Security (money)

How my parents retired comfortably and doubled their nest egg.

Every time I read an article about retirement planning the general concept is that in retirement you will be removing money from your investments in a steady stream. For many Americans that may be true. However, there are alternate ways to manage your money in retirement. As with everything involved with retirement, the success of your plan, no matter what it is is to plan well ahead of time and position yourself and your money for success

Let’s assume that you could live on your social security without having to withdraw any money out of your investments. My parents did exactly this. My Dad retired in the late 1980s with about $140,000 invested in IRAs, Mutual funds and annuities. They had a combined social security of 1800 per month.

So how did they get by on $1800 per month? Well, first of all they owned their own home free of any mortgage. Without a mortgage, their biggest expenses were utilities, property taxes and food. These barely added up to $600 per month. That left them 1300 per month for everything else.

My parents enjoyed retirement by going to Florida for 5 weeks a year and two or three Golden Age style bus trips to tourist spots and historical sites. When they needed money over the $1800 per month they would pull it out of one of their assets but the bottom line is that they were only accessing money that had been earned as interest and gain on investments. Their money grew over 25 years from $140,000 to $260,000 in 2015.

I read articles about retirement that say a person or couple needs twenty rimes their yearly income to live well in retirement. Or you need 1.7 million in order to retire. Hogwash. Sure, if you intend on carrying a mortgage throughout your retirement , then yes maybe you need that much. But chances are very good that you could do very well living on just your social security.

Quite simply it is all about how you live, and what you “think” you need. If you are the kind of person who needs that newest iphone or a new fancy German car every 2 years then maybe you do need one point seven million dollars in retirement. Me? I’m a guy with a seven year old Nissan Sentra that runs great, gets 30 miles to the gallon and needs few repairs. I eat at home a lot and rather than spend $50 a month for a fancy gym I walk my neighborhood and do my push-ups on the sidewalk. I’m trying to emulate my parents. You can do it too.

I’ll be offering more tips on how to retire comfortably without burning your nest egg. Thanks for reading, stay tuned and I hope you write to me and say hello.

Tip #2 Become Allergic to Debt

I will be the first person to say that there is good debt and bad debt. For the average American there is no way to buy a house without the 30 year mortgage. It is a simple fact. That said, in my opinion, most other debt is just a bad idea. Maybe a case could be made for debt that helps you grow your business or gets you into a vehicle which gets you to a paying job. Outside of that I am a debt – downer.

Who really benefits from consumer debt? Bank and Finance companies make a tremendous amount of money from you and me if we carry credit card and personal debt. Interest rates often run at least 16 to 18 percent and can run upwards of 24 percent. You say you have an offer for a 0% interest rate on a balance transfer credit card? I say…“Gee, that seems too good to be true.” Guess what…..it is. Credit card banks charge a balance transfer fee of at least 3% and often 5% of the balance you are transferring. That means you are paying a big flat fee to borrow that money. That is not smart money.

Ok, hopefully you get the point, so now why am I so down on debt? Over the age of fifty, for me, my life goals have become about saving as much as possible and preparing for a secure life in my 60’s to 90’s. The interest payments you make on money owed is called Debt Service. In the world of financial jargon ‘Debt Service’ is unusually clear. You are serving (paying money) your debt. It is as simple as that. You are paying interest on a meal you ate 6 months ago or that guitar you purchased 18 months ago.

Being debt free means you will never have to pay money out of your back pocket for something you probably could have done without. Having a debt free mentality will force you to make good decisions about your purchase. You will ask yourself important questions. “Do I really need this thing?” “Do I really need this $45 meal”.

So do whatever you wish, but I am allergic to debt and I believe you should become allergic also. Avoiding debt will improve your basic bottom line, increase your savings rate and improve your retirement nest egg.

Be a Saver

Retirement Tip #1 Be a Saver!

This little nugget of wisdom I picked up on a podcast. I listen to a lot of podcasts across many subjects from money to history to music. Steve Chen hosts one I really enjoy called The New Retirement podcast. I have no idea who Steve Chen is but he sure gets some interesting guests on his once a month podcast.

A few months back I was listening and toward the end of the show, Steve asked a guest, “What is the one most important thing any person can do to prepare for retirement. The answer was so simple. “Be a saver”. Returns and types of investments are super important but if you are not saving money on a regular basis, you won’t get very far.

This means something to me because for years I was well managed spender. I always paid my bills on time and I made what seemed to be well thought out decisions about money and spending, but I wasn’t a committed saver. I would save some money then I would “need it”, pull it out and spend it. I carried credit card debt every month.

Five years ago I changed everything on a challenge from a very good friend of mine. She challenged me to get it together, pay off the debt and get my savings and investments straightened out. Within six months of that challenge I was out of debt and I became a saver. I am now debt free and well on my way to a good retirement nest egg. I max out my 401k and I save every week into an IRA and a non-qualified stock fund.

I bet you know someone, maybe you, who seems to live a great life with lots of things but has no savings. Those “things” won’t serve you well in retirement. A good sized nest egg is what you really need. Be a Saver.