How I drive my wife nuts so we can spend more.

Retirement is all about resting, relaxing and enjoying, which is why you should care about your core expenses.  Core costs are those mandatory month-in and month-out expense that you must pay to live, e.g. property tax, food, utilities, insurance, healthcare, etc.  Discretionary expenses, on the other hand, are costs you can manage and reduce, either over the short or long term if necessary.   Typical discretionary expenses in include recreational costs (golfing), eating out, travel, charity, and personal care. Core expenses in retirement (according to recent research) will continue to grow with inflation as it is what you need to live, while discretionary expenses (the “fun” expenses) tend to increase at first, peak and then decline in retirement as you age. So, to maximize your fun in retirement and reduce your exposure to inflation, and at the same time help your retirement nest egg last longer, you should seek to reduce your core expense as you head into retirement.  And by doing so, as a bonus, you may be able to increase your discretionary (“fun”) expenditures. Looking at it another way (and this is where I drive my wife nuts), let’s figure out how much money you need in your retirement portfolio to pay core expenses, for example, property taxes.  In my case, I pay about $8k a year in property tax each year.  Now, if I pay $8k a year (ignoring any increases) for 30 years and I use a relatively conservative 3.5% annual retirement portfolio withdrawal rate, I would need to have $228k in my portfolio when I retire just to fund my future property tax.  Wow, that...

What is My Longevity and Why Do I Care?

Longevity is the length or duration of your life, and it is important in retirement planning because it determines how long your assets need to support you after you stop working.   Underestimating longevity is one of the most consistent mistakes my clients make when thinking about their retirement. According to a 2012 report from the Society of Actuaries, if a male makes it to 65 there is a 40% chance he will live to age 85 and a 20% chance of living until age 90.  A female, on the other hand, has a 53% chance of making it to 85 and a 31% of making it to age 90.  And if they are a couple, at age 65 one of them has an almost 20% chance of making it to age 95. So, to put it in a slightly different context, if you go to work at age 25 retire at 60 and live until 90.  You will spend almost as much time retired as you do work, which means longevity is critical in retirement planning.  If you do not save enough while working or if you spend too much in retirement you could outlive your resources. If you would like to learn more about longevity or if you want to get a better idea of your longevity explore the links below. Longevity Calculator:  www.Livingto100.com All about Longevity – Stanford Center on Longevity:  http://longevity.stanford.edu/ Life Expectancy Data – CDC –  https://www.cdc.gov/nchs/fastats/life-expectancy.htm Society of Actuaries Report –...

What is the Ideal Age to Apply for Social Security?

My standard answer is you should wait until age 70, or at least as long as possible.  Social Security is an inflation-adjusted annuity that increases (in addition to inflation adjustments) every year you wait after age 62.  As a retirement planner, I advocate waiting to help my clients mitigate longevity risk (outliving your money) and the impact of inflation on your living expenses. The Social Security Administration (SSA) will calculate your payment at your Full Retirement Age (FRA) based upon an adjusted average of your highest 35 years of earnings.  FRA has traditionally been age 65 but was indexed in the early 1980’s to recognize longer longevity and to help boost the system.   If you apply for SS before your FRA your payment will be discounted, but if you wait it will be increased each year.   In my case, since I was born in 1958, my FRA is age 66+ 8 months which is when I will receive 100% of payment.  On the other hand, if I apply at age 62 I will receive 72% the payment, and if wait until age 70 my payment will be 127% of my calculated benefit at my FRA. There are a couple of additional considerations.  First, the survivor’s benefit of a married couple is based upon the higher of the two individual payments.  So, to maximize survivor benefit (which would keep my wife very happy) it is advantageous to delay the higher of two wage earns to age 70.   The second consideration is longevity.  The above advice is based on the belief you will lead a full life – the average longevity...

The CONFESSIONS OF AN OBSESSIVE PARENT….. or “What I learned during the college selection process.”

Helping your children navigate the college selection process is probably one of the most important tasks you will do as a parent. Yet, like a lot of decisions in life, it is filled with emotion, frustration, a lack of full knowledge and ultimately parental ego. I have now been through it twice, with my now 24 year daughter and most recently my 18 year old son. And I am proud to admit, my daughter’s college counselor only had to call me twice to ask me to “relax” and to let me know she was on top of her college applications and essays. What I have learned, my thoughts, and my opinions follow. I hope they help you … The college decision is highly emotional and can be ego driven… as we all like to hear ‘’Oh that’s a great school” Yet, it is also an investment decision, an investment in human capital that should generate an attractive yield over the long term. One should weight carefully the cost of a particular school versus the potential earnings of the student’s chosen career. Does it make economic sense to pay or borrow up to $200k to prepare for a career that pays $18k per year? Perhaps, there is a more affordable school or a different career path. “Pursuing one’s dream” is an important goal which should be part of the decision process, but there are also economic realities that should be incorporated in the decision.  Highly selective schools like Harvard, Yale and Northwestern are great goals to strive for, but by definition the vast majority of kids will not get into...

Twelve Simple Truths About Investing.

The stock market historically creates wealth over the long term through reinvestment and compounding. Over the long term the return on equity investments exceeds inflation. In the short term the market is highly volatile, so it is only for long term investors. Risk takes a number of forms but is commonly measured through volatility (standard deviation). Asset allocation, the percentage of stocks versus bonds in your portfolio, is the primary method for managing portfolio risk. Sector allocation is a viable means to reduce risk through diversification (negative correlations) and facilitate yield through rebalancing. Index funds are low cost and tax efficient. Over the long term passive portfolios of index funds will beat active portfolios the vast majority of the time. It is almost impossible to pick winning active managers or stocks over the long term. Returns and valuations over time will revert to the mean. A diversified portfolio consisting of securities with negative correlations will maximize return and minimize risk over time. A diversified portfolio with low volatility will generate more cash return over time than a similar highly volatile portfolio with the save average return. The Conclusion?   Holding a diversified portfolio of low cost, tax efficient index funds over the long term will maximize your wealth.  Beyond that, one should concentrate on what you can truly control your savings and spending....