TV watching accounted for 25%–30% of waking time and half of leisure activity among adults aged >65 years.

Sure, we may be in the golden age of television, but that doesn’t mean that it is the best way to spend your golden years.

It is critically important that you retire to something interesting and engaging and not just retire away from your job. Knowing what you want to do in retirement is critical to maintaining your mental, cognitive and physical health.

Be sure to incorporate what is important to you into your current financial plan and your future retirement plans.

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16 Retirement Numbers You Need to Know for a Secure Future Mon, 19 Oct 2020 14:36:00 +0000 How to make sense of retirement planning? Here is your guide to the 16 retirement numbers that are most important for a secure future.

The post 16 Retirement Numbers You Need to Know for a Secure Future appeared first on NewRetirement.

Figuring out if you can retire securely can sometimes feel like the most complicated word problem ever.  Just figuring out which retirement number to worry about can be perplexing.  And then there is the further complication of knowing how they all fit together.

retirement number

Here is your guide to the 11 retirement numbers that are most important.

Retirement Number 1: Your Social Security Start Age

You probably know that the later you start Social Security, the higher your monthly benefit will be.  Even so, a lot of people start getting checks as early as possible because they think they will get more money from the additional years of collecting benefits than they will from a bigger benefit later on.

Use the NewRetirement Retirement Planner to assess different Social Security start ages on your overall finances. Try out different start ages and look to see how your out of money age, lifetime debt, cash flow, estate value and lifetime taxes are impacted.

Did you know? Did you know that the lumpsum value (the amount you could get if you were to receive all of your Social Security in one lump sum today) of your Social Security is likely to be greater than the total of all of your savings?

In 2014 the average lump sum Social Security benefit was around $300,000. The maximum benefit was around $575,000 for males and around $680,000 for females. Compare these numbers to the average amount of savings held by a 66 year old — $67,000 — and you’ll appreciate just how valuable Social Security can be.

Retirement Number 2: How Long You Will Live

Another important retirement number is knowing how long you will live.  Estimating your longevity will impact your decisions about how much savings you need — the longer you live, the more life you need to pay for.

Of course, no one can really predict how long they will live. However, there are some good longevity calculators that can help you make a relatively good prediction — you may just want to add 5 or 10 years to any estimate just in case!

Retirement Number 3: How Much Monthly Guaranteed Lifetime Income You Have

Guaranteed lifetime income — money that you will receive every month (no matter what) for the rest of your life (no matter how long you live)  — is the real secret of financial security.

In fact, retirees who report having guaranteed income that exceeds their spending report less stress and an overall happier retirement.

Common sources of guaranteed lifetime income include: Social Security, some pensions, and lifetime annuities — add them all up to get this important retirement number.

Many retirees who have adequate savings buy a lifetime annuity to insure their retirement income.  You can estimate how much income your savings could buy or how much desired income would cost with an annuity calculator. You can also model an annuity purchase in the NewRetirement Planner as part of your overall plan.

Retirement Number 4: Inflation Outlook

Inflation is an economic concept that describes the increase in prices.  If inflation is rising at 3% annually, then something that costs $100 today will cost $103 a year from now, $106.09 in two years and it keeps accumulating.

Inflation can be less noticeable when you are working because your salary generally keeps pace with the increases in costs.  However, inflation in retirement – when you are living off a fixed set of assets – is a whole other matter. You have a fixed amount of money that can buy less every year.

Here are some funny quotes that describe the dangers of inflation:

  • “Inflation is when you pay fifteen dollars for a ten-dollar haircut you used to get for five dollars when you had hair.” -Sam Ewing
  • “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” -Ronald Reagan
  • “Inflation is the crabgrass in your savings.” -Robert Orben

Predicting inflation is an important component of preparing for retirement.  According to this chart, inflation in the United States was 2.28% in 2019.  That’s much lower than the highest rate of 13.29% in 1979. The average rate of inflation in the U.S. in the 21st century is 2.4%, though since the Great Recession of 2008 the average is only 1.7%.

The NewRetirement retirement planning calculator enables you to make your own predictions about inflation and easily change them to see the impact on your finances now and well into your future.  You can even put one number for general inflation, another for housing inflation and yet another for medical costs which have been rising much faster than other services.  This can greatly increase the accuracy of your retirement plans.

Retirement Number 5: Rate of Return on Investments

If you have retirement savings, knowing how much that money will earn for you is important.

Ideally, you are earning a rate of return that is better than average.  What is average you ask?  The answer is, “it depends.”

According to Ycharts, average returns over the last few years look like this:

  • For the last 5 years, the average return for the S&P 500 has been 75.15% while the average return for mutual fund investors has been 8.9%.
  • Over the last 10 years, the average return for the S&P 500 has been 16.85% and 7.12% for the mutual fund investor.
  • Over the last 15 years, the average return for the S&P 500 has been 11.26% and a mere 6.02% for the mutual fund investor.

As you can see, the rate of return varies greatly depending on the time period you are looking at as well as the type of investment.  And, this is just a simple comparison of two investment options.  However, depending on how much retirement savings you have, predicting a rate of return can be critical to your financial security.

The NewRetirement retirement planning calculator lets you enter a rate of return for each individual account — you can even put in an optimistic and a pessimistic prediction — and it is easy to change and immediately see the impact any change would have on your financial well being.

Retirement Number 6: Out of Pocket Healthcare Costs

This number is easy — if you want to go with averages and the opinions of various experts in the field.

According to Fidelity’s Retiree Health Care Cost Estimate,

a 65-year old couple retiring in 2019 can expect to spend $285,0001 in health care and medical expenses throughout retirement compared with $280,000 in 2018.

And, this does not include any money that may need to be spent on a long term care need.

However, if you want a more personalized estimate, use the NewRetirement retirement planner. You can calculate current medical costs, see what early retirement medical might cost you and get a detailed estimate of your out of pocket Medicare expenses. The system will also help you figure out how to cover long term care.

Retirement Number 7: Estimated Monthly Retirement Spending

Knowing how much you will spend is another critically important retirement number.  The more you will spend, the more savings and income you will need.

There are various ways to predict your spending.  Different experts have different suggestions for figuring out your spending, some say that you will spend:

  • 85% of what you spent while working.
  • The same as you spent while working.
  • More when you first retire, then less as you grow older.
  • Much less in retirement, because you dramatically cut costs to make ends meet.

The NewRetirement Planner enables you to plan for any of these spending possibilities. You can even create a detailed projected budget in over 75 different categories, varying your spending (as well as tax treatment) by year. You can even set necessary and optional spending levels.

Retirement Number 8: How Much is Your Home Worth

Many 50, 60 and 70 year olds today have put more effort into buying a home and paying their mortgage than they did on saving for retirement.  As such, your home is an important source of retirement wealth.

More and more retirees are downsizing or getting a reverse mortgage as a way to use their hard earned home equity to fund retirement.  You can use the NewRetirement planner to see the impact of tapping into your home’s value.

Retirement Number 9: How Much You Have Saved

This should be easy.  How much do you have saved for retirement?

The trickier part is knowing how much those savings will be valued in the future. When will you make withdrawals and for how much?  What kind of rate of return will you get?  Will you add anything to your savings?

Retirement Number 10: Your Retirement Age

Retirement age used to be 65 for most everyone.  These days we aren’t even sure exactly what “retirement” means anymore.  Many more people are quitting their job only to get another career or part-time gig.  Other people are phasing out of work by reducing their workload before they fully retire.  And retirees are more active now than ever before.

You might be able to define your retirement age as when you stop earning income from work, but then we get into the definition of work. Many people these days have side hustles and passive income sources.

So maybe the new idea of a retirement age is the age at which you need to start really relying on withdrawals from savings to make ends meet.

Retirement Number 11: How Much Savings You Need for Retirement

This is THE retirement number — the question that everyone wants answered.

Of course, the answer to this question depends entirely on your answers to all the other questions. And the best way to get a reliable answer from this jumble is to use a good retirement calculator — one that is detailed and that can be completely personalized.

Retirement Number 12: Your Net Worth

Net worth is all of your assets (savings, home equity and more) minus all of your debts.

Net worth is considered the most accurate measure of wealth. It is a precise number that is an accurate gauge of your financial health and it can be easily tracked.

Want to know your net worth? Use the NewRetirement Planner to track your number and discover ways to improve upon where you are right now.

Retirement Number 13: Projected Estate Value

It is useful to know your net worth now, it can also be useful to know your net worth at your projected life expectancy. This is the projected value of your estate.

Knowing your projected estate value is useful for planning to minimize taxes and for making plans for your heirs.

See your projected estate in the NewRetirement Planner.

Retirement Number 14: Your Financial Independence Number

Financial independence (FI) is achieved when you have enough savings or passive income to cover your expenses for as long as you will live.

Most FI proponents suggest that you can achieve FI when you have amassed enough savings to cover 25 times one year’s worth of living expenses. So, if you spend $100 thousand every year, then you need $2.5 million to achieve FI. (Don’t worry if you intend to live much longer than another 25 years, the calculation assumes that returns on your savings will enable you to withdraw adequate funds forever.)

This FI standard may or may not apply to you depending on who you are now and what your future holds. For example, if you have a pension or you intend to downsize your home in the future, you may need less in savings to achieve Financial Independence now.

The best way to figure out when you can declare financial independence is by creating and maintaining a detailed financial plan. Recommended by ChooseFI, JD Roth, CanIRetireYet, EarlyRetirementNow and the Retirement Manifesto, the NewRetirement Retirement Planner is the best tool for tracking FI.

Retirement Number 15: Financial Independence or FI Ratio

Your Financial Independence or FI ratio will tell you how close you are to achieving FI.

You calculate your FI ratio by dividing your net worth by your FI number. The resulting percentage will mark your progress toward FI.

So, if you need $1 million to achieve FI and your net worth is currently $500 thousand, then you are 50% of the way to FI.

NOTE: Your FI Ratio is a good way to measure your retirement readiness.

Retirement Number 16: Value of Your Emergency Funds

If 2020 has taught us anything, it is that we definitely need emergency funds.

A cash account may be the best source for a finite amount of money, but there are other ways to cover unexpected costs. Consider this guide to the best and worst sources of emergency funding.

The post 16 Retirement Numbers You Need to Know for a Secure Future appeared first on NewRetirement.

Social Security Announces 1.3% Cost of Living Adjustment (COLA) for 2021 Sun, 18 Oct 2020 13:46:07 +0000 In October, the Social Security Administration announced a modest 1.3% Cost of Benefit Living Adjustment (COLA) for 2021.  How will this small increase affect retirees? The Social Security 2018 increase is big, but definitely NOT that big. The average Social Security recipients will receive a mere $20 monthly bump in 2021, which will buy you…

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In October, the Social Security Administration announced a modest 1.3% Cost of Benefit Living Adjustment (COLA) for 2021.  How will this small increase affect retirees?

Social Security 2018

The Social Security 2018 increase is big, but definitely NOT that big.

The average Social Security recipients will receive a mere $20 monthly bump in 2021, which will buy you an extra 1.2 gallons of milk per month or less than one extra tank of gas.

Is the Social Security 2021 COLA Increase Enough?

You are probably saying: “What? Ugh! Haven’t prices gone up more than that?  Much more?”

Gary Koenig, vice president of financial security at AARP told the Washington Post in 2018, “If you polled seniors, 10 out of 10 would say the COLA is not keeping up with their costs.”

And, not keeping up with monthly costs has short term as well as long term consequences.  Mary Johnson of the Senior Citizens League worries that these small increases are problematic: “It’s squeezing [seniors]. It’s causing them to dip into savings more quickly. The lifetime income that they were counting on just isn’t there.”

Year after year of small increases has a cumulative effect.  In fact, each inadequate increase impacts a retiree’s income for the rest of their lives.

You may wonder how it came to this. Why is it that seniors see less and less purchasing power? What is the Social Security Cost of Living Adjustment (COLA), and how is it calculated?

How Social Security’s Cost of Living Adjustment (COLA) Is Calculated

The first Social Security COLA increase was in 1950. It took an act of Congress, and the benefit increased by 77%. Two more acts of Congress in the 1950s brought the total increase to 125% over its original level by the end of the decade. From 1950 to 1975 the COLA was increased by single acts of Congress nine times.

In 1973 legislation was passed that dictated that Social Security benefits would keep place with inflation, and the first yearly, automatic COLA increase came in 1975.  The Social Security Act specifies that COLAs are determined based on increases (decreases are not used) in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The Social Security Administration uses the average CPI-W data from July, August and September of the previous year and compares it to the same time period of the current year. The percent change in the two numbers is the COLA increase.

Does the Way Social Security’s Cost of Living Adjustment (COLA) Penalize Retirees?

As it says in the name, the CPI-W measures the increases in costs of the types of things that urban workers typically buy and in what proportion.  The problem with using this measure for Social Security is that retired seniors spend money quite differently than most workers.  Most notably, seniors spend quite a bit more on healthcare than the general population.

To make matters worse, healthcare costs have been rising much faster than most other goods and services.  Different measures show that healthcare costs have risen 3% to 12% each year in the last decade.  And seniors spend a greater proportion of their income on healthcare than an average worker.

According to the Senior Citizens League, “The suppressed growth in Social Security benefits not only creates ongoing benefit adequacy issues for retirees, but also Medicare budget problems when the COLA is not sufficient to cover rising Part B premiums for large numbers of beneficiaries.” Though there are some statutory protections for Part B premium increases, about 30% of beneficiaries are not protected and could see “substantial spikes” in their Part B premiums.

Alternatives to the CPI-W method of calculating the Social Security COLA have been proposed, including something called the R-CPI-E for “Retirement Price Index for Elderly Americans.” This method of calculating inflation specifically for people over the age of 62 was mandated by the Older Americans Act of 1987, but it has never been used to update the Social Security COLA.

How to Make Sure You Have Sufficient Retirement Income

Social Security is only designed to replace part of your retirement income.  It is almost (but not quite) impossible to live on Social Security alone.

Here are 4 things you should do to make sure you have sufficient retirement income, regardless of Social Security 2018 increases:

1. Calculate All Sources of Retirement Income

You will want to think about how you will be withdrawing and/or earning from savings and whether or not you have a pension or a retirement job.

2. Estimate Your Retirement Expenses:

How will your spending change over the course of retirement?

3. Assess Inflation

Ronald Reagan said, “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.”  And, it is true.  Inflation will make whatever money you have be worth less.  That is one of the reasons why predicting and calculating inflation correctly is so important for your future financial security.

4. Protect Yourself from Other Risks

Inflation is not the only unknown that could devastate your retirement finances.  You also need to plan for a long life, a healthcare emergency, natural disasters and more.

Build Projections of Social Security Income Into Your Retirement Plan

Sound complicated?  It does not need to be.

The NewRetirement retirement planning calculator is an easy to use but super detailed tool that will tell you if you have sufficient retirement income.  You can set different levels of spending and income for different phases of retirement.

You can even set your own estimated inflation rates — one for general spending, another for housing and medical costs can be specified separately. Try different rates for each category and see how much it impacts your retirement financial health.


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Podcast: JL Collins — The Simple Path to Wealth Thu, 15 Oct 2020 23:33:10 +0000 Episode 48 of the NewRetirement podcast is an interview with JL Collins —a best-selling author and financial independence guru — and discusses the what, why, and how of Financial Independence as well as Collins’ book, “The Simple Path to Wealth”. Listen Now: Don’t miss out on future episodes: subscribe on iTunes subscribe on Stitcher And,…

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JL CollinsEpisode 48 of the NewRetirement podcast is an interview with JL Collins —a best-selling author and financial independence guru — and discusses the what, why, and how of Financial Independence as well as Collins’ book, “The Simple Path to Wealth”.

Listen Now:

Don’t miss out on future episodes:

And, join our private Facebook Group to discuss this podcast, suggest topics and learn with our growing community.


Full Transcript of Steve Chen’s Interview with JL Collins

Steve: Welcome to The NewRetirement Podcast. Today, we’re going to be talking with JL Collins, a bestselling author and financial independence guru about the what, why and how of financial independence, and his book, The Simple Path to Wealth. We’re going to try to distill a lifetime of financial lessons into one podcast and dive into what really matters for most people. JL achieved financial independence through active investing before he learned about passive index investing, but then started a blog and literally wrote the book on how to achieve FI in the course of trying to pass on what he’d learned to his daughter, Jessica. He loves to travel and also host an annual international Chautauqua outside of COVID times around the topic of financial independence. With that, JL, welcome to our show. It’s great to have you join us.

JL: Well, thank you, Steve. It’s an honor to be here. I have to say initially, it’s interesting introduction that you mentioned my dirty little secret, which is actually achieved financial independence with active investing, even though I’m a big guy indexer. The truth is I knew about indexing long before I was smart enough to embrace it, so there’s another dirty little secret, as long as we’re airing them.

Steve: Yeah. I was, in getting ready for this, I was clawing through your blog you know,, and you’ve obviously had a long career. It was interesting, I was hitting … some of the highlights that I saw were one, you have this … you’ve had this really diverse career working across all these jobs, but also that you achieved kind of financial independence 15 years into your career back in 1989. I thought that was, as you’ve been there for quite a while, kind of your perspective on active versus passive has changed. Any highlights you want to share with us about kind of your journey to where you are today?

JL: Well, the interesting thing about achieving it in 1989 is I didn’t realize it at the time. I think you have to appreciate, and hopefully your audience will appreciate that there was no internet or very little internet, no internet I was aware of in those days. I wasn’t even aware of the term financial independence. I’m not sure it had been coined at that point. I had frequently stepped away from my various jobs at different times for sabbaticals that I wanted to take. 1989 was the beginning of the longest of those would stretch out five years. About three years into it, our daughter was born. My wife also quit her job, so we had no earned income coming in and our expenses have gone up a little bit. Although we lived modestly. I noticed as I was totalling up the numbers at the end of that third year something really remarkable, that in spite of not cutting back our lifestyle, we were worth more at the end of the year than we were at the beginning.

JL: Then I look back at the first year and the second year and found in both those years, that was also true. I knew something remarkable had happened, but a little disturbingly looking back on it now, I wasn’t smart enough to really appreciate the significance of what had happened. I just kind of thought, well, that’s cool, then I went on with my life. It wasn’t years later, until years later, when I came across the 4% rule and the idea of financial independence, and I put those numbers to it that I realized, oh yeah, that’s what happened back then.

Steve: Yeah. It sounds like you really got fully engaged in this in 2011 when you started your blog, you kind of put all your thinking together and started to get it all down on paper.

JL: Yeah, 2011 is when I started the blog. It’s interesting, when you start to write things down, you have to think through them a little more clearly than when you just have them rattling around in your head. From the moment I got out of college, I knew I wanted to have what I’d come to learn was called F-you money. I found that in a novel by James Clavell, Noble House, that concept. F-you money, in my mind, wasn’t enough to never work again. It was just enough that I never had to stay in a job I didn’t want to stay at any longer, and I could afford to take those sabbaticals that I talked about earlier. Then it was a journey of different kinds of investing, as I learned primarily by making every possible mistake you could make.

JL: As I say, I actually achieved financial independence picking stocks and picking active fund managers. I don’t recommend that because that’s simply not the most effective or efficient way to do it, but it certainly is possible to do it that way. Indexing is just more powerful. When I finally adopted indexing, and I’d actually learned about it in the middle of ’80. As I say, I was negligent in not embracing it sooner. I mean, things just came together more easily and even work quickly. It was in 2011 where I started putting down all these thoughts, primarily for my daughter, but I really had to think through why I believed, at that point, the things I believe.

Steve: Yeah. Well, it’s been quite a journey since then. I mean, for our listeners, I called … as we were ramping our business, I learned about F.I.R.E. I wrote an article in 2016 in like Mr. Money Mustache, J.D. Roth and JL Collins, so I started calling these guys. JL picks up the phone and we still had a few conversations. Then, I think that’s actually published A Simple Path to Wealth that year. Is that right?

JL: Yes, exactly. The spring of 2016.

Steve: Little did I know how famous you’re going to get to, and then I saw, also in 2018, you had I think the most popular Google talk or outside of … there was some filter for it, but like 750,000 views, is that right for your Google Talk that you did?

JL: Yeah, it’s coming up. I don’t think it’s quite at 750 yet, but it’s coming up on that. If I’m not mistaken, it is … The most watched Google Talk is 33 in terms of all the Google Talks ever done, it’s 33rd, but I think it’s the most watched by somebody who’s not famous.

Steve: Right.

JL: For somebody who is not a famous person, it’s doing pretty good.

Steve: You’re the most famous, most popular non-famous person, but actually, you are becoming famous. I saw you joined Twitter.

JL: In some small fashion, I guess that’s beginning, and nobody’s more surprised than I.

Steve: Well, I do want to give you credit also. I think VTSAX recently crossed what? A trillion dollars. So, I do think you deserve some small amount of credit for … I first heard it from you. I know you’ve.

JL: I’ve had people say to me, they make comments along those lines, and I do know that some people are in VTSAX because my influence, but I imagine it’s a very small portion of that $1 trillion. Then so far as I know, Vanguard doesn’t know that I exist. You see, they’ve never reached out to me and said anything, and of course, I’m a Vanguard customers. When I reach out to them, it’s not like, hey, JL, how are you doing? I’m just like any other customer.

Steve: For our users who are listeners who don’t know this, so VTSAX is a index fund by Vanguard that covers the whole US stock market at a very low cost basis.

JL: Yeah. It’s what’s called a total stock market index fund. It’s the one night I’m personally in, it’s the one that I have my daughter in, it’s the one I recommend most commonly, then VBTLX is the total bond market fund for when you add bonds to the mix.

Steve: Yeah. We’ll dive into that more, but I will say that finally, after four years I do own VTSAX, though it took me four years to take your guidance and run with it.

JL: Well, it probably took me 20 to finally embrace indexing, so don’t feel bad.

Steve: Yeah, no, exactly. I actually was. I was like, well, I kind of feel bad about this, but then I was reading you, I was like, oh, well, like JL He has been doing it for decades and not here yet.

JL: He was even a slower learner.

Steve: All right, so I’d love to talk … this is really about kind of the what, the why and the how of financial independence. We’d love to hear kind of from your perspective what it is, how you define it and maybe how you measure it. I also maybe a little bit more on the F-you money. I heard the F-you money very early on in my career too. It did really resonate with me and it’s something I pursued and achieved, which freed me up to think more broadly about how I spend my time. But yeah, how do you define FI?

JL: Well, so first of all, with the caveat that this is just my opinion and other people define it differently, so this is not the definitive definition, but I think of financial independence is that point where you have enough money that you don’t have to trade your time or your labor for money. You have enough money that … well, money that, that money earns is enough to pay all of your bills. F-you money on the other hand, in my mind, and again, other people define these things differently, is simply having a enough money that you can make bolder choices in your life, but not necessarily enough money that you’re never going to work again.

JL: Now, as to the formula as to what financial independence looks like, I think I referenced a little bit early in the conversation, the 4% rule, and that’s simply suggests, and it’s more a guideline in my mind than a rule that if you have enough money, that 4% of that is equal to, or greater than your annual expenses, you are, by definition, financially independent. If you have $1 million, 4% of that is $40,000. If you are spending $40,000 or less, you are financially independent. If you are spending more than $40,000, then you are not quite there yet, although you have a very nice bile of F-you money.

Steve: Yeah. Assuming you’re invested efficiently with low costs and getting market average market returns for the last whatever, history.

JL: That’s a great point. All of this is dependent on investing in low cost index funds. If you’re investing in something else, then these parameters may or may not work.

Steve: Got it. How did you define F-you money for yourself? What was the threshold?

JL: The very first time I had what I considered a few money was in my … because mid-20s, and I managed to save the princely sum of $5,000, now of course, $5,000 was worth more back in those days than it is now, but not that much more, but $5,000 was enough that I could have quit my job and gone off and traveled in Europe for a year. $5,000 certainly would’ve lasted a year in Europe those days, and probably would have given me a little cushion when I got back to find another job. So, as I say, it just permitted me the opportunity to make a bolder choice than it had then if I had been living paycheck to paycheck and worrying how I was going to pay the rent.

Steve: Yeah. It sounds like you’ve taken sabbatical, so you kind of deployed your savings to free up your time then early on.

JL: Exactly. Again, remember, I had no concept of retiring early or even financial independence as a goal. I just knew I wanted to have enough money that it provided … to me, it represented freedom. I knew the more I had, the more power I had, if you will, more freedom I had, the bolder I could be in my choices, but I actually achieved financial independence without even being aware of the concept, but that allowed me to periodically step away from jobs and take sabbaticals. I always liked working. My goal was never to retire early. I think, even if I had been aware of that concept, I don’t think that would have appealed to me. I liked my career. I enjoyed it. I just didn’t want to have to do it all the time. I think because I didn’t have to do it all the time, because I could step away whenever I chose, that’s probably one of the reasons I enjoyed it as much as I did.

Steve: Yeah. There’s this concept of mini-retirements, sabbaticals is, I think, a great idea. It’s kind of interesting what’s happening with COVID where people are going remote. They’re trying out different areas. One guy on our team is about to move from Vegas to Idaho. The circumstances of life changed, and they just were like, okay. First, I think they were thinking, oh, I’ll just move somewhere locally. Then they were like, where could I move that’s completely different and brand new? And they’re making this move. I think he actually bought a house, without visiting it, just completely online.

JL: In Idaho?

Steve: In Idaho. I’ll see, I actually have to talk to him about it, get the exact details. How about for your career? Beyond travel, did you take any extra risks in your career? You’ve done so many different things.

JL: Well, I suppose the risk I took was occasionally stepping away from jobs, but I had a pretty good … I mainly spent most of my career in the magazine publishing business, and I had a pretty good reputation in that business. Now, back in those days, stepping away from a job for several months or, on occasion, several years was not very well accepted, and so I had to be creative with my resume at times to account for those gaps, so to speak. But yeah, I was pretty … it was pretty easy for me to step back in when I chose to step back in. But again, I was never in a situation where I had to worry about paying the rent or the mortgage or putting food on the table because I’d always save 50% of my income, and it built up this pile of F-you money that gives you a lot of freedom, a lot of power.

Steve: Nice. How did you make that transition from kind of active to passive? Was it like a hitting a switch or did you do it over time?

JL: Yeah, it’s an interesting question because sometime in the mid-’80s, I had a friend of mine who was a financial analyst, and he was the one who first brought passive investing, which is to say index funds to my attention, and Vanguard and Jack Bogle. The great irony, by the way, is Jack Bogle started Vanguard, and I believe he started the first index fund that S&P 500 index fund in 1975. 1975 was the very first year I ever invested in anything. Of course I bought two individual stocks because, and in 1975, I didn’t know about Jack Bogle or Vanguard or index funds, but around 1985 my buddy Albert talked to me about them and made the case for them, and I was just too bullheaded and stubborn and set in my ways to appreciate the wisdom of what he was sharing with me.

JL: We had conversations over the years and it probably took me 10, 15 years before I really finally looked at it with an open mind. Once I did, it just became obvious that it was the better way. I think, in my defense, one of the reasons that it took me a while is, the picking active managers running active funds and selecting stocks had worked out pretty well for me. Again, I reached FI doing that. In a sense, I suppose my attitude was, what I’m doing isn’t broke, so why fix it? But a more astute person would have had their eyes wider open and said, oh, wait a second, this way has worked out okay, but this is a better way, and they would have seen that sooner. By defense, I did eventually see it. I’m just slow.

Steve: Yeah. Well, you’re still ahead of most of the market. I mean, I think if you look at a chart of … it’s like exponential growth of kind of a passive in index investing, and the assets there was … it was pretty low. I don’t know the exact numbers, but it was low, 1975 and the 1985 is still like nothing, 1995 is still nothing, and then eventually, only in the last decade, has it really gone almost straight up and now it’s threatening. Vanguard, the other year was, like last year, it was a billion dollars a day in flows. It wasn’t just.

JL: Wow, I didn’t know that.

Steve: Yeah. It was huge.d it wasn’t necessarily that it was huge, but now the more active oriented firms are feeling this, so you’re starting to see passive index is really growing and active fund managers and families are losing assets, so they’re feeling it. It’d be interesting to see, does the pendulum swing back and forth? Because I think there has to be a certain amount of active investing for price discovery, but how much, who knows? I don’t know if you have an opinion on that.

JL: This is an interesting subject, and if you’ll indulge me, I’ll talk about it a little bit. When Jack Bogle first came out with the idea of index funds, he was roundly ridiculed. Fidelity, Ned Johnson, who started Fidelity’s the patriarch of the family that owns it. He ran a series of ads which Bogle evidently had framed and put up in his office condemning index funds, calling them unAmerican among other things, because I think he recognized the incredible threats that they posed to the golden goose that was high fee active management. You’re right. It was very, very slow to catch on because it’s so counterintuitive. Again, maybe this is part of my own defense. It’s very counterintuitive for somebody who’s picking stocks to accept the fact that gee, if you just buy every stock, you will do better, as you think to yourself, well, gee, if I just avoid the bad ones, I can outperform the index. But of course, sometimes those bad ones are tomorrow’s awesome turnaround stories.

JL: Well, you think to yourself, well, if I just buy the good ones, then I can surely outperform the index, but of course, today’s good ones are tomorrow’s Enrons. It’s amazingly difficult to outperform the market. They actually pick stocks that will outperform to avoid those that will underperform. Then when you add onto that, the layer of cost, that active management it requires with the managers and the research and the analysts and what-have-you, it becomes literally impossible over extended period of time. I happened to see an article today, as a matter of fact, about the Harvard endowment. Harvard has an incredibly large endowment into billions of dollars. About 20 years ago, it was outpacing the market.

JL: When I say the market, I mean the index, the broad-based market, for almost a decade or so, and they were lionized, and the last 20 years, they’ve lagged behind. The article talks about a lot of reasons this may be the case, but my only takeaway from it is, it’s almost impossible to do that consistently. In fact, research indicates that looking out 30 years, less than 1% of active managers succeed in outperforming, and that’s statistically zero. Yeah, now in terms of, is indexing going to take over the world, it’s certainly grown in leaps and bounds as it should given how well it performs and more and more people become aware of it.

JL: I happen to think that the narrower the actively traded part of the market becomes, the smaller it becomes, the easier it will be to out perform. I would anticipate, at some point, as indexing becomes, if it becomes dominant enough, and I’m not convinced that it will, but if it does, I think at some point we’ll begin reading stories. Of course, there’s so much money to be made in active investing. You can be sure those stories will appear at the moment they’re available. We’ll read stories about people outperforming. Then because people are always looking for a better mousetrap, the wheel will turn and people will flood back into those funds. At least the silly people will. The smarter people will realize that this too will pass and will stay the course with their index funds.

Steve: Yeah. That’s awesome. Just a little bit more on kind of financial independence, in terms of … how do you think it benefits both individuals and society for people to be pursuing this, and also, do you think that kind of average normal, and can anyone pursue this idea?

JL: That question covers a lot of ground. The easiest part of that question to answer is the individual. Clearly, if you value your freedom, if you value having control over your time, the more financially independent you are, the better off you are. Money is the single most powerful tool humans have created, and we live in a very complex modern society, and it’s the tool most effective in navigating that society. Those people who learn how to deal with money, how to navigate with it, how to invest with it, they have a better life, a freer life, a life of more opportunity than those that don’t. I think, by extension, that is probably good for society, it’s probably good for society to have free, or at least if you believe in a free society, to have people who are freer than less free.

JL: I think to the extent that people are free to choose what they want to do, what they’re really passionate about without worrying about paying the bills, which is what financial independence gives you, you’ll probably get happier, more productive, more effective people. Maybe I’m an example. You mentioned that in 2011, I started writing this blog and then I wrote this book, and this has certainly been, although it comes late in my life, the most satisfying decade of my life, maybe if I’d been more aware of the goal of financial independence and been aware of what I achieved back in ’89, those last couple of decades would have been even more productive than they have been, although I really can’t complain about them. I forgot the second part of your question at this point.

Steve: No, I think that’s right. I was curious about kind of like, how does it help society and individuals? I agree. If people free up from, or are free to pursue what they are most interested in, then they tend to do better work, like you’re seeing in your own life.

JL: You just reminded me of the second part of your question, which was, can everybody do it? The answer to that question is yes, I think almost everybody can do it. The more interesting question is, will they? And the answer to that question is no. Most people will never take it on, most people are not even aware that it is a possibility or an opportunity. We live in a culture and they’re surrounded by media that’s continually drumming into people’s heads that such things are impossible, that they’re not even making enough money to live on day-to-day, and there’s never any discussion as to how the choices individuals make influence that. So, most people insured are goofs with their money. I don’t think most people will ever be financially independent, but I think almost everybody could if they were aware of it and were willing to choose it, because of course, like any choice you make in life, when you choose buying your freedom, you have to divert money from buying other things. That’s not a choice that our culture supports.

Steve: What percent of people, if you had to give an estimate, do you think might take on attempting to get to FI?

JL: I wouldn’t even hazard a guess. What I will say is that in the FI community, there is a sentiment that this makes so much sense, which it does, that it’s so logical, which it is, that it’s so beneficial, which it is, that almost inevitably more and more and more people will be drawn to it until the large percentage of the population, maybe everybody, is embracing it. I don’t happen to fall into that camp. I think people pursuing FI are destined to be unicorns. It’s just like we’ve seen more and more people go index funds. I think the moment there’s any indication that there is some possibility of actively managed funds outpacing them, they’ll flood back the other way, because people are fickle. They’re not willing to stay the course and appreciate the benefit.

JL: The other thing I would say is that, while there’s a lot being written in the FI world today, we’re tiny drops in a huge bucket that mostly promotes commercialism, mostly promotes that you need a break today and you deserve this and you deserve that. Of course, all those things that you deserve are things that other people are trying to sell you.

Steve: For sure. Well, I would love to dive into what really matters, in terms of how to get there. I was reading your blog again, and that you have the nine basics. Can you take us through the nine basics?

JL: It’s been a while since I’ve written it. I would have to pull those up in front of me myself.

Steve: Okay. I have them in front of me, so I can do it, and then we can talk about it if you want.

JL: Sure. That’s one of my very earliest posts.

Steve: First, avoid fiscally irresponsible people. Never marry one or otherwise give him or her access to your money. Any color commentary on that?

JL: Sure. One of the biggest destroyers of wealth is divorce. I can imagine few things that would be more discouraging, that it’d be married to somebody, and while you’re diligently saving and investing and trying to build your F-you money and financial independence, they’re out squandering it. I think it’s important to be sure that if you tie your life to somebody else that you share lots of values, and one of the more important ones is probably your values around money. I, by the way, my wife and I never had that discussion when we were dating, and just very fortunately for both of us, as it happens, we share exactly those values. Maybe we got that sense of each other as we were dating without the conversation. I’ve gotten pushback on that point, by the way. People have said, that’s terrible, you should only marry for love. Well, yeah, good luck with that, and that’s why people wind up getting divorced, so be a little more clear-eyed in that decision would be my advice.

Steve: Did you make her go Dutch when you were having your first dates and she got a sense.

JL: No, I can’t say I ever did that, but that was a different era too.

Steve: I do see people talking about this, in like the ChooseFI community where they’re talking about their significant others and trying to educate them about FII, or saying, hey, this person has just got a new job and bought a brand new car and that’s got me worried. Second one, avoid money managers. It sounds like … yeah, I’d love to hear your take on this.

JL: Yeah. By the way, on all these points, I have posts on the blog and most of them are chapters in the book. Money managers are expensive always, and it’s very rare to find a good one. It’s an unfortunate fact that the interests and needs of a money manager are not aligned with those of the client. That means that a money manager, to do best by their client is frequently called upon to do things that are not in their own personal best interest. That takes pretty saintly person to reliably do that. It’s very difficult to find one that’s good and competent and honest. I suggest that, by the time you do the kind of homework you would need to recognize that kind of money manager, you could have easily taught yourself to do it yourself. A great example, real quickly of what I mean by those conflicting interests is let’s suppose you sit down with your money manager and your question is, should I pay off my mortgage?

JL: Well, that’s an interesting question. In some cases, the answer might be yes, in some cases, the answer might be no. For your money manager, it is always a bad idea for you to pay off your mortgage, because by definition, that takes capital, that that person is managing for you and getting paid on away from your portfolio and into the bank, paying off that mortgage. For that money manager to recommend you pay it off, regardless of how good a decision it might be for you, they have to decide to make a decision that is bad for them.

Steve: No, exactly. More and more, well, some investment advisors are fiduciaries and they’re supposed to act in your best interest, but we had another guest, one of our users, Glen Nakamoto, where he was talking about building retirement income and paycheck, and he wanted to take a third of his assets and buy immediate annuities. Now, you can debate whether or not it’s a good idea, but he couldn’t get any advisor, and he talked to a number of them who were all fiduciaries to say, “Hey, this could work.” Instead, they wanted to do bond ladders or other kinds of fixed income strategy that they would manage the money, and he felt like they had a conflict of interest, but they weren’t calling that out clearly.

JL: Yeah. First of all, just to be clear, there are good, competent, honest financial managers out there. I don’t mean to suggest that there are not, and kudos to those that are because they’re providing an incredibly important service, because most people, as I said earlier, goofs on their money. If they happen to stumble into the hands of somebody who’s competent and honest, they’ve just gotten an extraordinary blessing in their life. So, I salute those kinds of money managers. I just suggest that it’s very, very difficult to find them, or for that matter, to recognize them when you do. One last point I’ll make is yes, you certainly expect and only look at money managers who are fiduciaries, but just because they are fiduciaries doesn’t mean that they actively put your interests first.

JL: It means they should, it means legally they’re required to, but as we all know, people don’t always do what they should or even what they’re legally required to do. That alone is not a guarantee.

Steve: Yeah. It all start with education and kind of making your own decisions and being a critical thinker. Next one, avoid debt.

JL: Yeah. You can’t be financial independence carrying debt. Debt is a ball and chain around you. It’s like trying to run a sprint with a ball of chain around your ankle. Mr. Money Mustache, my friend is fond of saying, if you have debt, it’s like your hair’s on fire. Nothing else matters until you put it out. Now, of course, there’s always pushback about, what about good debt? What about the debt for buying a house? Or what about the debt for starting a business or those kinds of things? Yeah, some debts are worse than other debt. I mean, credit card debt’s much worse than those two, but no debt is good debt. Some debt is necessary debt, but if you look at getting a mortgage for a house, and people say, well, that’s good debt.

JL: That rapidly translates into, by the way, at the encouragement of banks and mortgage lenders and real estate agents that quickly escalates into what’s the maximum amount of debt your income can carry, and therefore the maximum house you can buy? That’s a terrible thing to do. You should be buying the least expensive house that meets your need and taking on the least expensive debt in order to accomplish that. Debt is never a good thing. Sometimes it can be, if carefully used, a useful tool to enhance your lifestyle in a way that you want to enhance it. But by definition, enhancing your lifestyle is counterproductive to becoming financially independent.

Steve: Interesting. What I would love to … I’ll save this for another podcast, but I think I have some thoughts about using … well, let me ask you this question. If there was a way to use debt like a line of credit to run a tax arbitrage, so one of the things we talk about is Roth conversion. A lot of our users have most of their money in qualified savings, they’re heading towards retirement and they’re interested in converting it to Roths. One way to do that is you find years where you have low income, convert the money in those years, because you have to recognize it as income, get it into the Roth vehicle, which then grows tax free and can go to your errors largely tax-free. You could potentially use debt to subsidize those low income years as well, as a way to finance this. Do you think a tragedy like that holds water or would you say too complicated and risky?

JL: Yeah, so first of all until you get to the debt part, I absolutely agree with the strategy you described. If you have low income years, it’s a good time to shift money into Roth accounts, and then it grows tax free forever. If your income is low enough, sometimes you can do that with no tax consequences at all. When you talk about borrowing the money in order to do that, you’re laying on a whole nother level of complexity, and of course, another level of costs, because you have an interest rate associated with that debt and you’re ultimately going to have to pay it off. That puts you in a weaker position where you have a debt that needs to be serviced and hanging over your head. Now, yes, I recognize that interest rates are really low these days, and that makes it all the more tempting and maybe makes it more reasonable. But I don’t know, in my world, I just wouldn’t go there. In my world, my savings rate is big enough that I have the capital to make those Roth conversions when the opportunity permits.

Steve: Okay, awesome. Appreciate the perspective. Next one, save a portion of every dollar you make.

JL: Yeah, right. That’s another way of saying don’t live paycheck to paycheck. If you want to be financially independent, if you want to have a F-you money, if you want to be free and have the widest possible choices in your life, you have to buy that freedom, and that you do by saving money. Sometimes I have people say to me, “Oh, you know, that just … it feels like deprivation. I’d rather spend the money.” My response is, we are spending money. You’re just buying your freedom. Instead of buying the fancier model of the car you want, you’re taking some of that money and buying your freedom. Now, it’s not my job, or even my position to tell anyone how they should spend their money, it’s their money, they can spend it however they choose.

JL: I would only suggest that you consider the possibility that one of the things you can buy with your money is your freedom. For me, speaking just personally, I can’t imagine anything I would rather have. So, that’s always the number one priority in my spending of my money, but I recognize, as we talked earlier, very few people have that priority. Most people, it’s their last priority and somehow never makes the list at the end of each month.

Steve: Oh, it gets important as they get … there’s a forcing function in people’s lives, where they get older, and eventually they’re probably going to stop making money from work, and they’re going to be faced with how are they going to finance a long, hopefully a long period of time post career.

JL: Well, even before that. When we hit hard economic times, which of course we regularly do, that’s the nature of the economy, almost inevitably, I’ll be watching the news on television and I’ll see some guy, and he’s probably in his mid to late 40s, and they’ll try him out, and he’ll say something like, I was a manager at X, Y, Z corporation for the last 20 years, and I just got laid off, and then three months I’m going to lose my house. I watch that and I think to myself, wait a second, you’ve had a managerial position for 20 years and you are so financially weak that you’re going to lose your house in three months. It’s hard for me to work up sympathy.

Steve: Right. Yeah, I hear you. This goes into the next one, the percent, so you say target 50% of every dollar saved that much money, if possible. I think also, within that, if you do that, theoretically, you can achieve financial independence in 14 years, is that right? Around that time?

JL: Yeah, something like the chart, somewhere between 12 and 14 years, it depends on how strong the wind is at your back with the stock market, what your returns are, but basically that. 50% is just the number that I randomly chose when I began my career, and it’s a perfectly doable number. My first professional job, I made $10,000 a year. This would’ve been in 1974, and I just looked at it as if I only brought in 5,000. That’s what I built my lifestyle around. That’s how I chose my apartment and everything else in my life. The other 5,000 went into investing. Then when I was making 12,000 a year, six and six, and 20, 10 and 10 and on up. So, I let my lifestyle increase as my income increased, but only at 50% of whatever that income was.

JL: I can imagine that for somebody who’s hearing this for the first time, and they’re say 35, and they’ve been out in the workforce for 10, 15 years, and has built up a certain kind of lifestyle, it can be hard to back away from that, and that’s tough, but that’s the choice you’re going to have to make in that situation. Also, there are people in the FI community who sneer at my 50%. There are some people who say “50%, nobody could ever do that.” Well, there are lots of people who snare at it and say, 50%, I’m doing 60%, 70%, 80%.” You can do whatever you choose to do. I just happened to choose 50%. If I’d been aware of other people doing this and somebody else said, “Jim, you could do 60 or 70, and there’s this goal that you get to even sooner,” I probably would’ve done something like that, but I didn’t have that kind of guidance.

Steve: I’m going to bundle up the next few because they’re around VTSAX, but basically it’s buy VTSAX, embrace the fact that is part of this equation, and it’s going to go down 30%, 40% some years, and shoot for living off of 2%. I know we talked about 4% earlier, but at that point, you’re kind of fully there, you’re fully independent. I’d love your color commentary on that.

JL: Yeah. Well, VTSAX, we already talked about, it’s the total stock market index fund. You’re basically betting on the American economy, you’re betting on America. So, if you believe that the United States has a future, and I do, then that’s about as good a bet worldwide as you can get anywhere. I recommend buying as much as you can whenever you can and holding it forever. Then regarding volatility, that’s one of the most important points to remember, is the way people lose money in the stock market is, when it takes one of its periodic drops, and it does on a regular basis, they panic and they sell, and then they lick their wounds and they’ve lost money, and they say, man, I’m never doing that again.

JL: Volatility in the stock market is a perfectly natural thing. When the market drops 10%, which is called a correction, that’s perfectly normal. When it props 20%, which is called a bull market, that’s a little rare, but it’s perfectly normal. When it drops 30%, 40%, 50%, and those are even rare, still those are called crashes, again, perfectly normal. Being surprised by this is like being surprised by hurricanes if you live in Florida, or snow storms if you live in New Hampshire. Now, that’s not to say that hurricanes and snowstorms and market crashes aren’t unpleasant and potentially damaging and harmful. They are, but you shouldn’t be surprised by them. By the same token, I say, if you can’t tolerate snow storms, then you need to leave New Hampshire.

JL: If you can’t tolerate hurricanes, you need to leave Florida, and if you can’t tolerate market volatility, periodic to be expected drops, then following my advice will leave you bleeding by the side of the road. Don’t do it. Find some other strategy that doesn’t involve the stock market. But if you’re willing to tolerate the stock market volatility, it will give you the best, most powerful wealth building tool that you have. Just like if you’re willing to tolerate hurricanes, there’s some pretty nice living Florida. If you’re willing to tolerate blizzards, there’s nice living in New England.

Steve: Yeah. Well, I think one of the big lessons from you that I have from 2016, which took me the four years to kind of get to was, there’s never … Timing the market is not a winning proposition. One thing you shared with me was that, 75% of the years three out four, the market goes up, and 25%, it goes down. But market, for the last, whatever 100 plus years has gone up into the right, keeps doing that because we, as an economy, keep increasing productivity, making more stuff, generating more wealth. You might as well hook yourself up to that train and go for it. But yeah, what would you say to people who are … because there are a lot of our audience, and I think everywhere, this is a common question. If people have money and it’s in cash, how do I get in the market or how should I think about that?

JL: Right. Well, first of all, I have a chapter in the book and a post on the blog, if people want to just read this on why I don’t like dollar cost averaging. As you alluded to the market, goes up 75% of the time. That translates into three out of four years. Again, it doesn’t go three years and then drop a year and then go up three years and drop a year. It’s not that reliable, or consistent. It can go up five, six years in a row and then be down two or three years in a row, but on average, and it’s impossible to predict what the market’s going to do. Most recently, in the spring with COVID, I had people on my blog commenting that this time is different than in March when the market had taken a 30, almost a 35% plunge, and they’re like, “This time is different. This is a pandemic. This is definitely going lower and it’s not coming back for years, if ever. I’m getting out and blah, blah, blah, blah.”

JL: I certainly didn’t know what the market was going to do, but I also knew these people didn’t know what the market was going to do either. It’s possible they could have been. There’s somebody predicting, at any given moment, anything the market can possibly do, and those people will be right just by sheer luck. Of course, as we know now, the market hit that 33%, 35% bottom, and then immediately turned around and shot right back up. I certainly didn’t know it was going to do that either. Nobody did. Nobody was predicting that. You can’t predict what the market’s going to do. The other thing to keep in mind is that once you’re invested in the market, you’re always subject to that big drop that you’re just going to have to live through.

JL: That’s the only way to deal with it, as we’ve talked about with just like, you’re going to have to live through hurricanes in Florida. If you have a chunk of money, the best thing to do is to put it to work right away. It’s possible that your timing could be bad, and the next day you wake up and the market’s down 30%. That’s unlikely, because those things don’t happen very often, but you have to be prepared for that. But even more importantly, over the years, it will happen once your money’s invested. That’s what I would say, is get too used to the fact that there is volatility in the market. If you want to participate in the upside, then get in the game as soon as possible. The old saying, the best time to plant a tree was 20 years ago, and the second best time is today/

Steve: Now. Yeah. Right. That’s awesome. Well, here’s my story. I did write down what we talked about and I created my own investment policy statement. I said, all right, this is how I’m going to invest. I’m going to do full in … I have a mix of passive active, but I’m going to go full index for any additional dollars, and then when the market corrected, I did, and I was posting this on Twitter. I was like, it kept going, going down, and I kept on buying, buying, buying, buying. I bought more, I bought more. Actually, lo and behold, that worked. Now my regret is I didn’t … I put a huge chunk of it in, but anyway, so your words had an effect. It took me a long time, but now I’m just going to out it and ignore everything.

JL: Yeah. Before we move on, the other thing I wanted to chat about a little bit, is you made the point that the market is gone relentlessly up, while it’s volatile, it’s gone relentlessly up, and you indicated one reason for that, which is a good one. But another reason that a fund like VTSAX total stock market index fund keeps going up is that it’s self cleansing. I’m proud of that term because I created it. What I mean by self cleansing is VTSAX holds virtually every publicly traded company in the US stock market. Last time I looked, that was about 3,600 companies. It doesn’t try to predict which companies are going to do better than other companies, it buys them on a market cap, weighted fashion, and we can talk about that if we need to, but it buys them without predicting what they’re going to do.

JL: Now, some of them are going to perform poorly, and ultimately, companies go out of business. So, some of those companies that are on the index will go out of business. They’ll probably actually drop off the index before that happens, because if they get too small, then they fall off the index, but they can have a pretty sharp drop. The most dramatic drop any stock can have, of course is 100%, and that’s pretty bad. On the other hand, there’ll be stocks in that index that rise. The interesting thing there is that they can certainly rise 100%, but they’re not limited to that. The downside is they can rise 200%, or 2000%. There’s literally no limit to the upside that the company can go. Even as companies that are failing or maybe just gotten to the end of their life cycle, and they’re drifting down, I’m thinking now of a company like Sears, as an example.

JL: There are new vital companies like Amazon that are growing up and that you’re participating in, and that cycle will always continue, and that self cleansing process is one of the things that allows VTSAX, while it’s volatile, like the market itself, to continue to march upwards.

Steve: Nice. No, I appreciate the color on that. I would love to know a little bit more color on your portfolio. You mentioned VTSAX, VBTLX, and then I think, do you have any other holdings right now, cash or? You talked about real estate at one point, but I think you got out of it, right?

JL: Well, we have, so we have this little vacation house that I’m talking to you from. It’s on the shores of Lake Michigan and turned out to be handy to have in this age of COVID to hide out in what otherwise nomadic and roaming around the world, but COVID has shut that down for the last few months. I guess I think of it as an investment, because when we’re not here, we rent it out. But other than that, we have have stock, which is about 80% in VTSAX, and then I think, and I haven’t looked in a while, but I think the bond position of VBTLX is about 17%, maybe 3% in cash. I think of cash and bonds as sort of being the same thing fundamentally in terms of my allocations. 20% in cash and bonds and 80% of the stocks is about where I like to be. That, by the way is, especially for a person, my age is considered very, very aggressive, but that’s … I’m comfortable with the volatility that brings on. I’m not suggesting that’s the right allocation for everybody. It’s just what I happened to do.

Steve: You capture the income, I mean, for your day-to-day living expenses, where does that come from? Dividends and …

JL: Yeah. Well, if you’re living on the portfolio right now, because of the book royalties and the blog income, our day-to-day income is coming from those things and has for the last three, four years now. I don’t see that as being secure income. The book sales have done … every year, they’ve gone up to migrate amazement, but I expect at some point, they’ll peak and begin to drift away, and I am writing less and less on the blog as I’ve gotten older. I’m expecting at some point the blog revenue will begin to drift away. That’s one of the reasons that I haven’t gone 100% stocks and lived on that income exclusively, because that income doesn’t feel reliable to me. I don’t know, maybe it’s more reliable and has better legs than I think.

JL: But anyway, once that income’s gone and living off the portfolio, sure, we would certainly have any dividends that I currently have reinvested, I’d have them paid out into the checking account and then I’d sell whatever number of shares I needed to sell in order to pay the bills. Again, keeping a close eye on that 4% benchmark.

Steve: Yeah. How many copies of the books have sold so far? Have you sold?

JL: Over 200,000.

Steve: Wow, that’s amazing. Nice.

JL: Nobody’s more amazing than I.

Steve: That’s awesome.

JL: It is. As I say, it sells better. This year is selling better than ever.

Steve: Well, there’s a strong word of mouth out there about the book. It’s in different languages too, right?

JL: Yeah, we actually … I have an agent now who’s done some international deals. The first was in Korean, South Korea, and it’s been published in Japan and Japanese, in China and Taiwan, and we just inked a deal with Russia, so it’ll be in Russian.

Steve: Wow, that’s awesome.

JL: It’s amazing how many communists countries are embracing my book.

Steve: All these index measures. Anything, so the Simple Path to Wealth, and we’ll link to it from the post on this, but anything you want to call out from the book that you think are especially important lessons for folks?

JL: Well, I think it’s … everything we’ve been talking about so far today is what’s in the book, and it’s written primarily for my daughter. She’s the audience I have in mind. She was the audience I had in mind when I started the blog, which really had its origins of just archiving information for her. What’s key about my daughter is that she doesn’t really care about this financial stuff. She’s not interested in this. She’s smart enough to know that she needs to understand it and get it right, because it will make her life enormously better, but it’s just not a topic of interest. Hence, I wanted to create a simple path that was simple to understand, simple to implement that you could put on autopilot. Just have to understand a couple of very simple things, get those right, put it on autopilot, which is basically buy VTSAX whenever you can, as much as you can. Keep your savings rate at least 50%, and otherwise, ignore it and don’t panic when it gets volatile.

JL: That’s the basic message. I’m always pleased to hear from readers who have benefited from the book under any circumstances, but the ones that particularly stand out to me are the ones who say something like, I’m really not interested in this, but for the first time reading your book, I understand it, and this is something I can do and have done. My response to that is, you’re just like my daughter. You’re the person I was writing for. Then of course, I get people who are interested in investing and they’re like, “Well, man, why don’t you tweak it this way or tweak it that way?” I actually have a post in the blog I wrote a year or so ago, maybe a little longer now called Too Hot, Too Cold, Not Pure Enough. I have people who say, “Oh, you’re not aggressive enough.” Then I have people who say, “You’re too aggressive.” I have people who’ve talked about socially responsible investing, so Too Hot, Too Cold and Not Pure Enough.

Steve: All right. We’ll check it out. Yeah, I think that what’s interesting is the whole financial services industry is typically paid in a non-transparent way. These fees that you can’t see and they don’t talk about. Change has to come from outside of it, from your book. I think our worldview is the same, like we’re sitting here cranking out this planning software out of our garages. We don’t make money on AUM. We offer tools for this, and then if you want to talk to an advisor, you can, but we only charge for time, any of that stuff. Because of that, we can speak completely independently about our point of view, because there’s nothing else, there’s no transaction fees or anything else, or AUM fees getting taken every year.

Steve: But it’s hard for … there’s a famous quote, I’m trying to look it up, but like, if a person is … if a man is compensated a certain one way, it’s really hard to get them to change their point of view on how to make money.

JL: Yeah. I can’t think of that quote either, but it’s a great one.

Steve: Yeah. They can rationalize a whole lot of things. I think that’s true for financial services. There is a lot of rationalization going on, but there’s like a famous financial advisor. They manage $130 billion or over 100 billion, and they charge 1%. They’re charging $1 billion in fees every year to their customers. I know Vanguard published on this. If you pay that kind of fee, you’re giving up 30% to 40% of your potential future total return because you lose the money every year, and you lose the potential compound returns on those returns that are raked out. And 1% sounds, I remember when I first got a job, the 401ks were coming out. Came in and talked about it, I’m like, yeah, it’s 1%. It’s not like 1% sounds like nothing. Right? It sounds super low, but you’re paying that 1% on your lifetime savings every year to somebody else. For what? If someone’s managing a fund and there’s guys managing it and it manages 100 million, it takes three guys. If it manages 5 billion, it could still be the same three guys. Are they earning that money?

JL: Yeah, no, you’re right. 1% seems like nothing but compounded over time, it’s significant. The other way to look at that 1%, so we talked about the 4% rule, which means you can comfortably pull 4% of your holdings each year to live on. Well, if you’re paying 1% of your holdings to a manager, that’s 25% of your potential income that has to pay that manager. Your other point’s well taken, that a lot of fees are buried and hidden. Financial managers typically do assets under management, which is they will charge a fee. It’s kind of hard to see that it’s going to be one to even decide it’s 2% for that. Then of course, so the underlying fees of whatever investments they put you in, so it can be really, even worse than we’re talking about.

JL: Others charge a commission for whatever they buy or sell on your behalf, or they collect a commission on whatever they buy or sell, and you tend not to see that as well. Then the third option is where they charge by the hour. Of course, it can be any combination of those three too. What’s interesting is customers are best served by those hourly fees, which are much more upfront and tend to be more modest over time, because they don’t compound over time, but they’re much less comfortable with them because those fees are much more obvious. You’re actually writing a check to someone. The other fees, which actually costs much more money, because they’re buried and the customer doesn’t see them as clearly, the customer, ironically enough, is more comfortable with them. I’ve had financial advisors say to me, “I’m only doing what my customer is most comfortable with,” and there’s some truth to that.

Steve: For sure. Well, we’d surveyed our users and we saw the same thing. 30%, 40% of people were like, fine, I’ll pay AUM fees, even though it’s like, hey, this is a lot more expensive. But we also get users saying, hey, I’ve been saving my money for my whole life, and now I’ve got a couple million bucks, I’m headed towards retirement. I’m doing the math, that’s like 20,000 a year in fees, and they’re kind of like, hmm, that’s a couple nice vacations or whatever it is, a new car. I think there is a growing awareness that these fees aren’t cheap and people need to be smart about it. I know we’ve gone over our lot of time here, but any last thoughts in terms of what’s next or people that you really like in the space that our audience could benefit from. I know you mentioned Mr. Money Mustache but anyone else?

JL: Yeah. Mr. Money Mustache is great. He talks primarily about organizing your life in such a fashion that you free up, and by effect, you wind up freeing up money that you can then invest. I’ve often thought of him as kind of being how you organize your life. Then once you do that and you freed up the money, I talk about how to invest it. Kristy and Bryce from Millennial Revolution do a great job. With that, I mean, there’s so many to name, with their book, Quit Like a Millionaire. I hesitate going any further because I’m going to admit so many great voices that are out there.

Steve: Yeah. Fair enough. We don’t have to go through everyone, but I know you’ve inspired many of them, and it’s awesome that you got your book written, and you self-published it too, right?

JL: I did. I did.

Steve: That’s awesome.

JL: I self published it. The audio version, as I mentioned earlier on the international deals, I have an agent, Anna by name, and I first worked with Anna, she negotiated the deal on the audible version of the book, but the Kindle and the print version, I, myself published. I think I brought up the audible version maybe a year later, something like that.

Steve: Okay. Cool. We’ll have to link to that. JL, I really appreciate your time and thanks for coming on our show. Thanks Davorin Robison for being our sound engineer. Anyone listening, thanks for listening. Hopefully you found this useful. Our goal at NewRetirement is to help anyone plan and manage their retirement so they can make the most of their money on time. If you made it this far, I encourage you to check out, his Google talk as well, and his book, The Simple Path to Wealth. We’ll link to all of them from this podcast. Then finally, we’re trying to build the audience for this podcast, so any reviews are welcome. We do read them and try to adapt as we go. With that, thank you and have a great day

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The Pros and Cons of Dividend Stocks for Retirement Savings Thu, 15 Oct 2020 00:56:02 +0000 There are many guidelines around how to drawdown your savings in retirement (the 4% rule, the multiply by 25 rule), but what if you don’t have to spend your savings? You can generate retirement income with dividend stocks, and in a world where savings accounts produce less than a 1% return, dividends can provide a…

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There are many guidelines around how to drawdown your savings in retirement (the 4% rule, the multiply by 25 rule), but what if you don’t have to spend your savings? You can generate retirement income with dividend stocks, and in a world where savings accounts produce less than a 1% return, dividends can provide a steady stream of cash without having to dip into your principal.

Most retirement savings strategies tell you to invest in stocks when you’re young and bonds when you get close to retirement. For example, the “rule of 100” says you should subtract your age from 100 and the answer is how much you should invest in stocks. So if you’re 25, 75% of your money should go into stocks and 25% should go into bonds. And when you’re 55, 45% of your money should go to stocks and just over half should go to bonds.

But these rules make a lot of assumptions, most of them based on investing wisdom from the 1980s. One assumption is that stocks are a lot riskier than bonds and that bonds offer steady income rather than just gaining in value.

In reality, over the last thirty years, stocks have become a lot less risky for retail investors who are able to invest in funds that own stocks in a diversified portfolio. And because governments all over the world have been printing money to contain the 2008 Great Recession and the COVID-19 crisis in 2020, the yield on bonds — the cash income you get for holding them — has dropped to nearly nothing.

What Is a Dividend Stock?

Dividends stocks are shares of companies that pay dividends. Not all companies pay dividends on their stock, so not all stocks are dividend stocks.

Dividend income definition: Owning a share of stock is like owning a piece of a company. Companies that make a profit sometimes pay their owners part of that profit — their income — which is a dividend.

Pros and Cons of Dividend Stocks

Pro: Dividend Stocks Are Usually Also Value Stocks

Stocks that pay dividends are shares of companies that make money. That means they have a steady profit they share with shareholders and they’re probably not going out of business any time soon. This makes them a somewhat safer, less risky, option for retirees.

Value stock definition: A value stock has a low price relative to the company’s income and the dividends it pays. (The opposite of a value stock is a growth stock — like Facebook, Amazon or Google — that pays no dividends but the company is growing fast — and the stock price is zooming.)

Benjamin Graham, the “father” of value investing, said way back in 1949 that investors should buy stocks of profitable companies that have at least 20 years of reliable dividends. These companies have been paying a steady dividend for at least 50 years, and most of them you’ve known since you were born:

  • The Coca-Cola Company (dividends since 1920)
  • Colgate-Palmolive Co. (dividends since 1895)
  • Hormel Foods Corp. (dividends since 1928)
  • Johnson & Johnson (dividends since 1963)
  • Lowe’s Companies (dividends since 1961)
  • Stanley Black & Decker (dividends since 1876!)

Value stocks that pay dividends are sometimes called “dividend heroes” because they are reliable providers of value in markets that can sometimes be rollercoasters riding high and sinking fast.

Con: Individual Stocks Can Be Risky, Even if They’re Value Stocks

For decades General Electric was a “blue chip” stock, meaning it was reliable and paid a consistent dividend. If you bought $100 of General Electric stock in 1970 and sold it in 2016, it would have returned more than 21 percent per year, and your final net worth (assuming dividend reinvestment) would be $784,703.30.

Blue-chip stock definition: Blue-chip stocks are shares of industry leaders in mature industries that produce consistent profits and dividends.

On the other hand…

The Great Recession forced General Electric to sell its lucrative financial services division and exposed the company as an unnecessarily big, complicated organization with a lot of hidden debts.

Its CEO from 2001 to 2016 stepped down, and his replacement served less than two years before another replacement was brought on board to right the ship. Then the COVID crisis hit demolishing one of GE’s last profitable businesses: airline engines.

Today GE stock is worth only a fraction of what it was worth 10 years ago, and its dividend has been slashed.

Con: Dividend Stocks Are Usually in Utilities, Banks and Old-Line Industry

Many dividend stocks are in sectors that make a lot of money on products that people need like energy, financial services and consumer goods. This can produce a lot of cash income, but it can also mean your companies are in some pretty narrow buckets.

When the oil industry crashed at the beginning of 2020, a formerly reliable dividend stock like Exxon-Mobile slashed its dividend in half. If all your dividend stocks were shares of oil companies, you’d have lost a significant chunk of your income.

Pro: You Can Get Great Dividend Diversification With Mutual Funds and ETFs

There are many dividend and income-focused mutual funds and Exchange Traded Funds (ETFs). Vanguard, Charles Schwab, and Blackrock all offer high-dividend ETFs and mutual funds that either have a broad focus — like the highest dividend stocks in the S&P500 index — or a narrow focus like real estate companies.

The dividend yields on these funds average three percent and can be as high as nine percent. And the risk that an individual company falls on hard times is mitigated by the other companies in the fund.

You can also diversify sector risk by owning several sector ETFs or mutual funds, or by owning an index fund that focuses on dividends but owns hundreds of companies in every sector.

Con: Stocks Are Generally More Risky Than Bonds and Other Fixed-Income Assets

The fates of individual companies depends on a lot of factors, and no one except a professional stock analyst can do enough research to pick the long-run winners from the losers. And maybe not even then!

On the other hand, the most reliable bonds — U.S. Treasuries — are considered “risk-free” because no one in the world expects the U.S. government to default on its debt obligations, which is exactly what a U.S. Treasury bond is.

Pro: Dividend Stocks Produce More Cash Flow Than Bonds (By a Lot)

The yields on bonds around the world have been terrible since the Great Recession over ten years ago. In the United States, the nominal yield on 10-year bonds is 0.77 percent as of October 2020, and the real yield as reported by the U.S. Treasury is -0.95 percent.

Bond yield definition: Bond yield is the income you get from a bond. The yield on bonds is higher the riskier they are and the higher interest rates are.

Nominal interest rate definition: The nominal rate of interest on a bond is the advertised rate, so if the bond issuer — in this case the U.S. government — says they will pay you 1 percent per year to borrow your money, that’s the nominal rate.

Real interest rate definition: The real interest rate of a bond is the nominal rate minus inflation. If the nominal interest rate is three percent and inflation is two percent, your real interest rate is one percent.

When the real interest rate is negative, you are paying the government to keep your money safe. Needless to say, this is not a great long-term strategy.

Though you can buy inflation-protected bonds (called TIPS for Treasury Inflation-Protected Securities), the yield on these bonds is negative. So even with TIPS you are paying the government a fee to keep your money safe.

Pro: Dividend Stocks Perform Better During Times of Inflation

We are currently in a period of very low inflation, and you might wonder what will happen to dividend producing stocks if inflation increases. Many companies that pay dividends — the old-line industrial and consumer goods companies, utilities and banks — also make bigger profits during inflationary periods.

Banks do better when money is changing hands often, and if the government raises interest rates to cool down inflation, banks make more money then too.

Inflation is also good for energy, materials and industrial companies because their pricing power — and the price of what they sell — goes up.

Con: Asset Allocation Can Be Tough to Figure Out

What’s the right mix of dividend producing investments and hedges against market volatility? Unfortunately, that depends on your risk tolerance.

The best way to model out the right amount of income you need versus the amount of money you want to invest to grow your nest egg is to use a bucket strategy. As part of the NewRetirement Planner, you can create a very detailed budget and set different levels of spending for needs and wants. This can be an incredibly useful planning exercise in helping you decide how much to invest when and where.

Pro: Dividends Can Have Tax Advantages

Dividends paid by companies can either be classified as income or capital gains. According to the IRS, “Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.”

The difference between the two rates can be a lot. If your regular income puts you in the top U.S. tax bracket, you pay 37 percent — more than a third — to Uncle Sam. On the other hand, if you own companies that pay qualified dividends your top tax rate on that money is only 20 percent. Especially if you are reinvesting that money into buying more stock, the difference in returns over ten years can be enormous.

You can do research to see what companies pay qualified dividends and which don’t. The rules according to the IRS are:

  • The dividend must have been paid by a U.S. company or a qualifying foreign company.
  • The dividends are not listed with the IRS as those that do not qualify.
  • The required dividend holding period has been met.

As with most stock investing, the easy way to guarantee your dividend stocks pay qualified dividends is to buy them in bulk in an ETF or mutual fund. (Vanguard has a list of its qualified dividend ETFs here.)

Even if you don’t own companies that pay qualified dividends, if you own those companies in a Roth IRA or Roth 401(k), the dividends income grows tax-free. And if you are thinking about a Roth conversion for your traditional IRA or 401(k), the NewRetirement Planner can help you strategize the best time to convert to minimize your tax burden.

Modeling Dividend Investments in the NewRetirement Planner

Dividend stocks can be an important source of income in retirement. You get paid an income stream, and if you have your dividend champions in a Roth account, you get a tax advantage on the money to boot.

You can model your dividend producing investments as an account in the NewRetirement Planner — either tax advantaged or not. If you plan on using dividend income as a source of regular income (rather than reinvesting it) you can enter your dividends as passive income to model it with your tax treatment.

Either way, adding dividend income to your retirement plan can help boost your income in retirement without spending down your principal.

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Your Guide to Medicare Open Enrollment for 2021: 12 Tips for Getting Great Coverage Wed, 14 Oct 2020 15:55:57 +0000 Tis the season… No, it is not quite time to decide whether you’ll say Happy Holidays, Merry Christmas, Bah Humbug or none of the above. It does, however, involve shopping! The 2020 Medicare Open Enrollment season is upon us and will last from Oct. 15 to Dec. 7. Now is the time to assess your…

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Tis the season… No, it is not quite time to decide whether you’ll say Happy Holidays, Merry Christmas, Bah Humbug or none of the above. It does, however, involve shopping! The 2020 Medicare Open Enrollment season is upon us and will last from Oct. 15 to Dec. 7.

Now is the time to assess your current coverage and shop around for perhaps a better deal or a plan more suitable to your current health needs. Here are 10 tips for getting the best coverage and care in the 2021 Medicare Open Enrollment Period:

1. Know the Open Enrollment Rules

Medicare’s open enrollment is a time period every year when you can:

  • Switch from original Medicare to Medicare Advantage (or vice versa)
  • Change your Medicare Advantage plan
  • Join (or switch to a different) Medicare prescription drug plan

2. Find Out How Your Existing Plan Has Changed

Not everyone knows this, but Medicare plans can — and do — change. So, the first step is to find out what is new with your existing coverage.

If there are changes, your plan should have sent you a “Plan Annual Notice of Change” (ANOC) last September. If you think you missed it, call your insurer and ask for the “annual notice of change.”

Pay particular attention to:

  • The list of drugs that the plan will cover in the next year
  • How much those drugs will cost
  • What the premium will be in 2021
  • What percentage that the plan will pay for different types of medical expenses

3. Be Aware of Some of the Global Changes to Medicare Advantage

For cost cutting and other reasons, here are some of the bigger changes to plans:

  • Medicare will now allow patients to see nurse practitioners as their primary caregivers instead of doctors.
  • Telehealth services are on the rise, especially for dermatology, psychiatry, cardiology, primary care, gynecology and endocrinology.

4. Know that Medicare Advantage Has Expanded Coverage

In 2017 there were 147 different counties — mostly rural areas — that completely lacked any Medicare Advantage insurers.  According to the Kaiser Family Foundation, the situation has since improved.

Furthermore, for 2021 there are now a total of 4,800 Medicare Advantage plans available nationwide for individual enrollment in 2021 – another big increase — the largest number of plans ever available

If there are not any Medicare Advantage plans, you could switch to a Medigap plan.

5. Find Out What Plans Your Preferred Doctors Will Be Accepting in 2020

You may want to call your doctors’ offices and ask to speak with the billing department. They should be able to tell you which plans they will be accepting in 2021. If they are dropping your existing plan, then you will want to see if any of the other plans are affordable for you.

6. Assess If Your Existing Plan Still a Good Match for Your Health Needs

Once you know what your existing Medicare Supplemental plan will cover in 2021, you should compare how well that matches your current and anticipated needs.

Will your existing plan still cover the medications you take? Has your health changed and do you now have different needs?

7. Compare Your Existing Plan to Alternatives

Even if your existing plan works well for you, you should still shop around to see if there is a more cost-effective option.

You can instantly compare Medicare Supplemental Plans here.

Or, you can contact your State Health Insurance Assistance Program (SHIP). SHIP (sometimes called by another name) provides free counseling to any Medicare recipient to help people choose a Medicare plan.

Medicare also has a handbook, Medicare and You 2021, that will help you see what plans are available in your area.

The NewRetirement Retirement Planner also enables you to estimate your lifetime medical costs for different coverage types, health conditions and premium levels.

8. Check Out Ratings on Plans

Once you have identified a plan or plans that may be a good fit for your particular health needs, you can look up how well those plans rate. lets you research plan quality and performance ratings. (Note: The star rating system will change for future years.)

U.S. News and World Report is also a reliable source. They evaluate all insurance companies and the plans they offer in each state. See the Best Medicare Advantage Plans and the Best Medicare Part D Plans.

9. Cut Your Prescription Costs

Even with supplemental coverage, prescription copays can add up. To save money, discuss your concerns with your doctor. Ask if they will prescribe a less expensive alternative or a generic.

Whatever your doctor prescribes, shop around to fill your prescription. Filling the same prescription at Costco versus CVS could save a lot. Ordering a 90-day supply online may save you even more.

10. Use a Health Savings Account (HSA)

If you’re still working and are eligible to contribute to an HSA, take advantage of it. Your contributions are made pre-tax, the money in your account grows tax-free, and you can withdraw funds from the account at any time tax-free, as long as the money is used for qualified medical expenses.

Learn more about HSAs: What they are and why they are a compelling savings option.

11. Be Proactive to Stay Healthy

If you are in good health, you’ll spend less on retirement health care costs.

Medicare offers a wide range of immunizations, preventive screenings and well-being programs for free.

12. Make Sure Out of Pocket Medical Costs Are Factored into Your Overall Retirement Financial Plan

Out of pocket medical costs are one of the three biggest expenditures for most retirees. Studies have shown that the total out of pocket Medicare costs are higher than the total Social Security income for the average retiree. In other words, Social Security income does not even cover what most retirees will have to spend on their health.

So, it is important to make sure that your retirement finances are prepared for this major expense.

The NewRetirement Planner is an award-winning calculator that can help you prepare.  This easy to use tool offers very detailed and sophisticated calculations and includes retirement health care costs.

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Didn’t Save Enough for Retirement? Don’t Worry: Here Are 10 Tips for Making it Work Wed, 14 Oct 2020 15:26:00 +0000 If you think you haven’t saved enough for a truly secure retirement, think again.  The impossible could become possible with these 10 creative ways to retire. You see, saving diligently your entire life and then quitting work to play bridge is only one way to get to retirement. And, the odds are that it is…

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If you think you haven’t saved enough for a truly secure retirement, think again.  The impossible could become possible with these 10 creative ways to retire.
ways to retire

You see, saving diligently your entire life and then quitting work to play bridge is only one way to get to retirement. And, the odds are that it is not YOUR way.

There are literally of hundreds if not thousands of different levers that can be used to pull off financial independence in your 50s, 60s and beyond.

Here are 10 ways to retire: even without adequate savings:

1. Take a Mini Retirement or Gap Year

If you are emotionally or psychologically ready for retirement, but your finances are not quite there, you might explore taking a mini retirement – an extended (3-12 month) vacation from work.

Many people nearing retirement age find that an extended break from work is enough to recharge and re-energize.  The trick is convincing your employer to let you have this precious time off. According to the Society for Human Resource Management, unpaid sabbatical leave is offered officially by only 12 percent of employers and only 4 percent of employers offered paid leave programs.

However, it may be worth exploring your individual situation with a human resources manager.

Quitting your job with the hopes of finding a similar job upon your return is another option. However, many people who take a retirement gap year actually discover an encore career and new passions during their mini retirements.

If this idea interests you, learn more about taking a sabbatical, mini retirement or gap year…Or, model a gap year in your retirement plan with the NewRetirement Planner.

2. Prioritize What’s Important and Dramatically Scale Down Expenses

Living frugally is never going to be easy street, but it can be extremely rewarding to stay focused only on the things that are truly important to you.

Most financial advisors make the assumption that we need to maintain our lifelong spending habits when we retire. While this IS true for most of us, many people redefine themselves in retirement and can dramatically reduce spending – one of the best ways to retire securely.

Retirement is an excellent time to take stock of what you have and what you want. If you know what is most important to you, you can set goals and figure out a way to achieve your highest priority.

A few tips:

Look Carefully at Your Current Spending: When you have established what is important to you, assess your current budget.  Take a really detailed look at everything you spend money on – many people are surprised to learn how much little things that don’t really matter in the long run can add up over the course of a month.

Create Detailed Projections: Use the NewRetirement Planner to create a detailed budget for your projected spending.  When you get specific about your needs and how those will vary over time, you may find out that you are much better off than you thought.

Cut Costs: Figure out how to slash both the big (eliminating your car can create sizeable savings) and small costs.  Get rid of anything and everything not related to your top priorities.

Assess Lifestyle: Take a look at where you live, who you spend time with and what you do on a daily basis.  If these aren’t in line with what is important to you, then make changes that can save you money and help you live a more meaningful life.

Remind Yourself About What is Important: Write down your retirement priorities and refer to them daily.

It may even be helpful to write a list every day about what you want to accomplish and why.

These simple tasks can help you stay on track.

3. Or, Spend More! Just Not Every Month…


Yes, your heard me right. You could perhaps spend more in retirement and still have a secure future.

You see, a lot of people plan retirement thinking that they will keeping spending the same amount forever into the future as they do now.  However, that is probably NOT what is going to happen.

You might need and want to spend more right after you stop working when you are relatively young and want to travel or engage in new hobbies.  But, your spending will likely drop off as you get older.

Thinking through the details of your retirement spending — and giving yourself some leeway to spend more (maybe just a little bit more) in certain years and less (perhaps much less) at other times might just enable you to retire sooner than you had planned.

The NewRetirement Planner helps you think through detailed budgeting for your future and you can vary your overall spending as well as your spending in individual categories to get to reasonable projections.

4. Think Outside the Box (Rethink Housing)

Many people don’t think much about their home when creating a retirement plan.  However, your home is probably your single greatest expense. According to the Employee Benefit Research Institute, the cost of home and home-related expenses accounts for about 43% of spending for those who are 65 to 74. Reducing this cost could be one of the best ways to retire securely.

Furthermore, if you own your home, then it is also probably your most valuable asset and one that could be used to help fund retirement expenses.

Rent Out Your Home or a Room in Your Home: House sharing is becoming more and more common.  And, Airbnb has absolutely exploded in popularity.  Renting out a room in your existing home (or your whole home when traveling) – either on a permanent or short term basis – can be a great way to help fund retirement because it uses an existing resource to generate money. Learn how to become an AirBnB host here.

Downsize:  If reducing housing costs and releasing your home equity interests you, downsizing may be a great option for you.  When you downsize you sell your existing home and buy or rent something less expensive.  It can be a smaller home or a residence in another community. Learn more in this complete guide to downsizing.

Go Teeny Tiny:  There is downsizing and then there are tiny homes.  If you think that you could live in 500 square feet or less, then a tiny house could simplify your lifestyle and finances.   And, did you know that about 40 percent of tiny houses are inhabited by older adults?  Is a tiny house the big solution for your retirement plan?

Get a Reverse Mortgage: A reverse mortgage is a loan against your home equity. However, unlike traditional mortgages, you do not have to pay back the money borrowed as long as you are living in the home. If you want to stay in your existing home, a reverse mortgage is an interesting way to eliminate ongoing monthly mortgage payments and get access to cash to use for retirement expenses.  More about reverse mortgages.

Hit the Road: A few retirees sell most of their possessions – including the home – and hit the road.  Could you imagine living in a motorhome or houseboat and traveling during retirement?

5. Pay Attention to the Big Opportunities

Besides housing, taxes, debt and Social Security — especially Social Security — are probably the biggest levers you have for making retirement work with inadequate savings.

Debt: Imagine if you could spend the money you are currently using to pay down your debts every month!  Being debt free costs a bit up front, but it is key to being financially free in the long run.  Paying interests on debt is akin to lighting money on fire. Get rid of your debt as soon as possible.

Here are 7 Reasons to Pay Off Every Penny Before You Retire…

Taxes: Being tax smart with your retirement plans can mean more accurate projections and more money in your accounts.  From where you live to income planning, there are many different ways you can reduce your tax burden. The NewRetirement Planner will help you discover opportunities.

Social Security: So, what could you do with an extra $100,000?  A lot I’ll bet!  Waiting to start Social Security could potentially get you that kind of cash.

The longer you wait to start benefits, the more you will receive monthly and this can add  up to a $100,000 extra at your disposal — depending on how long you live.

6. Find Work that Feels Like Play

You don’t want to work – working is not “retirement.” However, maybe you enjoy cooking, woodshop or spending time with dogs.  There are more and more ways to make money from these types of hobbies.

If there is something you enjoy doing, you can probably figure out a way to get paid for it.

Explore 50 more passive income ideas!

7. Retire Abroad

The United States, especially certain parts, are extremely expensive places to live.  Retiring abroad can offer adventure and a dramatic reduction in cost structure for your retirement.

There are affordable places to live in all corners of the world – places where the climate might be a little warmer, where the cost of housing might be a little (or a lot) less expensive, and the healthcare might be more affordable.

But is it realistic to think you can afford to spend your retirement years living in some exotic locale? Not only is retiring abroad plausible, the number of retirees who have actually done this has more than doubled since 2006. And the kicker? They’re doing it for a lot less money than you might think, some as low as $40 per day!


8. Don’t Set a Date – Transition into Retirement

Once upon a time, long long ago…  we set a date and planned a big party for retirement. You went to work one day and then never again.

These days more and more of us have a different perspective on a retirement date.  Retirees today transition into retirement either by going part time for a few years or we find a retirement job.

9. Stay Healthy and Make Good Insurance Choices

Some retirees spend more in their lifetime on out of pocket healthcare costs than they earn in Social Security.  You can do a lot to cut those costs by staying healthy and by choosing Supplemental Medicare Coverage carefully.

Shopping around for the best supplemental Medicare plan should be done every year.  Plans change.  Your health needs change.

Here are 12 ways to save on retirement healthcare costs.

10. Have a Detailed Retirement Plan and Make Smart Retirement Decisions

Creating a retirement plan might not seem like one of the most “creative” ways to retire.

However, only 30% of Americans have a long-term financial plan that includes savings and investment goals and a detailed outline for their retirement finances. So, if you have a plan, you are at least unique – if not creative!

And, the good news for planners? The retirees who went through a rigorous planning process to figure out “how to retire” expressed the most satisfaction with retirement.

The NewRetirement Retirement Planner makes it easy to create a detailed plan and discover ways to retire securely. Beyond these “creative” ideas – explore how delaying the start of Social Security or optimizing investments can give you a better future. Start by entering some basic information and get some initial feedback on where you stand.

Then you can add a lot more detail and really get an accurate estimate for how much you need.

Best of all, you can try an infinite number of scenarios. See how downsizing, a retirement job or reducing expenses will impact your finances.  Forbes Magazine calls this system “a new approach to retirement planning” and it was named a best retirement calculator by the American Association of Individual Investors (AAII) and CanIRetireYet.

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Changes Coming to Social Security & Medicare: Small COLA and 6 Other New Developments for 2021 Wed, 14 Oct 2020 12:33:45 +0000 To say that Social Security and Medicare are important to the financial well being of seniors would be an understatement. Sixty-two percent of eligible beneficiaries rely on Social Security income for more than half of their income. And almost everyone who is eligible uses Medicare to help fund their healthcare after 65. Here are the…

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To say that Social Security and Medicare are important to the financial well being of seniors would be an understatement. Sixty-two percent of eligible beneficiaries rely on Social Security income for more than half of their income. And almost everyone who is eligible uses Medicare to help fund their healthcare after 65.

Here are the changes coming to Medicare and Social Security next year.

Any increases in benefits or payments are important. This week, both Social Security and Medicare had major announcements about benefits for 2021.

1. Social Security Benefit to Increase by 1.3 Percent in 2021

Every year Social Security announces a Cost of Living Adjustment (COLA) for Social Security benefits. Over the last 40 years, benefit increases have been as high as 14.3% and as low as zero.

In 2019 benefits increased by 2.8%, and in 2020 the benefits increase was 1.6%.

Due to low inflation, this year the Social Security Administration announced the boost for 2021 is a modest 1.3%. That will result in an average increase of about $20 a month for the 70 million seniors who collect benefits.

You can model your Social Security benefits increase as part of your overall retirement budget in the NewRetirement Retirement Planner.

2. Social Security Increase Will Not Adequately Cover Rising Senior Expenses

Social Security benefit increases are based on an inflation calculation called the Consumer Price Index for Urban Wage Earners and Clerical Workers that measures the wages of clerical and wage workers in cities. This way of measuring inflation doesn’t take into account costs specific to seniors, and if Social Security does not keep pace with the actual rise in prices, then beneficiaries can afford less.

A 2018 report from the Senior Citizens League found that the purchasing price of Social Security benefits has declined by a whopping 34% over the last 18 years. In addition, “since 2000, COLAs increased benefits a total of just 46 percent, while typical senior expenses have jumped 96.3 percent.”

Mary Johnson, Social Security policy analyst for The Senior Citizens League, told CNBC that “The flat COLAs make it more difficult for retirees to be able to afford to pay for Medicare Part B premiums, which are going up about three times faster than the annual benefit increases.”

To rectify this oversight, the Senior Citizens League advocates a different inflation measure for seniors, the CPI-E (CPI for the elderly) that would account for rising costs specific to seniors like prescription drug costs, food and senior housing.

3. The Social Security Full Retirement Age Increases, Again

The full Social Security retirement age (the age at which you can collect 100% of your monthly benefit) will increase again in 2021 to 66 years and 10 months.

The full retirement age will increase again in 2021 by another two months and again in 2022 to 67 years.

Workers may still claim Social Security benefits as early as 62-years-old, but the amount of their benefit will be 29.17% less than their benefit if they wait till full retirement age to claim.

4. The Wealthy Can Get a Higher Maximum Social Security Benefit

In 2021, well-to-do retirees can net quite a bit more each month. According to the Social Security Administration, the maximum monthly benefit at full retirement age will increase to $3,148 in 2021, up by $137 from 2020.

That’s an extra $1,644 a year for lifetime upper-income earners during retirement.

On the other hand, The maximum amount of wages taxed for Social Security will be $142,800 in 2021, up from $137,700 in 2020.

5. Fallout from the Presidential Election

There is no doubt that whomever is elected president in 2020 will have a significant impact on Social Security and Medicare in 2020 and on the future of the programs.

For example, switching Social Security COLA benefits to the CPI-E calculation, the plan supported by the Senior Citizen’s League, is a part of presidential nominee Joe Biden’s platform. Biden has also outlined a slate of very specific initiatives to “preserve and strengthen Social Security” and to “protect and strengthen Medicare” among other policy proposals designed to benefit older Americans.

President Trump’s official web site does not mention Social Security or Medicare. The Republican party’s platform says that they will: “Protect Social Security and Medicare.”

6. Medicare Costs to Rise

The costs and benefits of Medicare are also adjusted every year. The increases for 2021 have not been announced as of this writing, but Congress passed a measure to limit how much Medicare Part B premiums can go up this year, and President Trump signed it into law on October 1, 2020. The cap for premium increases is 25%.

The Centers for Medicare and Medicaid increases for 2020 were:

  • The standard monthly premium for Medicare Part B will be $144.30 in 2020, up from $135.50 in 2019.
  • The annual deductible for Medicare Part B (covering some costs related to physicians, outpatient hospitals, home health, medical equipment, and other services not covered by Part A) will be $197 — a $7 increase.
  • The Medicare Part A inpatient deductible will be higher — the exact amount depends on the number of quarters of work history you have.
  • The maximum allowable deductible for standard Part D plans will increase to $435 in 2020. And the out-of-pocket threshold will increase significantly to $6,350.

7. Limited Medicare Coverage Options

Medigap plans C and F were not be available to new enrollees in 2020.

Starting in 2020, the Medicare Supplement plans that pay the Medicare Part B deductible were no longer available to newly eligible enrollees. This change is part of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

Do Social Security and Medicare Changes Mean It’s Time to Update Your Retirement Plan?

It is important to keep your retirement plans up to date.

You may want to update your:

  • Social Security benefit amount
  • Optimistic and Pessimistic inflation rates
  • Medical inflation rates
  • Anything else in your plan that may have recently changed

The NewRetirement Planner makes it easy to create and maintain a detailed and reliable plan.

The post Changes Coming to Social Security & Medicare: Small COLA and 6 Other New Developments for 2021 appeared first on NewRetirement.

How Do You Compare? Average Cash, Savings, Home Equity and Other Balances Fri, 02 Oct 2020 00:29:20 +0000 According to reporting from the Transamerica Center for Retirement Studies, retirees have a wide variety of savings and investments.  Here are the average cash, savings, and home equity balances in the U.S.  Keep reading to see how your accounts and investment types compares to that of most retirees.  Use the NewRetirement Planner to see your…

The post How Do You Compare? Average Cash, Savings, Home Equity and Other Balances appeared first on NewRetirement.

According to reporting from the Transamerica Center for Retirement Studies, retirees have a wide variety of savings and investments.  Here are the average cash, savings, and home equity balances in the U.S. 

Keep reading to see how your accounts and investment types compares to that of most retirees.  Use the NewRetirement Planner to see your totals now and projections for further growth. And, make adjustments and try different scenarios to maximize your wealth.

NOTE on Average versus median: The average numbers you will review below are usually higher than the median because very wealthy individuals can inflate the average. The median is just the middle number in a set of numbers.

Cash and Cash Accounts

You want money in cash accounts that you will need for shorter term living expenses and emergencies.

Living Expenses: You want cash available to cover your spending needs that are not met by existing income.  Ideally you have cash available for the next 6 months to 2 years of spending.  Use the NewRetirement Planner to see the delta between your income and expenses.

Emergency Cash: Most experts recommend that you have enough emergency cash to cover 3-6 months of living expenses.  In a pinch? Explore the best and worst sources of emergency money.

There are three common types of cash accounts: checking accounts, savings accounts and… cold hard currency.

Checking Account: 77% of Retirees Have a Checking Account

Before ebanking, it was almost impossible to function without checking.  And, Transamerica reports that a full 77% of retirees have this type of account.

The most recent Survey of Consumer Finances announced that the average checking balance in 2016 was $10,545 (with the median balance being only $3,400).

Balances are only slightly higher for older Americans at:

  • $10,337 for 45-54 year olds (median is $3,400)
  • $11,098 for 55-64 year olds  (median is $5,000)
  • $15,752 for 65-74 year olds (median is $7,000)
  • $15,803 for people over 75 (median is $7,600)

Average Cash Savings Account: 62% Have Savings Accounts

Transamerica reports that 62% of retirees have a savings account.

The balances listed below reflect the averages across savings accounts, money market accounts, call deposit accounts and prepaid cards.  

  • $30,563 for 45-54 year olds
  • $46,102 for 55-64 year olds
  • $51,948 for 65-74 year olds
  • $35,597 for people over 75

Cash: 46% of Retirees Keep Cash on Hand

Transamerica reports that 46% of retirees are keeping cash at home.

Since the good old days of the Y2K panic (and before), it has been a common practice for people to keep some amount of cash on hand at home.  Whether it is stashed in the mattress or a coffee can in the freezer, cash can be useful in a natural disaster when the grid might be down.

Some experts do recommend that you have about three days worth of cash to get through a tough spot. Think through what you might absolutely need to buy in a disaster and have that amount on hand.

However, also remember that keeping cash at home means that the money is not earning returns and is also vulnerable to theft and fire.

Home: 74% of American Retirees Own Their Home

Three out of four retirees own their home. And, home equity accounts for a significant portion of household wealth — growing significantly as people age.

According to Census Bureau data, households aged:

  • 45-54 have $70,860 in home equity totaling 64% of their net worth
  • 55-64 have $103,400 in home equity totaling 61% of their net worth
  • 65-69 have $136,670 in home equity totaling 61% of their net worth
  • 70-74 have $153,300 in home equity totaling 72% of their net worth
  • 75 and older have $149,860 in home equity totaling 75% of their net worth

Home equity can be a critical component of a retirement plan.  This money can be tapped by retirees in a wide variety of effective ways, most commonly through: downsizing or securing a reverse mortgages.

Model these strategies for using your home equity in your NewRetirement Plan and see the impact on your cash flow, ability to achieve your desired retirement lifestyle and net worth.

Retirement Accounts

Retirement accounts are tax advantaged accounts that are typically not used until you are in retirement. In most cases, there are hefty tax penalties for withdrawals made before you are age 59 1/2.

IRA: 36%

The Investment Company Institute (ICI) reports that 36% of all Americans have an IRA — the vast majority of those accounts being traditional IRAs as opposed to Roth IRAs or SEP IRAs, SAR-SEP IRAs or Simple IRAs. 

However, Roth IRAs are growing in popularity.  In fact,  it can be a savvy tax strategy to convert money to a Roth IRA.  (Learn more about Roth Conversions…)

The Employee Benefit Research Institute (EBRI) reports that

  • The average IRA balance is $123,973.
  • However, IRA accounts that have been held for 20 years or longer are valued at $283,200 on average.

401(k), 403(b) Or Similar Plan: 45%

According to the Pension Rights Center, 45% of all workers participate in a workplace retirement plan and 34% participate in a retirement savings plan. 

According to Fidelity, the average 401(k) balances by age cohorts are:

  • $93,400 for those ages 40-49
  • $160,000 for those ages 50-59
  • $182,100 for those ages 60-69
  • $171,400 for those ages 70-79

Types of Investments

Not all investments are equally valued by retirees.  Ownership in the stock market is the most popular.

Stocks, Mutual Funds and Exchange Traded Funds (ETFs): 58%

According to Gallop, 55% of all Americans and 58% of those over 65 own stocks. 

And the Pew Research Center, found that the the median holding for those over 65 is $100,000. Most of that investment is in 401(k) accounts, and some of it may be represented by pensions that invest in the stock market.

Certificates of Deposit (CDs): 20%

A Certificate of deposit is a deposit you make with a bank that includes the promise that you won’t withdraw the money for a set period of time. To make that deal attractive, the bank gives you a better interest rate than you get with a regular savings account. 

After a long decline in use, CDs have been making a come back.

Transamerica reports that 20% of retirees have CDs.

Bonds: 12%

A bond is debt you can buy from a government or a corporation. You loan the bond issuer money for a set period of time, and they pay you a premium for that loan that’s known as the yield of the bond.

Overall, direct household participation has fallen largely due to low interest rates.

Transamerica reports that 12% of retirees have bonds.

Real Estate Investments: 9%

There are many different ways to invest in real estate beyond owning rental property. 

Transamerica reports that 9% of retirees have real estate investments.

No Investments: 12%

Cue the sad music. The reality is that many retirees don’t have investments at all.  The good news? It is possible to live on Social Security alone

Own Their Own Business: 1%

While this percentage is low, more and more retirees are starting businesses after retirement and they are good at it.

According to the Global Entrepreneurship Monitor (GEM), the highest rate of entrepreneurship worldwide has shifted to the 55-64 age group. And, entrepreneurial activity among the over 50s has increased by more than 50% since 2008.

In America, 34 million seniors want to start a business.

Learn more about financial success later in life and explore 12 business ideas for over 50.

Annuities: 18%

Transamerica reports that 18% of retirees are getting income from an annuity.

An annuity is a payment stream that you purchase with savings.  You are paying a fixed sum of money for a predetermined revenue stream. 

You can model an annuity purchase as part of your overall NewRetirement Plan.  Annuities are a great way to guarantee income rather than relying on riskier investment options.

The Most Valuable Asset? A Plan!  Only Done by 18% of Americans

Odds are that because you are reading this article, you are doing better than the averages — far better.  But, do you have what is actually perhaps the most valuable and underutilized asset?  A plan? A written plan for your retirement finances?

However, according to Fidelity, only a mere 18% of Americans have a written retirement plan.

When you retire, you are no longer living month to month or year to year. When you stop working, you are dealing with a finite set of financial resources that need to be budgeted to fund the rest of your life. You really do need a plan.

It is easy to create, manage and track a retirement plan with the NewRetirement Planner. Best of all, the comprehensive system enables you to do better with your time, taxes, investments, healthcare and more for more wealth, security and happiness. 


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