Deciding when to retire

August 1, 2013

For many working Americans, the most important financial decision they will ever make is deciding when to retire.

Retirement age can vary greatly from one person to another. Obviously, very wealthy professionals, executives, business owners and others may have the means to retire comfortably whenever they’ve had enough of the daily grind.

But for the vast majority of working Americans, retirement is something that must be planned and paid for through a lifetime of saving and investing. Until you’ve saved sufficient assets to fund a viable retirement, your options are very limited.

There are a number of factors to consider in planning for your retirement. Whether you work through these issues on your own or with the help of a financial advisor, you need to give serious consideration to when and how you wish to retire.

Here are several questions you need to answer before you can set a retirement date:

How much money will you need each month to pay your bills? In some cases, you may be able to live on less than you did during your working years, but in my experience working with clients, I find that they often spend more in retirement because they have more leisure time. They may travel more and become involved in more outside activities. The other factor to keep in mind is inflation. The cost of living tends to double about every 25 years, so you’re going to need twice as much money to cover your expenses in 25 years than you need now.

How’s your health? If your health is declining, you may have no choice but to retire as soon as possible. But if your health is still good and you have the interest and energy to continue working, you might want to work beyond age 65—either full- or part-time. By working longer, you can use your earnings to live on rather than tap into your retirement savings, and can even add to that savings and give your investments more time to grow.

What is your family’s history of longevity? If your parents or most of your family has a history of living well beyond age 65, it will be important for you to build up an investment nest egg that can sustain you for two or three more decades. That may mean that you’ll have to work well into your sixties and possibly beyond to build up a large enough retirement account to get you through your golden years.

The biggest mistake would be to retire too soon. While the lure of carefree retirement days may tempt you to leave the work force early, you need to be sure you have enough assets and income to pay the bills for two or three decades to come.

Before you take any action, you might want to discuss your situation with your tax advisor or financial advisor to see which course of action would make the most sense for you.


Dream a Little Dream: Know where you want to go

July 10, 2012

People often think defining an investment strategy is the first step in creating a solid financial plan. Slow down. Before you even begin to gather all the information you’ll need to form an investment strategy, sit down on the porch or patio or in front of the fireplace (with your spouse or partner if you have one) and let your mind roam.

What do you really want from life? If you could do anything you want, what would you do? Don’t put financial restrictions on yourself now. Dream. Stretch a little. Once you have that dream defined and you know roughly where you want to go, you can begin to determine what role a financial plan can have in helping you live that dream. 

A good investment strategy begins by identifying your specific individual goals and the time you have to achieve them. Those highly personal decisions, very often driven by your love of others, will suggest your strategy. Your strategy may include shorter- and longer-term objectives.

Are you investing to buy a house, pay for college or to retire with sufficient income to support the lifestyle you desire? How much money will you want for each objective? When will you need it? How can you get there? Will you have to make trade-offs to achieve those goals? Which take the highest priority?

The answers to all of those questions will help you determine your individual strategy. Without that strategy it is nearly impossible to know how to invest.


Be It Resolved: Meet Your 2012 Money Goals

January 4, 2012

The time for those New Year’s resolutions is upon us.

In my opinion, making financial resolutions doesn’t have to be painful. If you follow some simple guidelines, financial and other resolutions don’t have to be overwhelming. Remember that the key to reaching any goal is to make it specific, achievable and measurable. Celebrate and reward yourself once you get there. And realize that it’s perfectly acceptable – and smart – to ask for a little help when needed.

Be it resolved: Health first
Before getting into financial resolutions, I want to mention how important it is to consider your health and make it a priority. This is a great place to start with resolutions because there are so many ways to improve health without spending much money. You can go for more walks, which are absolutely free. Or take an exercise class or buy (and use!) a cookbook that focuses on healthy foods. Try a healthy new activity and see if it gives you some extra energy and enthusiasm for your financial resolutions.

Be it resolved: Save and invest more
Based on my conversations with clients, family members and friends, saving more and spending less always seem to be the most popular financial resolutions. The two things go hand in hand and may sound simple, but many people find it difficult to build their savings to the level they desire. You need the right perspective and a specific, achievable savings goal in order to succeed.

Saving really boils down to paying yourself first. For most people, a realistic goal is to save 10 percent of your income. If your employer offers a retirement savings plan with matching contributions, resolve to make the most of it and contribute as much as you can. It is one of the best ways of boosting your savings. You may also want to open and begin making regular contributions to a Roth IRA, which allows you to make tax-free withdrawals of your direct contributions at any time.

Be it resolved: Pay off inefficient debt
If you are one of the many people who want to dump a debt burden this year, you need to know that not all debt is created equal.

Efficient debt isn’t so bad, but you will want to get rid of inefficient debt as soon as possible. Efficient debt works for you because it is tax-deductible and/or appreciates in value. Examples include a home mortgage or an investment in education that can increase your earning power. Inefficient debt includes high-interest credit card debt and debt used to buy things that depreciate and are not deductible, like automobiles and many other consumer goods. Resolve to pay off inefficient debt first.

Be it resolved: Consult a financial advisor
If you feel overwhelmed just thinking about financial resolutions, it’s the perfect time to consult with a financial advisor. A professional can help you get organized, identify goals, save time and find ways for you to maximize your financial efficiency this year.

Best wishes for a healthy and prosperous 2012!

Wealth Enhancement Group


Simple Truths

September 7, 2010

As a financial advising firm, one of the simple truths we have learned is that relationships are the single greatest influence on how people use their money and plan for the future. When people talk about their hopes and dreams, they talk about the people they love. Their future, the life they wish to live, is always full of the people most important to them. They don’t talk first about dollars and cents, Dow averages, or bond yields. They talk about a spouse, a parent, a child. When imagining their financial futures, even those without family often focus on others, such as employees, friends, faith communities, and charities.


The Propensity to Consume

August 31, 2010

Most People and most societies consume what they can. Americans are notoriously short-sighted, as demonstrated by a low personal savings rate by international standards. There could be many explanations, from a standard of affluence that has distanced us from the struggle for mere survival, to our propensity to invent and create that places a premium on spending whatever money we have in order to create more. We are the consumer society. Just look at the ads in magazines or newspapers and calculate the percentage of them that sell what for most people are luxuries.
You may be surprised to find that you are guilty of a habit that dooms you to never having money. Some people who constantly feel money pressure buy themselves little treats or rewards, in part because they never have the money to buy themselves what they really want. But it’s precisely that accumulation of “little” expenses that prevents them from getting ahead. Many don’t even realize they do this. The only way to find out is to keep track of what you spend. Do it for a week or a month. Try to remember each expenditure, no matter how small. Record everything in a little notebook each day. Add them up in different categories at the end of your test period: food and drink, entertainment, utilities, gifts and so forth. Pay particular attention to the small expenditures on unnecessary items and see how they accumulate over time.


Necessities or Luxuries

August 3, 2010

Most spending falls into two simple categories: necessities and luxuries. Almost every dollar you spend could be divided in that way. The challenge of dividing our spending in such a way, however, is made more difficult because of the simple fact that most of us are not now and never have been in dire need.

Still, a “necessities versus luxuries” spending breakdown is useful for anyone trying to organize their finances and use their money efficiently. Most people spend most of their money, as opposed to saving, investing, or giving it away. Therefore, whether you are buying necessities or luxuries, spending has to be the starting point for any financial planning. A dollar spent is not a dollar that could be used in another way; a dollar not spent has the same future value as a dollar earned. You can increase the size of your financial pie only three ways: spending less, earning more, or, in some cases, paying less tax.


Saving: The First Step

January 14, 2010

We save money for three reasons:

• To meet emergencies. I recommend that people maintain liquid savings, which means that money is readily accessible in bank accounts or money market funds, to cover six months of basic living expenses
• To spend
• To invest

Saving is quite different from investing, although the two are often confused. We can save without investing, but we usually cannot invest without saving. Investing presumes that assets have a reasonable expectation of producing earnings or appreciating in value. I do not believe most passbook savings accounts or even many certificates of deposit that pay fixed interest meet this definition.

Your savings for emergencies and to invest should be, at a minimum, equal to 10 percent of your income — and it should be the first 10 percent of your income. Save first, spend later. Saving for other purposes, such as the new plasma TV or a vacation, should be in addition to the 10 percent for emergencies and investing. All money you take in should be subject to this 10 percent rule. If you get a gift or a windfall, such as an inheritance, at least 10 percent should go into long-term savings. If you get a raise, increase your savings to match.