Basketball great Kareem Abdul-Jabbar wrote for Esquire the 20 things he wish he’d known when he was 30. He covers a range of topics. Each of us probably has wished we’d known the importance of many of these, though some are unique to Kareem and a few others. You probably have other lessons you wish you’d known way back when. Read it and see where you agree and disagree with Jabbar, and what you’d say to a youngster that he doesn’t list.
2. Ask about family history. I wish I’d sat my parents down and asked them a lot more questions about our family history. I always thought there would be time and I kept putting it off because, at thirty, I was too involved in my own life to care that much about the past. I was so focused on making my parents proud of me that I didn’t ask them some of the basic questions, like how they met, what their first date was like, and so forth. I wish that I had.
3. Become financially literate. “Dude, where’s my money?” is the rallying cry of many ex-athletes who wonder what happened to all the big bucks they earned. Some suffer from unwise investments or crazy spending, and others from not paying close attention. I was part of the didn’t-pay-attention group. I chose my financial manager, who I later discovered had no financial training, because a number of other athletes I knew were using him. That’s typical athlete mentality in that we’re used to trusting each other as a team, so we extend that trust to those associated with teammates. Consequently, I neglected to investigate his background or what qualified him to be a financial manager. He placed us in some real estate investments that went belly up and I came close to losing some serious coin. Hey, Kareem at 30: learn about finances and stay on top of where your money is at all times. As the saying goes, “Trust, but verify.”
Apparently there’s a guy in Colorado who, along with his wife, retired by the time he was 30. He also has a blog that attracted a fair amount of attention. You can read his story in this article.
His story supports a conversation I’ve had many times. Someone will ask me, “When can I retire.” I say, “You can retire any time you want. It’s a question of lifestyle.” The gentleman in the story lives on about $25,000 annually, and says his family really can’t spend that much. So, they probably don’t do or have a lot of things in the typical retirement. They’re also not fully retired. In addition, to his blog, he has other activities, some of which bring in income. Not everyone can do this, but it’s an interesting tale, and many people can learn some lessons.
But I didn’t start saving and investing particularly early, I just maintained this desire not to waste anything. So I got through my engineering degree debt-free — by working a lot and not owning a car — and worked pretty hard early on to move up a bit in the career, relocating from Canada to the United States, attracted by the higher salaries and lower cost of living.
Then my future wife and I moved in together and DIY-renovated a junky house into a nice one, kept old cars while our friends drove fancy ones, biked to work instead of driving, cooked at home and went out to restaurants less, and it all just added up to saving more than half of what we earned. We invested this surplus as we went, never inflating our already-luxurious lives, and eventually the passive income from stock dividends and a rental house was more than enough to pay for our needs (about $25,000 per year for our family of three, with a paid-off house and no other debt).
It’s no secret that Americans in general are worried about having enough money to retire and are planning to delay retirement beyond what they were thinking a few years ago. But it’s something of a surprise that Chief Financial Officers at 1,400 U.S. companies are delaying retirement and often have no idea when they’ll retire, according to a survey by Robert Half & Associates. There are a number of reasons CFOs are thinking about extending their careers. Poor investment returns and having to care for adult children are the most prominent reasons give.
The CFOs probably have an easier time extending their careers than many others. Most say they want to transition into retirement with several years of part-time or consulting work. Companies are often eager for such arrangements to transition into their new CFOs.
But 38% said they are more uncertain and cannot predict when they’ll retire. And another 7% said they plan to spend more time working than they did five years ago.
“Economic trends and personal demands are causing many executives to re-examine their retirement plans,” Paul McDonald, Robert Half senior executive director, said in a news release. “A growing number of professionals nearing the traditional retirement age are exploring project and part-time work so they can continue their careers, while gaining the flexibility to gradually transition into retirement.”
The annual Retirement Confidence Survey generated more news and commentary this year than usual. One reason is that it reveals Americans are less confident about having a financially comfortable retirement than ever. Another reason is that it indicates many people simply have given up saving and planning for retirement.
A good commentary is here. It identifies one big lie and one big fantasy about retirement among Americans. The big lie is that people now are saying they can’t save for retirement because of their other obligations. The fact is most people can save another $25 weekly simply by reducing dining out or some other nonessential expense. The big fantasy is that people will work longer. As I’ve reported in the past, close to half of current retirees retired before they planned and for reasons out of their control. People who base their retirement plans on working longer are taking a big risk.
Only 57 percent of workers are actively saving for retirement, according to the survey, down from 65 percent in 2009.
Employees eligible to contribute to 401(k) or similar savings plans at work cited the cost of living and day-to-day expenses as the top reasons why they don’t invest in those plans or don’t invest more. Roughly 1 in 5 (18 percent) said they cannot afford to save more. Workers age 45 or older who aren’t confident about having enough money for a comfortable retirement said they think they need to save an (absurdly high) average of 43 percent of their income.
But the head of Mathew Greenwald & Associates, the research firm that conducts the annual survey, says Americans’ explanation for their saving troubles is “not really true.”
Greenwald says that in previous surveys when people were asked if they could afford to save $25 a week more for retirement or start saving $25 a week, most said they could. When asked what they’d have to give up, Greenwald says, “the main thing cited was eating out.” Others identified various “minor ways of cutting back,” he adds, like spending less on entertainment, clothes and impulse buys.
Americans have less and less confidence that they will be able to fund a comfortable retirement, according to the latest annual Retirement Confidence Survey by the Employee Benefit Research Institute. (See some media coverage here.) For many years, the survey indicated that Americans were very confident of having comfortable retirements but pointed out that most people weren’t saving enough to fund such a retirement. Now, more people know that they aren’t saving enough.
The survey needs to be reviewed carefully, because it covers all workers, not only those nearing retirement. The inclusion of young people just starting out skews the results. But it also reveals some alarming information, such as that only 66% are saving anything for retirement, when 75% were in 2009.
But what’s most disturbing is that less than half have made any attempt to estimate their retirement financial needs. The surveys of retirees clearly show that those who made some attempt at planning before retirement were the most satisfied and successful in retirement. You need to make some estimates. You need to get a handle on the lifestyle your current resources can finance and decide if there are steps you can take to improve things.
• Retirement savings may be taking a back seat to more immediate financial concerns: Just 2 percent of workers and 4 percent of retirees identify saving or planning for retirement as the most pressing financial issue facing most Americans today. Both workers and retirees are most likely to identify job uncertainty (30 percent of workers and 27 percent of retirees) and making ends meet (12 percent each).
• Cost of living and day-to-day expenses head the list of reasons why workers do not contribute (or contribute more) to their employer’s plan, with 41 percent of eligible workers citing this factor.
This is a different take on the tale, having nothing to do with my book Invest Like a Fox…Not Like a Hedgehog. This is a story and video about a fox and a hedgehog dining together.
‘The hedgehog was there first and was just drinking away when the fox came along. There was no animosity and the hedgehog didn’t seem fazed.
‘After a while, the fox just seemed to give up and wander off.’
Most of the financial media is filled with articles about how poorly prepared the Baby Boomers are prepared for retirement. Here’s a different take. It cites several studies that crunched the data and concluded that the early Baby Boomers are in pretty good shape. They had significant home equity before the housing crash (because they were early home purchasers) and overall lost only a small percentage of their net wealth in the financial crisis and its aftermath.
The studies differ from the more widely-publicized studies for several reasons. One reason is these studies take Social Security into account. Most studies, which are sponsored by financial services firms that want to increase savings and investments, don’t consider Social Security. Yet, it’s an important foundation of retirement income and the bulk of retirement income for many American retirees.
These studies also differentiate among the Boomers. They focus on the early Boomers. They also consider different segments of the early Boomers. While most of the early Boomers will do well, lower-income Boomers are in bad shape and will need help in retirement.
The right conclusion here is to ignore rules of thumb and general comments when planning for retirement. Consider your own needs and circumstances and develop an individual plan.
Put it this way: A majority of boomers seem to be on a reasonable path toward retirement. Yes, many—perhaps a third—will find that it pays to earn a paycheck for a few extra years, hardly an unrealistic expectation considering today’s 65-year-old has the same mortality and health as a 54-year-old did in 1947. The combination of accumulated wealth, additional savings, and working longer means many leading-edge boomers, as well as the younger members of the generation following them, won’t retire penniless. The future is brighter than the searing experience of recent years would suggest.
There’s been a lot of media hoopla lately about how well households are doing in the recovery. For example, Fidelity reports that 401(k) balances are back to their 2007 highs, and the Federal Reserve reported household wealth is above 2007 peaks.
But there’s a problem with the way many people perceive the news. Many reports imply that it was okay for people to buy and hold through the crisis, and that they’re now whole. That overlooks a lot. First, a lot of the recovery in 401(k) balances is attributable to new contributions, not to investment returns. More importantly, by simply returning to where they were in 2007, people are well below the plans they had in place then. Their retirement and other plans assumed their wealth would keep growing from that 2007 peak. If you compound even a modest return from the 2007 peak and compare that level to where households actually are today, they’re way beyond. And that’s what’s holding the economy back. People aren’t borrowing and spending, because they aren’t as wealthy as they expected to be. And businesses aren’t expanding, because demand isn’t much higher than it was in 2007 and is far lower than they were forecasting back then.
Read a similar view and more details here.
As a whole, these figures may sound like a win for retirement savers – and indeed, Fidelity Investments recently announced that their customers’ average 401(k) balances had reached record highs. But the extra trillion-plus that investors accumulated in the five-and-a-half years after the last high doesn’t look that impressive in percentage terms: It represents gains of about 2.4% a year. And adjusted for inflation, balances have risen by a total of just 1.46%–for an annualized return that’s a hair under 0.3%. Again, we don’t know how exactly that number reflects actual investment performance (see all the caveats above). But considering that many retirement-planning scenarios count on a pre-inflation return of 6% or more, it certainly suggests that many savers remain well behind where they’d hoped to be.
BlackRock has a useful chart on its web site that can give you a quick and dirty read on whether you’re planning to spend too much in retirement. Choose an estimated investment return, match it to a withdrawal rate from your nest egg, and it shows how long your money will last. It’s interesting to see how much faster your nest egg is spent down when your contribution rate is increased by only one percentage point.
Keep in mind this is a rough estimate. For example, it assumes your investment return is s steady rate every year. You’re more likely to earn a variable, and that could make the actual experience better or worse.
When your business is doing well, one way to save taxes at the last minute is to set up a retirement plan and make a deductible contribution. Often you can make the contribution after the year is over. There is a wide array of retirement plan options available to the self-employed. The trick is to find the plan that’s best for your situation. This article from Forbes.com presents the best options, including who each is good for and who it’s not the right choice. If your business is doing well and you’re looking for ways to maximize your retirement savings, take a look.
Egged on by economists and Congress, more employers are automatically enrolling workers into 401(k) plans. The self-employed, by contrast, must decide to save for retirement and then pick their way through a maze of different plans, each with its own benefits and gotchas. But there’s a payoff: They’re permitted to sock a lot more away on a tax-favored basis than ordinary wage slaves. For 2013 a 35-year-old entrepreneur who nets $150,000 can shelter $47,500 in a solo 401(k). A 35-year-old employee earning $150,000 can contribute $17,500 to a 401(k), plus whatever her company deigns to kick in–$6,000 with a typical 4% company match, for a total of $23,500.
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