Wednesday, May 6, 2015

Social Security isn't secure

There's a fascinating article on the Yahoo finance page about social security with a bit about the Simpson-Bowles Plan. As we mentioned in our book Preparing for the Fiscal Cliff (published at the end of 2012), we can't count on the government for support as we age. This concerns me a lot now that I am nearing my age for withdrawing social security.

Have you noticed all the advice on the financial sites in the last few years? I've yet to see one that doesn't tell you to wait to withdraw your social security benefits. Sure you'll get a few hundred a month more if you wait (they specifically tell you it is 8% more per year), and the math is correct. Figures don't lie, but liars can certainly figure. Yes, it's true that waiting will give you a larger monthly paycheck, and if you can wait - like you are still working - then maybe go ahead and wait. But Social Security payouts were designed to give you the same total by the time you die, so you don't get  a net gain until you are in your eighties, and that doesn't take into account the investments you might make.

I don't want to sound like I believe in conspiracies, but the government is the one who benefits most if you delay taking your Social Security. For one thing, our government representatives can kick the unpopular decision of how to fix the system down the road a bit. They don't need to worry about their retirement, after all. I'm pretty sure they don't have the same system citizens do.

I plan to get my social security the minute I qualify for it. I'll spend it while I can, invest it if I'm able - but I'll get it back in my own pocket as soon as possible. I don't want the government to handle my money any more.

I don't mind the Yahoo article. Social Security has long needed reform. It's a Ponzi scheme of the highest order - and if it wasn't the government, the people who ran it would be jailed for the rest of their lives. What I object to is a little sentence in the fourth paragraph: "Graham wants to address the problem now and get entitlement funding in place for generations..."

Do you see it? I put the key word in bold and italics. Government officials - and our government of the people, by the people and for the people - is starting to spin the tale that social security money is entitlement.

That's my money. I paid into the Social Security system for over thirty-five years. I wasn't given an option. I had no say how the money was used. They took it directly from my paycheck and charged my employers for the privilege of doing so. Then they managed the money poorly, just to add insult to injury.

Yes, Social Security needs to be modified - the simple mathematics is obvious to anyone. But don't go telling me it is an entitlement. Don't forget where the money came from - my pocket - and it wasn't a donation. It was supposed to be an investment in my future.

We need to keep watching our government, keep watching the people who represent us, keep watching the people who stand apart from us and delegate financial rules they don't have to follow themselves. Now we need to watch carefully the words they use when talking about our money. If we don't, they'll rob us of what is ours.

And we'll have none to blame but ourselves.

Tuesday, April 28, 2015

Retire Early 3 - Start Planning



In the last Retire Early post, I went over my formula for determining if you can retire now. If you can, that's great! We'll cover some of the headaches associated with retiring early in a future post. For the rest of you, let's talk about getting ready to retire early.

The key to retiring early is saving enough money to do so.  That sounds easy, doesn't it? Some people get jobs that pay well. Some wait to hit it big with the lottery. Just for information, according to statistics, lottery winners declare bankruptcy at twice the national average

I agree with many of the other experts on early retirement, though. The key to retiring early is to reduce your expenses. Let's look at a breakdown of expenses for a family making $50K a year.
Caveat: I believe in supporting my church and the work it does, so I always build a ten percent tithe into my budgets. That's reflected in these numbers.


If there are children, some of these numbers must shift into the School/Child Care category. That can be very expensive and for many couples it is more cost effective for one parent to stay home.

These are generic numbers, of course. You can see that the savings (10) and investments (13) provide only $3750 per year for building a retirement nest egg. That is 7.5% - but it can be immediately increased to $5625 per year (11.25%) if you aren't paying any debts (7).

Let me make a single dramatic statement here: debt is your enemy. When you have a balance on a credit card you are working for the credit card company and not for yourself. They'll retire early and you won't.

If you can pay your house off, you jump to saving $17,875 per year, or 35.75%. Now we're talking.

Mr. Money Mustache has an excellent post: Getting Rich from Zero to Hero in one blogpost.
He makes the surprising claim that "if you can save 50% of your take-home pay starting at age 20, you’ll be wealthy enough to retire by age 37. … If you can save 75%, your working career is only 7 years." I studied his numbers and the math works.

For most of us, saving 75% of our pay isn't feasible, but think about it a minute. You didn't spend much in college or when you first started working. The trick is to keep the expenses low.

Now you might say to me "Sure that might work for some people, but I just can't do that. I'm already forty and have a lot of expenses.

Yeah, I get that. I was forty-two and reeling from my second divorce in ten years (that's an entirely different story). I had no savings, no pension, and owned nothing of value. My car was ten years old and pretty beat up, but it drove well and I didn't owe money on it, so that was okay with me. I lived in a rented two-bedroom apartment in a mediocre part of town for a mere $600 per month.

I still had bills and child support payments. I cut my lifestyle down a bit but didn’t suffer much. I don't do nightclubs; I don't smoke and I rarely drink. I eliminated all my debt within the first year. I wanted to retire, so I started saving - a lot.

Today's society pressures you to buy a new car, to live in a fancy part of town and to spend money on a lavish lifestyle. You can do that and keep working until you drop dead in your cubicle at age seventy-two or you can plan on your early retirement. It's your choice.

You can see from Mr. Money Mustache's post that it takes about seventeen years to build a decent retirement account if you save fifty percent of your income. I started saving as much as I could, which was about a third of my paycheck. Each raise got put into a savings account or into my 401K. When possible I raised the amount I put into savings. Pretty soon half my income went into some sort of savings plan.

Fifteen years later, at age fifty-seven, I retired. I don't travel to the Riviera or vacation in lavish resorts, but I don't need to get up and go to work every day. Now I can focus on doing the things in life that I always wanted to do, like write my first novel.

You can do the same. You just need to find ways to put more of your earned money into savings.
Look at ways to cut your costs. In the next Retire Early post I'll have a list of ways that Darling and I use to save money and that you can start using now.

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You can also sign up for my Author's newsletter, where I keep my readers abreast of my writing and give them insider tips on how to get their own work published. I also have an Author's blog, still in infancy.
See you soon!

Monday, April 20, 2015

Early Retirement Blogs (and a few others)

I follow a number of retirement blogs that focus on early retirement, and a few on other retirement options (mostly overseas). It occurred to me that others might not only be looking for good blogs (besides mine ;).

Joe Udo's blog Retire by 40 is one of my favorites. Joe consistently lays his finances out there for everyone to see, which is genius if you ask me. And brave.

I don't know his real name (if it is in the blog, I missed it) but the blog of Mr. Money Mustache is awesome and full of mind-blowing concepts - like smarten up and spend less. Except he's a bit more cranky about it - and twenty years younger than I am.

I just started reading Justin's blog at Root of Good and I can tell I'll be spending some time reading the back posts. Fascinating guy with a lot of good ideas on retiring early. His experiences don't parallel mine, so for me it's entirely new insights. He says he gets about 50,000 pageviews a month! Wow.

I'll admit now that I get International Living's magazine and have for years. I do take what they say with a grain of salt, though. We know people that live in some of the countries they cover on a regular basis and I think IL writes in a very optimistic style. Having said that, they are a fascinating read and their web site might be worth a visit.


On non-retirement sites, I follow Rants and Rambles. Nate Boateng doesn't write a lot, but he posts items from other sites that catch his interest - and they are often interesting to me, as well. I'm appreciative of all the reading he must do to find the good ones...

I think everyone in the world follows the blog of Tim Ferriss. Man, I sure wish the guy read (and liked) my books. Well, I like his books - and I like his blog.

I also follow the blog of Wil Wheaton (repeat comment on Tim Ferris, above). So does everyone who ever watched STTNG. Even the ones who didn't like Wesley Crusher.

Along the same lines I follow the blog of James Altucher. He almost always has something interesting to say. I once wrote an app just to follow him - I called it the James Altucher Portal. It was on both platforms for a while - Apple and Droid. It isn't there any longer, but I'll put it back when I clean up the coding. The site I used to help me do the app now costs too much and puts too many of their own ads on the app. It was embarrassing.

I just won't post an app unless I would be willing to use it.

Tuesday, April 14, 2015

Retire Early 2: Can You Afford to Retire?

Can you currently afford to retire?
I'll give you my answer now, so you don't need to read the rest if you don't want to. Take your current savings and divide it by your yearly cost of living. That's the back of the envelope way to calculate how many years you can survive without working. If your calculation can get you to age 70 or so, you're probably good.
It can be more complicated than that, but that's the basic formula I use.
If you can afford to retire now, then handling retirement becomes your next job. That will take a while, so relax, and get used to the idea of making your retirement work. We'll discuss that in a future chapter.
If you can't afford to retire yet, then you need to do some planning - and we'll look at that soon, too. Right now, let's see what it takes to retire in the USA in today's current economy.

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Have you saved $2.4 million US dollars? You read that right. That's what some pundits say it takes to retire comfortably in the USA. Some say it takes even more.
That's a steaming pile of something, but it isn't money. Sorry to be so blunt, but there it is.
Some people couldn't retire even with that much money. Some people always spend more than they make.
Did you catch that? The inherent answer to the question: When can I afford to retire?
Answer: You can retire when your expenses are less than your income. If your investments and passive income can cover your expenses, then you're set.
The government will not help you retire. You read that right.
According to the Social Security Administration, the average social security check for retired workers is $1,294. You don't get access to that money until your later sixties - so that isn't early retirement. Even Mr. Money Mustache needs about $2,000 per month - and he's badass about retirement (he says so).
Social Security isn't designed to let you retire early. In fact, if you don't do some planning, your Social Security paycheck won't even cover your normal retirement costs in the future. Oh, and the SSA expects you to retire later and later each generation. Ouch.
It's up to you. You have to plan for your own retirement.
Since it's up to you, why not plan to retire early?
On less than two million dollars in savings.

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You need money to retire - but only enough so you don't need to go to work.
You don't need enough money to travel the world, first-class. That's the trap set for the common man. We are trained to think that retirement is jetting to Rome for Easter and Germany for Oktoberfest. As much fun as that might be, that isn't what you're planning for, is it? If it is, you want to be rich, not retired.
Since your Social Security check won't cover your relaxed retirement, how much money do you need?
A lot of financial companies will help you to invest your hard-earned money with them and they will help you to calculate your need. They charge a modest fee for the financial wisdom they share with you.
Look, the only winner there is the financial company. They'll tell you "it's complicated" and "there are eight factors to consider" (or similar). Here's what they say:
If you make $50,000 per year, then by age 35, that's how much you should have in savings. By age forty-five, you should have $150,000 in savings. By age fifty-five you should have $250,000 in savings. Then you can have the eight times a yearly salary ($400,000 in this case) that you need to retire at age sixty-five.
The math works, but it doesn't help you retire early.
All the early retirees will tell you the same thing - save as much as you can, as early as you can and as often as you can.
Bottom line: if you spend all you make, you'll never have enough to retire.
The more you save, the earlier you can retire.
So it boils down to another simple financial rule - spend less than you make. (I call this the One Rule.)

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You can, and should, plan for your own retirement.
So there's the simple answer to how to retire early: save enough so that you can cover your own expenses until you die. It is a simple answer - I didn't say it was easy.
Let's take some real numbers:
Our expenses run us about $3,500/month. That includes our currently outrageous health care costs, as well as our taxes and insurance on the house. That doesn't include two first-class tickets to Italy. That would be extra.
We're working on whittling some of these costs down.
I thought those costs were pretty routine, but an article in 2014 in USA Today states that the average income needed to live the American dream is a little over $130,000/year. What?
They state that the basic expenses only run about $58K per year, which still seem outrageous to me.
Mr. Money Mustache even has a blog entry where he talks about people complaining about how they can't afford to live on their enormous incomes.

I like Mr Money Mustache.

I'm 57 years old. If I divide our savings by a yearly expense of $42,000 (still too high, but we're working on it) I easily have enough to get us to age 70. That made me comfortable, but I'm an engineer - I like numbers.
Besides, I can make some minor modifications for my own personal calculations - and you should, too.
As a retiree, I have a monthly pension of almost $2,000. That means my savings needs to only cover the $1,500/month difference. Dividing my savings by the new requirement of $18,000 leaves me with enough money to easily get to my Social Security pension, which will cover these additional monthly costs.
At that point, our savings becomes money that we can spend as we wish. So I can afford to retire at age 57 on much less than a million dollars.
We're not flying to Italy this year, though we could build that into the budget. I'm not entirely comatose, either. I'm still writing my books, and learning about publishing and distribution, so we might get extra income from that endeavor at some point.
That would be gravy.
We're not traveling the world and living in the Ritz, but I'm not driving to work every morning either. I could have waited another ten years to retire and my pension would have gone up a couple hundred dollars.
For ten more years of aggravation? I think not.
I'd rather pursue something I like doing.

***
At five o'clock this morning the clouds opened up and we were deluged with a spring storm. The water ran in the streets. I could only imagine the traffic on the route to work.
That's all I had to do - imagine it. I no longer drive to work every day. I do some of the things I always dreamed of doing, but I have to admit that most of my time right now is spent organizing my life to fit retirement.
It takes some effort. It's a different mindset for me.
Saving money is a different mindset as well. Cultivate it and learn to track your progress and you can retire early - and do the things in life you want to do.
If you did my back of the envelope retirement calculation and you can retire, congratulations! You have a new world to explore. I'm working on that now, and I'll give you some pointers in the future.
For the rest of you, you need to start planning.
What do you need?
You need to know your monthly expenses. Really. Go through your checkbook and figure out where your money went over the last few months. Most people find they spend way too much money on eating out. Don't beat yourself up over it - the first part of taking control of your finances is to understand your finances.
Here's the common categories people have in a monthly expense record. Fill in your own numbers and in the next post we'll see what we can do to find money to save.
Your savings will pave your way to early retirement. Let's get to it.

Rent or Mortgage:
Home taxes (per month):
Home insurance (per month):
Food expenses (not fast food or eating out):
Auto expenses:
Medical expenses:
Education expenses:
Utilities:
Clothes:
Entertainment:
Eating out:


In two weeks, I'll have another post for Retire Early.

You can also sign up for my Author's newsletter, where I keep my readers abreast of my writing and give them insider tips on how to get their own work published. I also have an Author's blog, still in infancy.

See you soon!
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Monday, March 30, 2015

Retire Early - Introduction



My brother's family has a joke. When things become a financial struggle, he shrugs and says that he'll end up "living in a van down by the river." I think the idea is that life would be quiet and peaceful and far from the daily struggles we all endure, but it's what he could afford.

The question, of course, is what kind of van?

I think this is what he has in mind:

I really like this one (photo links to site).

His lovely bride probably thinks of something else, more like this.

(photo links to site)


He might be able to afford one now, at least in his quiet dreams while sitting in the tree house in his fabulous back yard (he owns an amazing house with acres of trees).

When he was young, though, this is what he would have been able to afford:

I think he might have owned this one.

He manages his money pretty well. I don't think a beat-up van is in his future.

Is it in yours?

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It is critical for you to manage your money well or you could end up living in a van down by the river. Even when you first start your working life, you should be considering your future retirement - and perhaps making it a reality much sooner than most people.

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It is possible to retire early, even in the USA. (Would Congress please start working together to resolve this health-care issue? I mean, Costa Rica has excellent national health care, for goodness sake!)

Some people do it with the cautious approach of a panther stalking prey, like Joe Udo. He worked for years as an engineer and decided to quit and stay at home with his son. His wife still works, but they are looking at options there, also. His excellent blog can be found at Retire by 40.

Some people are, as they put it, more badass. Mr. MoneyMustache in his blog talks about cutting costs to the bare bone so he can be retired.

I just spent almost forty years in the working world and retired in January. I'm only fifty-seven, so I'm a little young, but if I knew then what I know now - I might have retired two decades ago.

Without any planning, I'd still be working just to end up living in a van down by the river.

Can you afford to retire? Perhaps not yet, but start early with the planning and do the research that fits your lifestyle and you can retire earlier than sixty-five. You can start to do the things in life that you always wanted to do, while you are still relatively young and healthy.

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It helps to visualize what it is you want to be doing. You want to be a writer? (Me, too.) An artist? A flamenco guitar player? If you don't know what you want, you'll reach the end of the road without reaching a destination.

Visualization is only part of the task. You also have to make a plan. That's where the experiences of others can be infinitely valuable, allowing you to achieve freedom from the mundane and break out of the pack. You can achieve your dreams

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I'll start posting blog posts full of tips to retire early, to accomplish a life where you can live your good dreams. I'll post those Retire-Early posts on the second and fourth Tuesdays of the month.

I'll still post personal blog posts as the muse inspires me. Those range from entertaining to downright absurd. I'll preach and I'll give in to my soapbox diatribes. Perhaps I'll just tell stories, or wax melancholy. Tomorrow will be melancholy.

So feel free to follow my blog. Come back and join me for those tips and bits of aged wisdom (that actually worked for me - and what didn't).

Take advantage of my experiences and shorten your journey to a more fulfilled life.

For those of you who want to be a published writer, you can also sign up for my Author's newsletter, where I keep my readers abreast of my writing and give them insider tips on how to get their own work published. I also have an Author's blog, still in infancy.

See you soon!
<<<<>>>>

Update:
Today my brother said "I'm looking at living on a house boat... Instead of living in a van down by the river, I will live in a house on a River."

I'm pretty sure he's thinking this:


He's a tough guy, though. He might be able to make a go of it with something simpler...