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Part II: Get What You’re Entitled To

In the last edition, we talked about the misery of coming home from vacation to find that your home has been robbed and vandalized. 

A really smart way to ensure that you receive everything you’re entitled to under your homeowner’s insurance policy is to hire your own public insurance adjuster which is similar to hiring an attorney to represent your best interests in a court of law.

One of the challenges, however, is that even with the best public insurance adjuster, you will never receive what you’re entitled to if you can’t recall everything you owned that was destroyed or vandalized.

In other words, after living in a home for 30+ years, and under the duress of a catastrophe to your home, and the trauma of dealing with the loss, the last thing you’re going to want to do is sit down and try to remember every little detail about your home and its contents.

It’s right up there on the list with having your appendix removed without anesthesia!

The chances of you being able to remember everything in your home, the date you purchased it, and the current value, etc. are slim to none.

Since the amount of your claim that you’re entitled to is dependent on you being able to do this perfectly, what should you do?

Step One

My recommendation for years has always been to film the contents of your home with a video camera

However, in today’s day and age, the video capability of an iPhone or iPad does the trick!

Film the outside of your home from all directions.  While you’re doing this, talk into the camera and explain it as you’re filming it, especially anything out of the ordinary.

Then, film the contents of each room and closet in the house talking your way through everything.

Lastly, take a white sheet and spread it out on your dining room table. 

On the table, place any valuables you have.  Specifically, items you have scheduled on your policy: jewelry, china, silver, furs, etc…  And, then film what you’ve laid out, again talking into the camera and describing what you’re filming.

Most Important Step

Assuming for a moment that you filmed this with a traditional video camera, don’t keep the video tape in your home when you’re finished filming.  If the house burns down, the tape will burn along with it!

Instead, keep it in a fire proof safe, or in a safe deposit box at the bank.

If you filmed your home using an iPhone or like device, make sure to back up the videos in your Cloud account or somewhere other than in your physical home. 

Again, if you do so on the hard drive of your computer, it will burn in a fire as well and your great work will be lost.

Insurance Claim Time

When you have an insurance claim, you simply retrieve your video and hand a copy to your public insurance adjuster and insurance company. (Keep a copy for yourself.)

There will be no confusion whatsoever as to what you’re entitled to.

Would it be better if you also had receipts for every purchase you’ve made over the years?  Yes.  That would help tremendously. 

However, most people have not saved all of their receipts, so if you fall into that category, don’t sweat it.  Just go ahead and film everything right now. 

Your insurance company won’t be very happy with you, but if you ever have a claim, you’ll be very happy you took this step.

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Insurance Claims: Get What You’re Entitled To

Imagine for a moment that you’re driving home from the airport after one of the most memorable vacations of your life.

The weather is poor and the “haze” of being on vacation begins to lift.

As you begin to deal with an annoying case of “back to reality blues”, your mind can’t help but begin to plan when you can get back there again. 

You turn down your street, pull into your driveway and enter the garage. 

The contrast from being on vacation is always strong, but you begin to have the feeling that something really is different.

No, it must be your imagination.  You’ve been away for a while and you’re just out of your element right now!

As you enter the house, your jaw hits the ground as it becomes apparent that someone has been in your house while you were away. 

In fact, your entire house has been turned upside down. 

Then, the reality hits you: “WE’VE BEEN ROBBED!”

You drop your bags and run around looking for what’s missing.  It’s hard to tell because you’re so disoriented. 

As you do this, you can’t help but notice a funny smell. 

After 15 minutes of running around trying to figure out what those hoodlums took, you open the door to your finished basement.

“Uh-Oh”!

Your beautiful finished basement has over a foot of water on the floor!  And, as you trudge around down there, you see what the problem is.

Whoever robbed you thought it would be funny to break a window in your basement, turn on your garden hose, stick the hose through the broken window, and let water run in your basement until you return!!

This is a Nightmare!

After shutting off the water and patching the window, you collect yourself and try to think of what you should do first.

Call your homeowner’s insurance company?  Maybe. 

But, let’s stop and think about this for a minute. 

Is it in your insurance company’s best interest to pay you the biggest claim settlement they can, or the smallest? 

Well, of course, the answer is the smallest.

So, how can you make sure that you’re getting everything you’re entitled to get under your homeowner’s insurance policy?  And, at the same time, get your house cleaned up and back to normal?

“Public” Insurance Adjuster

One way to make sure is to immediately hire a public insurance adjuster

In addition to helping you maximize the settlement you’re entitled to in a timely manner, a public insurance adjuster relieves you of the paperwork burden by handling everything for you. 

And, because that’s all they do, they raise helpful points that you wouldn’t have even thought of.  (Especially in the middle of a crisis)

The analogy is going to court without an attorney to defend your rights.  Most people wouldn’t think of doing that. 

The same holds true if you suffer a loss to your property.  You want to make sure that you receive everything that you’re entitled to after paying insurance premiums your entire life.

Having a public insurance adjuster handle your entire claim from start to finish, including hiring cleaning companies, dealing with contractors, compiling the list of damaged or stolen property and assigning the replacement value, etc., allows you to concentrate on what’s most important to you, and that is getting your home back in order as quickly as possible.

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Evaluating Social Security Benefits for Your Spouse

In the last edition, we took a long look at the math behind claiming your social security benefits by walking through a case study of a 62-year-old couple, Bill and Madeline.  

In this edition, let’s dig deeper into the rules surrounding spousal benefits.

To begin with, Madeline worked over her lifetime so she’s qualified to receive social security benefits on her own.  However, when her children were younger, she stopped working for periods of time so her benefits are significantly lower than Bill’s.

Spousal Benefits

There are two ways of calculating Madeline’s benefits. 

Even if she never worked over the course of her lifetime, Madeline is still entitled to one-half of Bill’s benefit at the very least (depending on when she decides to begin collecting as we’ll discuss shortly).

Since she’s also eligible for benefits due to her own employment history, Madeline has a decision to make as to which set of benefits to collect.

For example, let’s assume for a moment that Bill waits to collect his full social security benefits (FRA) of $3,000 per month at his age 66.4.

Given this, Madeline’s spousal benefit is $1,500 per month at age 66.4 as Bill’s wife.

If Madeline’s social security benefits from her employment are greater than $1,500 per month, she would begin benefits under her own employment records.  However, if they’re less than $1,500 per month, she will collect spousal benefits.

Other Issues and Strategies to Think Through

  1. Let’s assume that Bill continues to work until his Full Retirement Age (FRA – age 66.4), but Madeline chooses not to.  Bill would then wait until at least age 66.4 to begin collecting his social security benefits, thus Madeline could not begin collecting “spousal” benefits. 

However, Madeline could begin receiving benefits under her own account due to her earnings history.  Assuming for a moment that those benefits are lower than her spousal benefits as Bill’s wife, Madeline’s benefits would then bump up to the higher spousal benefit amount once Bill begins collecting his benefits. 

  • If Madeline has reached her full retirement age (FRA), she may begin collecting spousal social security benefits even if she continues to work past her FRA and accrue benefits under her own account.  When she later stops working, if her benefits are greater, she may then choose to switch her social security benefits from “spousal” to benefits from her own employment account.  This scenario assumes that Bill already began collecting social security benefits because spousal benefitsmay only begin when the second spouse has initiated benefits.  
  • If Bill began receiving his benefits at age 62, his actual benefit would have been $2,200 per month (75% of his full retirement age benefit at age 66.4).  Even though Bill began receiving his benefits at age 62, Madeline may decide to wait to begin receiving her spousal benefits at her age 66.4. 

*** If she chooses to do so, she doesn’t receive 50% of Bill’s reduced benefit of $2,200 per month (for beginning his benefits at age 62). Madeline would receive 50% of Bill’s full retirement benefit ($3,000) as if he began receiving benefits at age 66.4, or $1,500 per month.

  • If Madeline decided to begin receiving her reduced spousal benefit of $1,050 per month at age 62 (35% of $3,000 per month instead of 50%), she may not later draw an increased spousal benefit amount at age 66.4.
  • Assuming for a moment that Madeline was younger than Bill, she may not begin collecting any social security benefits before she reaches age 62.  (The exception is if Bill passes away.  In that case, assuming she has no dependent children, Madeline could begin collecting at age 60.)

As you can see, there is a lot of room for confusion and these decisions are not as clear cut as you may like them to be.

The key is knowing the rules and fully weighing all options before you begin collecting your benefits so that you can receive the largest amount you are entitled to receive.

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When Will You Start Collecting Social Security Benefits: The Math?

As I shared in the last edition, a new Relaxing Retirement member had a host of questions surrounding social security this past month so I thought it would be a good idea to share my thoughts with you as these are questions I receive all the time.  (To protect their privacy, I’ll refer to them as Bill and Madeline)

Since they were both age 62, one of their first questions was, “should we start collecting social security now, or wait until Full Retirement Age, i.e. age 66.4?”

As I explained to Bill and Madeline, there are 2 major factors to consider before collecting social security benefits before your “full retirement age.”  In the last edition, we began with “the penalty” if you begin too early.  Today, let’s explore the second major factor: The Math.

#2: The “Math” Behind the Decision

The second factor to consider is the math.  Since Bill is the one considering working part-time after he retires from his full-time work, he’s the one we are going to focus on today.  Madeline’s decision is actually different and we’re going to expand on her options in a little while. 

Bill’s social security benefits statement shows that his monthly benefit at age 66.4 will be $3,000 per month.  And, if he begins collecting at age 62, his benefit will be $2,200 per month.

If Bill starts collecting now, he’s going to take a 23.33% pay cut!  That doesn’t sound too great, does it?

However, he really needs to take a look at the math for a moment:

  • Monthly Benefit at age 66.4 (if he waits)      $3,000
  • Monthly Benefit at age 62 (today)                $2,200

If he takes his benefit today, Bill is going to receive $800 less per month.

What That Really Means

As I pointed out to Bill and Madeline, if they decide to wait until Bill reaches age 66.4, what they’re really saying is that it’s worth it to wait 4.33 years (or 52 months) to get the extra $800 in the 53rd month and beyond.

However, another intelligent question to ask is “what are they giving up by waiting”? 

What they’re giving up is 52 months (4.33 years from age 62 to age 66.4) of social security benefits.  That’s $114,400!

Not an insignificant number.

The “Break Even” Age

In order to recoup that $114,000 that they would give up by waiting until age 66.4, Bill would have to live another 143 months after age 66.4, or 12 years, at which time he’d be 78.4 years old.  ($114,400 divided by the incremental increase of $800 at age 66.4 = 143 months)

So, in order to break even, Bill and Madeline would have to live another 16+ years (4 years from age 62 to 66.4 + 12 years = Age 78.4).

And, this doesn’t take into consideration 3 other factors:

  1. Bill and Madeline are eligible to receive a cost of living increase each year on their social security benefits, so their benefits will begin increasing after their first year of collecting. 
  2. If Bill and Madeline begin collecting at age 62, they could invest their monthly check and potentially earn even more.
  3. Finally, and this is the most important factor in maintaining their lifestyle sustaining income over the rest of their lives, if they don’t draw from social security right now, they must draw income from some other source, i.e. their Retirement Bucket™ of investments. 

Delaying social security reduces their inflation fighting investments more rapidly because they have to make up for the income social security would have provided, thus reducing the amount their heirs will receive at their death because social security benefits end at your death.

And, if the majority of their investments are in IRAs or other retirement plans, it may potentially reduce them even faster because they have to pay income taxes on 100% of what they withdraw vs. a maximum of 85% of their social security income.

Other Factors For Bill and Madeline To Consider

While Bill and Madeline’s example should give you a good guideline to use, here are some other factors which may affect your own unique situation:

  1. Life Expectancy:  Bill and Madeline are both in good health and have no overriding problems.

The reason why this is a factor in their decision is that if they have health issues that are predicted to shorten their life expectancy, clearly this should lead them to collect benefits as early as they can get them. 

As it was in Bill and Madeline’s case, however, if everyone in your family has lived well into their 90s, this may pull you in the opposite direction.

  • Severance: If you’re collecting severance pay from the employer you’re retiring from, this may alter your desire to begin collecting right now because of the taxes you’ll pay on your social security benefits while you’re also receiving large severance pay.
  • Deferred Compensation: This same principle applies to deferred compensation.  Let’s say that for the 5 years prior to your retirement transition, you’ve contributed to an executive deferred compensation plan.  If the plan calls for you to receive a payout immediately upon retiring, as many of our members do, this may have adverse tax consequences on your social security benefits.
  • “Other” Income: If you have other “locked in place” income, you have to weigh the after-tax benefits of collecting social security benefits early. 

This dovetails into a major principle that I recommend, and that is to never make any decisions concerning benefits or investments without also simultaneously considering the tax consequences. 

This is a monumental mistake that I see in way too many situations. 

As you can see, there are several factors that went into Bill and Madeline’s decision.  Hopefully, their example provided a good line of questions for you to answer in your own unique set of circumstances.

In the next edition, I’m going to delve into the questions Madeline had about collecting her social security benefits.

Surprising to many, benefits collected by working and non-working spouses vary greatly if you don’t know the rules.

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When Will You Start Collecting Social Security Benefits: The Penalty?

A new Relaxing Retirement member had a host of questions surrounding social security this past month so I thought it would be a good idea to share my thoughts with you as these are questions I receive all the time.  (To protect their privacy, I’ll refer to them as Bill and Madeline)

Since they were both age 62, one of their first questions was, “should we start collecting social security now, or wait until age 66.4?”

As I explained to Bill and Madeline, there are 2 major factors to consider before collecting social security benefits before your “full retirement age”.  Today, let’s begin with “the penalty” if you begin too early:

#1: The “Penalty”

To begin with, the reason why Bill and Madeline have a decision to make is because they’re both 62 years old, and Bill still wants to work a little when he retires from his full-time job this month.  (A very common phenomenon we see)

He was told that there is a penalty for taking his social security benefits if he still earns income from work.

He’s partially right.  There’s a lot of confusion about what those penalties are, so let’s quickly outline the limits.

First, when you reach the FRA “full retirement age” (social security’s definition of full retirement age is between the age 66 and 67 for most), you can earn as much as you want from work (earned income) and still receive your full social security benefits without any reduction in benefits. 

How Social Security Defines “Income”

When Calculating Your Pre-FRA Benefits?

Only income you receive from work, whether that income is reported on a W-2 or 1099, is counted for social security income calculation purposes.

Income you receive from pensions, rental property, dividends and interest, and capital gains do not factor into the equation. 

Between Age 62 and Full Retirement Age (FRA)

As Bill is facing right now, the dilemma comes when you want to begin collecting benefits before your FRA “full retirement age”. 

Currently, from age 62 to 65, you lose $1 of social security benefits for every $2 of “earned” income over $18,960 (in 2021).  That’s $1,580 per month.

So, for example, in Bill’s case, since he’s 62, if he continues to work part-time, and he earns $18,960 from his new part-time work, he can still collect his social security benefit without any reduction in benefits penalty. 

However, if he earned $42,960 from his part-time work, that’s $24,000 over the limit, so social security would withhold $12,000 (or $1,000 per month) from his social security benefits (i.e. $1 withheld for every $2 you earn over the limit).

During the calendar year in which Bill reaches is Full Retirement Age (66.4), he would lose $1 in benefits for every $3 he earns in excess of $4,210 per month/$50,520 per year.

So, if you’re like Bill and you are planning on still working after you “retire” from your full-time position, you’ll want to consider these limits. 

Bill’s Earnings Limit When He Starts To Collect

An important distinction to note, however, is that you can earn as much as you want during the year you’re going to start collecting.  These limits only apply on a monthly basis once you start collecting social security benefits.

If Bill retired at the end of September this year, and he has already earned $190,000 this year through September, the “earnings” litmus test does not apply to the $190,000 he’s already earned this year. 

It only applies during the first month he begins collecting benefits.  So, from October through December, he can earn an additional $4,740 ($1,580 x 3 months) and still collect his social security benefits without a reduction in benefits “penalty”.        

Stay tuned for the next edition where we explore the second major factor you must consider before collecting your social security benefits: The Math!

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Is Dental Insurance Worth it?

While assisting new Relaxing Retirement members with their transition to Phase II of their financial lives (i.e. retirement) this past month, we were reviewing which group insurance coverages to continue when he fully retired from his company.

In addition to the obvious question about the best health insurance option to choose, the next question was “I assume we should also continue our dental insurance plan?

By the nature of the question he asked, it appeared obvious to him to continue, and it may to you as well, but I recommend giving it some serious thought to make sure that it is “insurance” you’re buying.  After all, his price tag was $120 per month!

If you’ve worked for a large company for some time and you are used to having dental coverage at little or no cost to you, you’ve become accustomed to having it.  It’s usually cost effective under those circumstances and a nice fringe benefit.

However, when you have to foot the entire monthly premium by yourself during Phase II of your financial life, you have to really step back and take a good look at what you’re getting.

3 Questions You Must Ask and Evaluate About Any Insurance

When evaluating any form of insurance, you have to ask yourself three questions:

  1. “What is my potential financial loss if I don’t have this insurance?” 
  2. “What is the probability that I’ll suffer this loss?”
  3. “Am I willing to risk absorbing this entire loss myself, or should I pass on some or all of the risk to an insurance company by paying a premium?”

As an example, when evaluating homeowner’s insurance, the obvious answer is, “I’ll lose my entire house in a fire and have to pay a large chunk of money out of my pocket to rebuild it!”  Now that’s a financial loss worth insuring (at the right cost). 

However, if the cost to rebuild your home in the event of a total loss is $350,000, but the homeowner’s insurance premium to insure against that loss is $350,000 per year, you wouldn’t run out to buy that policy! 

There’s no insurance going on there.  The insurance company has not absorbed any of the financial risk from you.  All they’re doing is holding your $350,000 to give back to you in the event of a loss.

Dental “Insurance”?

In many instances, this is what’s going on with dental insurance.  The typical policy pays for a couple of cleanings and a diagnostic exam each year (x-rays, etc.), and possibly a filling. 

After that, the policy usually only pays about 50% of your cost for a comprehensive procedure such as a crown or a bridge. 

If you stop and evaluate it, the financial loss of having to pay for cleanings, exams, and even a filling every year is minimal.  That is typically not a financial risk worth insuring because all you’re doing is getting back the premium you’ve paid. 

The real financial risk is the cost of the comprehensive procedure like two current members are dealing with right now where the cost is in excess of $25,000! 

This is where you have to evaluate and speak with your dentist about not only the probability of your requiring a procedure like this, but what your dentist’s price would be to perform it.

Once you know those numbers, you can evaluate your downside financial risk and whether dental insurance makes sense for you.

The key, as with any form of insurance, is to insure against the “big loss”.  In other words, insure against your house burning to the ground, not a broken window. 

If you follow those parameters with all of your insurances, and increase your deductibles, you can save a good amount of money in premiums every year and free up money for things you’d rather spend it on, like going out to dinner! 

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Would You Sell Your McDonald’s Franchise?

During weeks like we’ve recently experienced, when market corrections occur and the value of your strategically allocated Retirement Bucket of investments declines, it’s extremely useful to put investing in perspective. 

Think about this for a moment…

Assume that thirty years ago, you took the carefully thought-out leap of faith to borrow the necessary funds to buy and operate a McDonald’s franchise (certainly a business we’re all familiar with).

Quite a leap of faith as all of your friends and co-workers thought you were crazy.  Not to mention your spouse!

After attending Hamburger University, and then suffering through a lot of bumps and bruises over the next 18 years, you reached the point where profits were good enough, and you had the confidence to purchase a second McDonald’s franchise.

Throughout the years, you’ve run your stores exactly as McDonalds suggests. You’ve carefully studied your marketplace. You’ve come to really understand and develop a level of confidence with each store’s cash flow during good and challenging economic cycles.  And your profits, while not explosive or in a straight line, have continued to rise over the years.

While it’s been anything but easy, you’re happy with the decision you made thirty years ago as owning these two McDonald’s franchises has provided a very nice income and lifestyle for you and your family.  And, it certainly appears to be able to do so in the future.

Your Big Question

What if the person I just described who owns these two McDonald’s franchises was really you?

Imagine surfing the news on-line today and reading these current headlines from Yahoo Finance and Wall Street’s MarketWatch:

  • ”If You Weren’t Yet Worried About the Stock Market, You Should Be Now”, or
  • “Monday’s Nasty Stock Market Reversal is Evidence That the Worst is Far from Over for Wall Street”, or
  • “Here’s Where Investors Are Taking Shelter from Stock Market Turmoil and Fed Hikes”

Here’s your BIG Question: Would you scramble and search for the phone number of a business broker so you could put your two McDonald’s franchises on the market to sell immediately?

After all, the market has been pushing higher and higher to all-time highs, and it certainly looks and sounds like the “bubble” is about to burst.   

Aren’t we due for a big market correction?

What if the Fed changes course and begins to raise interest rates?

What if inflation finally kicks into high gear like the late 1970s after all the Covid relief stimulus money poured into the economy?

What if the new strand of the virus all the experts keep talking about takes hold and we have to go into lockdown again?

What if the gridlock in Washington continues and they can’t get a balanced budget passed?

What then??

Would your McDonald’s franchises survive? 

With a full-blown market crash and recession all but looming on the horizon, wouldn’t it be smarter to just sell your franchises and wait this thing out?  Then, when everything settles down and gets back to “normal”, you can buy another one.

Your Likely Answer

Given everything I’ve shared with you about the owner of these two McDonald’s franchises, I’m confident that you’re laughing right now and shouting out a resounding No Way!

If that’s true for you, why not?  Why wouldn’t you sell your franchises?

Well, to start with, you’re an owner!  You didn’t buy your McDonald’s franchises so you could buy and sell in and out of them in order to gain some sort of short term profit.

Second, you’ve lived through a lot over the last thirty years.  You know what you own.  You’ve seen how they perform during up and down market cycles, and your experience tells you that the long term impact on your McDonald’s businesses from any and all of these reported “crises” is highly likely to be next to nothing.

What’s the Difference?

So, what is the difference between you owning a McDonald’s franchise as I’ve described vs. you owning any investment you currently own?

Please take a moment to pause and really give some thought to this.

The only difference is if you choose to “operate” the McDonald’s franchise, i.e. “work in the business” on a day to day business.  However, many franchise owners own multiple units and don’t work “in” the business at all.

Aside from that, it’s exactly the same. 

When we all invest, what are we doing?  We’re all buying ownership shares of various companies.  That’s what investing is…ownership

And, we own and accumulate shares in many companies because we need to own assets that have the ability to rise in value over time and generate increasing levels of income (dividends) in order for us to maintain our lifestyle in a continuously rising-cost world. 

This is such a critical distinction for your future. 

When we listen to and watch the financial media on a day to day basis, and we listen to friends, family members, and co-workers talk about investing, this is not what we hear.

We hear them talk about “the stock market” as if it’s this mysterious and scary thing. 

The “stock market” is simply a mechanism to buy and sell ownership shares in thousands of companies throughout the world. 

That’s it. 

It’s a collection of thousands of enterprises whose current value and dividend levels will each rise and/or fall over time based on their ability to generate profit and income for their “owners.”

So, when you invest, you’re not “buying” the stock market, per se.  You’re buying an “ownership” stake in one, or hopefully in your case, thousands of companies just like buying a McDonald’s franchise.

And, buying and owning shares of well-run companies is a lifelong venture for everyone who has a goal of generating income that can keep pace with the rising cost of your lifestyle.

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Part II: Where Should You Draw Funds From?

In the last edition, I shared my first answer to the question I receive so often from our Relaxing Retirement members, “how do you determine where we should draw funds from when we need money from our Retirement Bucket of investments?”

In my answer, we focused solely on taking “tax efficient” withdrawals from IRAs and using an “income tax straddling” strategy.  (If you haven’t read it, I strongly recommend doing so)

Today, we’re going to focus on situations where you have Retirement Bucket™ funds held inside and outside of IRAs.

If you have funds held outside of IRAs, you have more options available to you because you may be able to pay lower capital gains tax rates (or no taxes at all) if you have some current or prior capital losses to put to use.

As a quick refresher, for investments you currently own outside of IRAs (you don’t pay capital gains when you buy and sell investments inside your IRA), all “realized” gains are taxed at capital gains tax rates.

For example, using nice round numbers, if you purchased a stock or stock mutual fund for $100,000 and later sold it for $150,000, you would owe capital gains taxes on the growth, i.e. $50,000.

On the flip side, however, if you purchased a stock or stock mutual fund for $100,000 and later sold it for $75,000, you can declare a capital loss of $25,000.

While painful to realize, that $25,000 capital loss has significant value if handled properly.  For example:

  1. You may use it to offset $25,000 of capital gains you realized in the same year, thus eliminating taxes on $25,000 of capital gains.  This saves you as much as $5,950 in federal taxes in 2021, not to mention state taxes here in Massachusetts.
  2. If you don’t have $25,000 of capital gains to offset, you can use $3,000 of the loss to offset $3,000 of ordinary income you have this year.  That would save you between $750 and $1,302 in federal taxes this year.
  3. You can then carry the unused portion ($22,000) over to next year and continue the same strategy. 
    1. If you have a $22,000 gain next year, you can offset the entire tax due.  If not, you can offset another $3,000 of ordinary income tax and carry the remaining $19,000 over to the following year.

Tax Efficient Withdrawal Strategy

So that you can determine the most tax efficient withdrawal strategy, here’s the information you want to have in front of you:

  1. Your 2020 Federal income tax return.  Take a look at the bottom of Schedule D to determine if you have any unused capital losses carrying forward into 2020.  And, if so, how much?
  2. Current Non-IRA Investment Statements (i.e. individual, joint, trust, etc.):
    1. Realized Gains/Losses: Have you sold anything this year thus creating a realized gain in your non-IRA accounts?
    1. Unrealized Gains/Losses: What’s the current positioning of each of your current holdings?  Are any in the “red”, i.e. worth less today than the day you bought them that you could harvest?
  3. Mutual Funds: If you own stock mutual funds, go to your fund company(s) website and you will typically find year-end “internal” capital gains distribution estimates. 

Do your best to determine what your short and long term gains will look like between now and the end of the year.

Armed with this information, look for the combination of holdings you can now sell in your non-IRA accounts that will create the lowest tax obligation.

Using the example I provided last week, let’s assume the Relaxing Retirement members, who needed $120,000 to help their son buy his first home, had balances in their IRA and their non-IRA trust accounts. 

Let’s also assume that most of their stock fund holdings had very large capital gains attached to them if we sold them except for the remaining shares they still own in the company he used to work for (that he nostalgically held on to), and two stock funds which they purchased just before the Covid-19 crash which haven’t recovered completely. 

While that’s not necessarily good news, it would be for them because we could sell those three positions and generate a “capital loss” to offset some of the gains from selling two stock fund holdings with large gains to arrive at the $120,000 needed.

Because we had already reviewed their 2020 tax return, we knew they had some capital losses carried forward from the original sale of the majority of his employer’s stock several years back, so we could use those to offset most of the rest of the gains realized from sale of those two holdings.

The net effect in this case is freeing up $120,000 for their son’s down payment with less than $3,600 in income taxes incurred.  Not bad.  If they had no funds held outside of IRAs, they would have had to withdraw almost $160,000 from their IRAs in order to “net” out at the $120,000 they needed after paying about $40,000 in income taxes.  

Don’t Miss the Final Step

All of this is very encouraging, but if you don’t take the final step, you’re going to leave a gaping hole in your strategic Retirement Bucket™ allocation.

When you buy and sell various holdings in your Retirement Bucket™ of investments in order to free up needed cash, your carefully thought out target allocation is then out of balance because you likely didn’t sell a little bit of every holding you have. 

Instead, you sold what was necessary to free up funds while being as tax efficient as possible.

Given this, the final step is to reallocate your holdings back to your prescribed target mix simultaneously. 

The place to do this is inside your IRAs so you don’t incur more taxes. 

All of this is possible for you, but only if you follow the formula and you have all the necessary information in front of you.

As I mentioned in the last edition, paying more taxes than you’re legally obligated to pay is not an act of patriotism.  It’s laziness!

Take control in places where you still can and keep what you’re entitled to keep!

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Where Should You Draw Funds From?

One of the questions I receive quite often is, “how do you determine where we should draw funds from when we need money from our Retirement Bucket of investments?”

It’s a very important question.

All other variables held constant for a moment, we’re always looking to “free up” funds in the most tax efficient manner, i.e. have you pay the least amount of taxes you’re legally obligated to pay in the process.

And, at the same time, we recommend maintaining the same prescribed Retirement Bucket™ target allocation post withdrawal.  This is a very important point that you can’t afford to overlook. 

You don’t want your withdrawal to leave large holes in your strategic Retirement Bucket™ mix.

Funds Held Inside Your IRAs

If you only have funds to draw from held inside of IRAs, the only variable you need to consider is “when you’ll withdraw the money. 

For example, when asked by one of our Relaxing Retirement members (who has all of their funds in IRAs) to free up $120,000 for them to loan to their son for the down payment on a new home, the big question is “when,” not where.

They hadn’t given it much thought, but I asked when the closing for his son’s home was to take place, i.e. did he need the entire $120,000 before the end of the year? 

I asked because I know where all of their taxable income comes from each year and withdrawing $120,000 (“net” after taxes) from their IRA in one year would cause a large chunk of that withdrawal to be taxed at a much higher marginal tax bracket.

If they were able to withdraw part now in 2021 and the other part in January 2022 instead of all of it in 2021, that would save them a minimum of $11,500 in federal income taxes in the process.  This doesn’t count state income taxes.

This strategy is called “Income Tax Straddling”.

As it turned out, the closing was to take place in January, so they were able to follow this lead and save that $11,500 which can now go toward something they really want to spend that money on!

Home Equity Line of Credit

Had they needed all of the money before the end of the year, we may have recommended that they withdraw half from their IRAs now (in tax year 2021) and the other half temporarily from a home equity line of credit. 

Then, in January (2022), they could withdraw the second half from their IRAs to pay off the line of credit.  This would have the same effect as my first recommendation, i.e. Income Tax Straddling.  And, because borrowing rates are at historic lows right now, the cost to do this would be minimal.

Had the funds only been needed on a shortterm basis, I may very well have recommended utilizing a home equity line of credit instead of an investment withdrawal, especially during times like these when interest rates are so low.

Saving $11,500 is something that is possible for you, but only if you ask the right questions and you have all the necessary information in front of you.  Paying more taxes than you’re legally obligated to pay is not an act of patriotism.  It’s laziness!

In the next edition, we’re going to outline how to free up the cash you need in a tax-efficient manner when withdrawing from Non-IRA accounts.

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Be Aware of Which “Hat” You Have On

During periods of turmoil and above average volatility, there’s a very distinctive habit that all successful investors have formed.

That habit is making a clear distinction between which “hat” they’re wearing, and properly managing their “state” to match it.

Let me give you an analogy first.

In life, we all wear many hats.  For example, a few of them for me are:

  • Father
  • Husband
  • Business
  • Retirement Coach
  • Brother
  • Friend
  • Sports Coach
  • Conscientious American

To be effective, each of these roles requires me to have a certain mindset or “state.”

However, the correct mindset for one is unlikely to be the correct mindset for another.

For example, if I’ve been intimately engaged at the office all day, I had to have my “Retirement Coach” or “Business” hat on.

And, that requires a very specific mindset or “state” in order to be effective.

However, when I’m home over the weekend, for example, in order for me to be the father I want to be, I need to have my “Father” hat on.

If I still have my “Retirement Coach” or “Business” Hat on when I’m home, how effective (and pleasant) am I going to be?

For reasons I’m certain you can visualize, it’s going to be a disaster!

How Does This Apply to You?

Let’s carry that same analogy forward to another example.

In life, due to our experiences, upbringing, education, and interactions, we all develop our own unique set of belief systems.  And, over time, those belief systems morph into our own personal philosophies which, in turn, govern the way we feel about and the way we react to various situations.

As an example, each of us has a belief system about justice and the way things “ought to be” when it comes to the role government and business plays in our lives.  This certainly flares up right around tax time each year.

Let’s label this your justice consciousness” hat!

As such, when we sit back and listen to any political figure on either side of the aisle discuss tax policy, environmental policy, or the economy in general with our “justice consciousness” hat on, each of us has beliefs about what’s wrong, who’s to blame, and how it should be fixed.

Some more strongly than others!

At the same time, each of us has developed an “Investor” hat.  Hopefully, that’s based on a very specific, rational, long-term focused system like our Relaxing Retirement Formula™.  

And, in order to be effective, you wear that “Investor” hat, and the proper mindset that comes with it, when making investment decisions.

When Things Get Ugly

Now, here’s distinction…..

When things are good financially, i.e. no big crisis going on, cash flow is good, and markets are moving in a positive direction, it’s easier to make the distinction between which “hat” you should wear to be effective at which time.

It’s easy to be rational and look at the long-term, big picture.

However, when things get ugly like they are right now during this Covid-19 pandemic, i.e. a crisis brews, markets turn upside down, the media outlets pile it on thick, and our reptilian “fight or flight” mechanism flares up, it becomes much harder to draw the line as to which “hat” we should wear. 

The result during times like this is an inability to distinguish between which hat we’re wearing, and with it, the inability to be effective in any area of our lives.

For example, when you’re watching wall to wall coverage of the Covid-19 crisis on television, it’s highly likely that your “justice and health consciousness” hat is on your head.   

That’s normal and perfectly effective for the moment.

However, it becomes dangerously ineffective when all of the emotions and fight or flight triggers that come with it are carried over to your investment decisions. 

And, that’s what happens to the overwhelming majority of investors. 

Everything’s fine while markets move in a positive direction like they did in 2019.  However, when markets temporarily correct and move the other way (as they’ve always done and always will in the future), their rational, educated, long term “investor” hat gets thrown out the window.

In contrast, the investors who achieve the best results are those who make a very clear distinction between the two and are very conscious as to which “hat” they’re wearing at all times.

This allows them to make consistent, disciplined, and effective decisions that are in line with their carefully drawn-out plans.

The Strategy

So, the Strategy I recommend for you is to be very aware and conscious of which “hat” you’re wearing at all times. 

There’s nothing wrong with wearing any of them.  The challenges come when you mix hats or wear the wrong hat for the wrong situation.

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Don’t Let it Take a Crisis

Now in my 32nd year in this business, I can say without any reservation that I have thoroughly enjoyed every day I’ve spent in it.  I continue to wake up each morning before any alarm clock excited to get my day going. 

With the exception of owning and running an NFL franchise, for which I’m only a couple billion dollars short at the moment, I can’t even remotely imagine ever doing anything else. 

With that said, as I’ve shared with many of you over the years, the one downside of our business is having Relaxing Retirement members, whom we’ve known and worked with intimately for many, many years, become sick and pass away.  Even in situations where we know they’ve been through treatment for a while, it’s always awful when we receive the news, especially when they’ve occurred in bunches.   

In a single two-week period, I learned that one of our members, a woman I’d worked with for years, had been diagnosed with leukemia, and that another member’s rapidly progressing Alzheimer’s now required he not be left alone. I heard from yet another member that his wife, after five years in remission, was back in the hospital, and soon to start a new round of chemotherapy. And finally, one of our newer Relaxing Retirement members who had only retired last year, developed a degenerative nerve disease which had already cost him much of his eyesight.

So, why am I sharing all of this sad news with you?  I’m sharing it to motivate you not to wait! 

Another Wake Up Call

The convergence of all of this sad news has provided another one of my life’s “wake up calls.”

We’ve all heard the phrase, “don’t wait for a crisis in your life to motivate you to prioritize and do what you really want to do.”

It would be great if it didn’t take a convergence of sad news to people close to you, or a crisis to get us to think and prioritize differently.

For me, one of those crisis events occurred when my mother got sick and passed away at the very young age of 57 when I was 20 years old. 

After dealing with the reality of losing my mother (unfortunately, she was terminally ill for 19 months), the lesson for me was to never wait to do anything because you never know when it can all be taken away from you. 

I would certainly have preferred that it didn’t take losing my mother for me to learn that lesson and prioritize a little better.

Compound Interest

One of the great advantages of “Phase II” of your financial life is that you are free of your dependence on your paycheck to support your lifestyle, and of the daily pressures you had to face at work.  However, without the deadlines and structure that work provides, some people feel lost.    

That’s why it’s so important, whether you’re still working, or if you’ve already stopped, to give significant thought on an ongoing basis to what you want most out of life, and then get busy doing it. 

As you objectively look around at all the people you know and see, something becomes obvious: certain individuals are more successful and happy than others. 

Not only that, but in stark contrast to most people whose optimism fades with age, these same individuals are more energetic, enthusiastic, and confident.  I see this clear as day among our Relaxing Retirement members. 

There are many explanations for this, but the number one reason for a loss of momentum during the “retirement” stage of life is a lack of constant and never-ending prioritizing and goal setting.  Without it, everyone loses their sense of direction and confidence.

Instead of being excited about what lies ahead, too many retirees become increasingly nostalgic about their youthful years, and the “good old days.”

However, those who continuously clarify and act on their priorities, goals, and plans benefit from the law of compound interest, i.e. just like with money, the more you invest in visualizing and working toward a better future for you and everyone around you, the better your future automatically becomes.

Part of this ongoing process is being keenly aware of the amount of time you spend in what I refer to as “bad energy environments,” i.e. in activities and with people who drain your precious energy.  A mentor of mine once labeled them, “batteries not included,” i.e. they drain your energy and confidence.

Always Progressing

The most exciting part of life is knowing that you’re progressing toward something.  And, that’s why it’s so important to have ongoing written goals and plans, not just weakly stated ones like new years’ resolutions that quickly turn sour. 

Your retirement years provide you with a new lease on life.  You now have the opportunity to clean the slate and spend all of your time doing what you want, when you want, where you want, and with whomever you choose.  

However, that doesn’t just fall into place without careful thought and action.  To get what you really want, you have to plan and act constantly.

As I shared earlier, life can be short.  Don’t let it have to take a crisis in your life to realize this. 

Get out there and soak it all up.  Be busy!  Be exhausted! 

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What We Can ALL Learn From The Ageless Mick Jagger and The Rolling Stones

My wife Colleen and I had the pleasure of seeing The Stones play at Gillette Stadium I the summer of 2019, and we were thrilled that we made the “investment” to see it!  It was nothing short of spectacular and inspirational at the same time. 

I was the youngest of four children (by 5 years) and I can vividly recall spending many happy hours in my older brother and sister’s rooms listening to Stones albums.  Clearly, I wasn’t the only one to have this childhood experience because the entire packed stadium of 55,000+ sang every word to every song!

What blew us away was watching Mick Jagger captivate the crowd with his singing and dancing, still 100% on his game….at the soon-to-be age of 76!  Yes, 76! He was awesome!  All of the band members are in their 70s, they’re still playing, and they’re still good!

Jagger didn’t stop moving for one minute and still had the same command of the audience he had 30 years ago.  He appeared ageless.  What an inspiration!

As Colleen and I were discussing his motivation while driving home (clearly not money as his net worth is in the hundreds of millions), I shared with her some of the conversations I’ve had with so many of our members over the years about why they still do what they do well past the point of “needing” to.  (I strongly recommend taking a moment to read the excerpt from my book The Relaxing Retirement Formula on this very topic of refusing to adhere to conventional and severely limiting societal definitions and norms surrounding the concept of retirement and creating your ideal lifestyle.)

I shared our inspirational experience of the ageless Mick Jagger this morning with a very active Relaxing Retirement member who just turned 90 and still manages his commercial real estate property in addition to an extensive social and travel schedule.  I jokingly stated, “I’m not sure I know of two more inspiring examples.  What’s everyone else’s excuse?”

His response was so prophetic that I have to share it with you, “Others age because they listen to constant reminders that they are getting old. And unfortunately, they start believing it. We are constantly reminded by well-meaning family members (our biggest “enemies”) of all the things we can’t or shouldn’t be doing. Turn a deaf ear and mind to all that b.s.  If you think old and act old then, guess what…you’re old. Shoot me.“

Wow!  How’s that for an answer!  I wonder what Jagger’s response would have been!

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A Revealing Conversation

This past week, I had a very revealing and important conversation with a Relaxing Retirement member who lost her husband a few years ago.  While protecting her identity, I’d like to share a key part of it with you. 

The reason for her call was to find out if she could “afford” to hire a landscaper to not only cut the grass, but to take care of her plantings and keep her beds free from weeds.  She’s been doing this for years, but it has reached the point where the upkeep is stressing her out, and it is preventing her from scheduling anything into the future.

Respectful of the terribly sad nature of the position she’s now in after losing her husband of more than thirty years, what made her question so interesting is that she asked the question in the first place.  Having worked together to design their Retirement Blueprint™ for years prior to her husband’s passing, I know that she can not only afford to hire a really good landscaper to do everything, but because they did such a good job building their Retirement Bucket™,  she can afford to virtually double her total annual spending if she chose to without negative impact!

Given this, why is she asking the question?  Well, this is a great example of the phenomenon we’ve witnessed for many years, i.e. the strong earning-and-saving-habit-force developed by a tiny percentage of Americans during their decades long working lives is hard to break!  For the dedicated saver, “Flipping the Switch” to spending what you’ve saved is hard.  “It just feels weird” is the comment we hear most. 

She has conditioned herself to feel as though she “should” worry because that’s what they’ve always done.  While that was valid for years, and it served them very well, she has earned the right not to have to sweat this anymore.  Like the countless number of members I have similar conversations with, she simply needed to have this reinforced with facts before she confidently moved forward without guilt or the feeling of being reckless.  

Altering 40+ years of habit is challenging.  Confidently spending what you’ve saved so you can live the life you’ve earned requires being in regular contact with your numbers so you can make educated and rational decisions based on fact vs. your conditioned opinion.    

Download a free copy of our Report: 3 Critical Strategies to Free Yourself From Dependence on Your Paycheck and develop the confidence you need to live the life you’ve earned: https://theretirementcoach.com/3strategies/.

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The Mayonnaise Jar and Two Cups of Coffee

I’d like to begin by wishing you a wonderful Thanksgiving!  Although this is a very different year, it’s more important than ever to pause, connect with our families, and be grateful for everything we have.   

In honor of Thanksgiving Day, I’d like to take a brief sabbatical from our financial strategies in order to share a fabulous story that you will want to pass on and discuss with the rest of your family. 

Several years back, one of our Relaxing Retirement members exposed me to this tale and I thought it was a terrific analogy for all of us to take to heart, especially on Thanksgiving.

Enjoy this…

The Mayonnaise Jar and Two Cups of Coffee

When things in your life seem almost too much to handle… When 24 hours in a day are not enough, remember the mayonnaise jar and 2 cups of coffee.

A professor stood before his philosophy class with some items in front of him.  When the class began, he picked up a very large and empty industrial sized plastic mayonnaise jar and proceeded to fill it with golf balls

He then asked the students if the jar was full. 

They agreed that it was.

The professor then picked up a box of pebbles and poured them into a jar.  He shook the jar gently.  The pebbles rolled into the open areas between the golf balls. 

He then asked the students if the jar was full, and they agreed it was.

The professor next picked up a box of sand and poured it into the jar.  Of course, the sand filled up everything else. 

He asked once more if the jar was full.  The students responded with a unanimous “yes”.

The professor then produced two cups of coffee from under the table and poured the entire contents into the jar effectively filling the empty space between the sand. 

The students laughed!

“Now,” said the professor as the laughter subsided.  “I want you to recognize that this jar represents your life.  The golf balls are the important things—your family, your children, your health, your friends, and your favorite passions—and if everything else was lost, and only they remained, your life would still be full.”

“The pebbles are the other things that matter like your work, your house, and your car.”

“The sand is everything else…the small stuff.  If you put the sand into the jar first,” he continued, “there is no room for the pebbles or the golf balls.”

“The same goes for your life.  If you spend all your time and energy on the small stuff, you will never have room for the things that are most important to you.”

“Pay attention to the things that are critical to your happiness.  Play with your children.  Take time to get medical checkups.  Take your spouse out to dinner.”

“Play another 18.  There will always be time to clean the house and fix the disposal.”

“Take care of the golf balls first—the things that really matter.  Set your priorities.  The rest is just sand.”

One of the students raised her hand and inquired what the coffee represented.  The professor smiled.

“I’m glad you asked.  It just goes to show you that no matter how full your life may seem, there’s always room for a couple of cups of coffee with a friend.”

* * *

Well said! 

On this annual day of “Thanks”, take a minute and write down what your golf balls and pebbles are. 

It’s never too late to re-prioritize.

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Election Season Hangover

Elections have the ability to stir up emotions like nothing else, and this election season, in the middle of a global pandemic, has taken it to another level. It’s been incredible. 

Although we now know that Joe Biden has won the presidency, the final make-up of the House and Senate is still unknown, especially in the Senate where the run-off for both seats in Georgia will determine if Republicans maintain a majority or if  Democrats control all three at the same time.  The results have significant impact on the likelihood of policy changes.  

Given all of this uncertainly, how should we react?  Well, at some point pretty soon, we’ll have winners declared and we can all go about our business and carry on with our lives. 

While competition creates tension, which gives the appearance of above average divisiveness, all elections are divisive just like all market crashes appear to be unique and much worse that any in history when we’re right in the middle of one. 

Most important, in my opinion, is that we all have the capacity to remain in control of our own lives, and we all have a choice of how we react, interpret and respond to events and election results.        

How We Interpret and Respond is Our Choice

The best example I ever heard of this was from a famous speaker and author who was to speak to an audience at 7:00 p.m. on the day of the space shuttle crash back in 1986.

He always made a point not to watch news on the day of a speaking engagement so that he could remain focused on delivering the best possible talk to his large audience. 

Five minutes before he walked on stage, someone asked him what he thought about the terrible space shuttle crash that took place earlier that morning.   Because he hadn’t watched the news that day, he was just hearing about it for the first time as he walked on stage.

Tremendously moved by it all, he began his talk by asking the audience what they thought made him feel so terrible at that moment.  And, of course, they all mentioned the space shuttle disaster. 

He disagreed and proceeded to point out a very important distinction.  If the crash was going to make him feel bad, it would have made him feel bad ten hours ago when it occurred. 

What made him feel terrible right now was not the event.  It was his interpretation of the event.  And, that was his choice. For contrast, as incredible as it may seem, there were some in other parts of the world who cheered this as payback for American greed. 

We all have a choice when it comes to how we interpret, and thus feel and respond to events like elections. 

I just did some quick math: a Democrat has been in the White House during 42% of my life, and a Republican for 58%.  I have achieved a wide range of positive and negative results during my entire life.  Because I’ve chosen to take full responsibility for every outcome I’ve experienced, I can state unequivocally that none of them was attributable to who was in the White House at the time, or who my Senator, Congressperson, or Governor was. 

2020 has certainly been a test on all fronts.  Take a moment to pause, reflect, and consciously choose your interpretation of it all.  And, then respond by confidently living the life you’ve earned!  I promise you that it’s all still there for you no matter who holds elected office.

Political Bias

While political debate is healthy from a democratic process perspective, it can be very dangerous if you allow politics to influence your investment decisions.  

I can’t possibly stress how important this is.  I’ve witnessed countless examples of pent up emotions clouding investment judgment over the last 30+ years.

And, it has happened on both sides of the aisle.  The political preferences of our Relaxing Retirement members span the entire spectrum and I’ve heard every potential doomsday scenario vividly predicted to me over the last few months if “X” gets elected vs. “Y.” 

The biggest blunder occurs when the political season is in high gear, our emotions run high, and we make predictions about the trajectory of stock market performance based on which candidates have won, and/or which party has control of the House and Senate when the final votes are tallied.   

Although we subjectively want to believe otherwise, if you go back and study stock market returns during various presidencies and various mixtures in congress, you can’t find one common thread among them except that their results are mixed.

Given this, election results can’t be part of your long-term investment policy decisions.  Please resist all temptation to alter your carefully thought out strategy due to your political bias.

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Playing The Odds at Every Turn – Part II

In the last issue, I walked you through a spirited conversation we had with a friend over dinner about health, and my statistical findings on the leading causes of death from The World Health Organization’s website www.who.int.  

This was all sparked by our friend’s comment, “All your exercise and attention to healthy eating is great, but there’s no guarantee you won’t still drop dead of a heart attack.  My father and grandfather both died of a heart attack before they were 62.”

What we discovered through our research was that 71% of all deaths world-wide (and 88% in high income countries like the United States) are related to non-communicable diseases (NCDs), i.e. not an epidemic and not an accident.

And, that among the four leading NCDs, the startling commonality is that they are not random, and not genetic.  They’re primarily brought on by lifestyle choices and the physical effects these choices have on our body:

  • Eating: what do we eat, when do we eat, and how much do we eat?
  • Drinking: how much alcohol do we consume? How much water do we consume?
  • Smoking
  • Exercise: how often, and what type
  • Stress
  • Sleep: how much do you get, and what’s the quality of your sleep?

In health, it’s 100% true that you could get hit by a bus and die.  It’s also true that genetics plays a role in your longevity.

However, as The World Health Organization statistics suggest, your lifestyle choices have a much greater impact on your health, vitality, and ultimately, your longevity. 

If you have a sincere desire to be healthy and live a long life, why would you not play the odds? 

Study how to eat better, drink much more water and less alcohol, stop smoking cigarettes, exercise rigorously on a daily basis, etc.

Those like our friend who choose to focus on the role that genetics or accidents play in our long-term health, etc. prefer believing it’s out of their control because it absolves them of any responsibility or role in the outcome.  After all, “there’s no guarantee.”

What they’re really saying is they prefer not to make the proper choices and, instead, just do whatever feels good in the moment without any regard to the long-term ramifications.

It’s easier to say it’s out of our control, it’s random, or it’s predetermined. 

However, that’s a rejection of the reality that we all have the freedom to make the choice to play the odds at every turn and reap the rewards the statistics demonstrate.

I know I run the risk of that coming across as mean spirited when pointing this out.  Or, that I’m not sympathetic.  Nothing could be further from the truth.  My mother died of a brain tumor which later spread to her lungs at the age of 57. 

She strictly ate three square meals a day, never smoked a cigarette in her life, and she consumed one cocktail a year on Christmas Eve.  She played the odds and still passed away at a very young age. 

My Revelation: The Analogy to Financial Health

At this point, you’re probably wondering what this has to do with financial health?

In short…everything!

When you read or listen to the majority of individuals (and, by extension, the financial media) talk about those who have achieved financial success, what do you hear?

  • Right Place, Right Time, Luck: Those who have done well had the luck of good timing, choosing to work for many years for company X vs. Y, the business they created benefitted from outside events, etc. and they earned a large income,
  • Trust fund kid, i.e. they inherited it (despite Forbes annual statistics of the remotely small minority to have sustained wealth coming from inheritance),
  • Magic Investment: they somehow obtained information, probably unethically or unfairly, that lead to a great investing outcome,
  • Education: they went to X school and thus had connections that nobody else had.

Do you see the commonality in all of this? 

It all adds up to the belief that financial independence and success is all random, luck, and good fortune, and you have very little influence over the financial outcomes in your life.

As potentially mean spirited as this may sound, just as it is with the health examples I gave, it’s easy and convenient to believe that financial independence and success is all random, luck, and good fortune.

Believing that absolves them of the responsibility of focusing on the long-term and making the necessary choices you have made which have generated your financial independence! 

It’s easier to just block all of that out and focus on what brings instant, short term pleasure today, i.e. a new car I can’t afford, a 60-inch flat screen television, eating out five nights a week and running up the balance on my credit cards, or investing in a new “can’t miss hitting a home run” venture I heard about with money borrowed from my home equity line of credit.

Stark Contrast

The reality that I have witnessed amongst our Relaxing Retirement members over the last 32 years is that almost none inherited anything.  The majority did not earn extraordinarily large incomes during their working years.  And, very, very few went to Harvard or Yale!

The reason they have achieved total financial independence has nothing to do with any of the traditional dogma most folks conveniently buy into, or that Hollywood loves to portray and demonize.

They made decisions long ago that they stuck with over their lifetime to spend much less than they made, i.e. live within their means, and save and intelligently invest the difference.

They took 100% responsibility for the outcome they’ve experienced.  They didn’t look for a mystical guarantee, or a magic pill (investment). 

In short, they played the odds slow and steady.

And, this is what it all boils down to.  There are no guarantees and no magic pills, so you may alert anyone and everyone you know to call off the search.

There are, however, successful formulas built on highly probable odds in both health and finance that are in plain view for all of us to see. 

I’ve often said that if I fail, it’s certainly not going to be because I wasn’t prepared or I wasn’t willing to accept 100% responsibility for whatever outcome I realized.

In health, and in finance, we should all welcome our wonderful freedom to exercise control and choose our actions.  And, happily do whatever is necessary to play the odds at every turn.

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Playing The Odds at Every Turn – Part I

Last summer, I had a “spirited” conversation with friends over dinner about health which led to some research on my part, and a revelation about the remarkable similarities to “financial health.”

The debate with our friends essentially boiled down to the leading causes of death and the role that luck and genetics play vs. the choices we make.

It all started when our friend said, “All your exercise and attention to healthy eating is great, but there’s no guarantee you won’t still drop dead of a heart attack.  My father and grandfather both died of a heart attack before they were 62.”

I’m sure you’ve heard some version of this comment before.  Ultimately, it’s the same as, “you can do everything right and still get hit by a bus!”  Or, “I know a guy who was healthy who collapsed and died while running.”

All of that may very well be true, but it certainly doesn’t change the facts about the overwhelming leading causes of death, and what those are predominantly attributable to.   

Let’s look at some updated statistics I pulled from The World Health Organization website www.who.int about the leading causes of death (the italicizing and bolding is mine for emphasis).

World Health Organization

Non-communicable diseases (NCD) were responsible for 71% of all deaths globally in 2016, up from 68% in 2012 and 60% in 2000.

What’s even more telling is that NCDs account for 88% of deaths in upper and middle-income countries like the United States.  That’s remarkable!

Of the top 10 causes of death in upper and middle-income countries, only two are not NCDs: lower respiratory infections and road injuries which are numbers 6 and 8. 

The 4 main Non-Communicable Diseases (NCDs) are cardiovascular diseases, cancers, chronic lung diseases, and diabetes.

Chronic obstructive pulmonary disease claimed 3.0 million lives in 2016, while lung cancer (along with trachea and bronchus cancers) caused 1.7 million deaths. Diabetes killed 1.6 million people in 2016, up from less than 1 million in 2000.

Deaths due to dementias more than doubled between 2000 and 2016, making it the 5th leading cause of global deaths in 2016 compared to 14th in 2000.

  1. Cardiovascular Diseases (CVDs)

CVDs are the number one cause of death globally: More people die annually from CVDs than from any other cause.

An estimated 17.7 million people died from CVDs in 2015, representing 31% of all global deaths. Of these deaths, an estimated 7.4 million were due to coronary heart disease and 6.7 million were due to stroke.

Most cardiovascular diseases can be prevented by addressing behavioral risk factors such as tobacco use, unhealthy diet and obesity, physical inactivity and harmful use of alcohol using population-wide strategies.

  1. Cancer

Cancer is the second leading cause of death globally, with 8.8 million cancer related deaths in 2015.  Nearly one in six deaths is due to cancer.

Around one third of cancer deaths are due to the 5 leading behavioral and dietary risks: high body mass index, low fruit and vegetable intake, lack of physical activity, tobacco use, alcohol use.

Tobacco use is the most important risk factor for cancer causing around 22% of global cancer deaths.

  1. Chronic Obstructive Pulmonary Disease (COPD)

It is estimated that 3 million deaths were caused by COPD in 2016, which is equal to 5% of all deaths globally that year, and 90% of those deaths occurred in low and middle-income countries.

The primary cause of COPD is exposure to tobacco smoke (through tobacco use or second-hand smoke).

Many cases of COPD are preventable by avoidance or early cessation of smoking.

  1. Diabetes

The number of people with diabetes has risen from 108 million in 1980 to 422 million in 2014!

In 2015, an estimated 1.6 million deaths were directly caused by diabetes.

Type 2 diabetes comprises 90% of people with diabetes around the world and is largely the result of excess body weight and physical inactivity.

Healthy diet, regular physical activity, maintaining a normal body weight and avoiding tobacco use can prevent or delay the onset of type 2 diabetes.

What’s the Commonality?

As you read through all of this, do you notice any commonalities?

First, more than two thirds of all deaths (and 88% of deaths in upper income countries like the U.S.) are related to non-communicable diseases (NCDs), i.e. not an epidemic and not an accident.

Among the four leading NCDs, the startling commonality is that they are not random, and not genetic.  They’re primarily brought on by lifestyle choices and the physical effects these choices have on our body:

  • Eating: what do we eat, when do we eat, and how much do we eat?
  • Drinking: how much alcohol do we consume? How much water do we consume?
  • Smoking
  • Exercise: how often, and what type
  • Stress
  • Sleep: how much do you get, and what’s the quality of your sleep?

There’s No Guarantee

Armed with these statistics from the WHO, let’s now go back to my dinner conversation with our friend and her comment: “All your exercise and attention to healthy eating is great, but there’s no guarantee you won’t still drop dead of a heart attack.  My father and grandfather both died of a heart attack before they were 62.”

I again sympathize with the loss of her father and grandfather because I lost my mother to cancer at age 57, but the fact that they both died of a heart attack before age 62 doesn’t necessarily suggest that it was genetic.  What are the chances that their lifestyle choices, and the negative long-term effects they had on their bodies, were similar?

More important, however, was our friend’s choice of the word “guarantee.”  It’s a very, very important word and one that led to my “revelation” about financial health.

Everyone desires certainty in their lives.  Most would prefer guarantees with everything (health, finances, etc.)

Unfortunately for the majority who seek it, life is not a straight line.  There are virtually no guaranteed results in anything.

Given this, to achieve whatever it is that you want, use your freedom to choose. 

Research and Play the Odds at Every Turn!

In health, it’s 100% true that you could get hit by a bus and die.  It’s also true that genetics plays a role in your longevity.

However, as The World Health Organization statistics suggest, the tremendous news is your lifestyle choices have a far, far greater impact on your health, vitality, and ultimately, your longevity. 

If you have a sincere desire to be healthy and live a long life, why would you not study how to eat better, drink much more water and less alcohol, stop smoking cigarettes, and exercise rigorously on a daily basis.

Those like our friend who choose to focus on the role that genetics or accidents play in our long-term health, etc. prefer believing it’s out of their control because it absolves them of any responsibility or role in the outcome.  After all, “there’s no guarantee.”

What they’re really saying is they prefer not to make the proper choices and just do whatever feels good in the moment without any regard to the long-term ramifications.

It’s easier to say it’s out of our control, it’s random, or it’s predetermined. 

However, that’s a rejection of the reality that we all have the freedom to make the choice to play the odds at every turn and reap the rewards the statistics demonstrate.

Stay tuned for the next issue as I reveal my revelation, i.e. the amazing analogy to financial health!

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Your Racetrack

Have you ever driven a car at high speeds around a racetrack?

I haven’t, but I have a friend who has done so many times, and there’s a great lesson he shared with me that is incredibly useful for all of us in many other aspects of life including investing.

As he shared, your margin for error when driving around a racetrack decreases as your speed increases, so you must have a very definitive plan if something goes wrong.  A critical strategy, as you will learn in a moment, is to always keep your eyes on your target, i.e. where you want to go.

That seems simple enough.

Inevitably, however, weather conditions and fuel spills create “tests” for all drivers.  You’re humming along feeling confident on a straightaway when all of a sudden, as you head into a turn, you hit a fuel spill and your car spins out of control toward the wall. 

What follows is what all inexperienced drivers do: they panic, their focus changes, and their eyes get locked in on the wall they’re trying to avoid. 

When my friend experienced this for the first time, his instructor, who was seated next to him, simultaneously grabbed and turned my friend’s head while yelling “focus on where you want to go!

Amazingly, when my friend snapped his head back and adjusted his focus in the direction of the path of the track, the car responded and he steered back into control and avoided any contact with the wall!

The lesson for my friend: when in danger, don’t stare at the wall you’re trying to avoid.  Instead, remain focused on the track, i.e. where you want to go.

Guarded Confidence

So, why am I sharing this story with you?

Well, the path to investment success, your long term financial health, and a fulfilling life is littered with “fuel spills,” each of which has the potential to grab your attention, influence your mindset, change your focus, interrupt your long ingrained successful habits, and, thus tarnish the outcomes you have worked so hard for and deserve. 

If you have your eyes and ears open on any given day, you know how much more challenging this has become with 24/7 “news” on dozens of media outlets and devices. 

The days of watching Walter Kronkite, often sited as “the most trusted man in America,” on the 6:00 p.m. news for your daily dose of information are over. 

It seems as if everything today is “Breaking News,” and each dose carries with it the “potential” to interrupt your long ingrained successful habits, and throw you off your carefully chartered course. 

Essentially, you have two choices.  You can do what my coach, Dan Sullivan of Strategic Coach, has done.  He made a conscious decision to eliminate television and hasn’t watched anything for 27 months.  Instead, he’s a voracious reader.

His first observation: “it’s amazing how the number of crises in the world has dropped significantly over those 27 months!” 

As we all know, the news media must manufacture and embellish events in order to repeatedly get our attention, so there are varying degrees of crisis.  However, each is reported as new and “different this time.”

Short of eliminating television completely, your second choice is to vigilantly guard your confidence against all forces competing for your attention including all forms of media, and friends, family, and co-workers who may very well have conflicting mindsets and biases. 

In many ways, my job as your Retirement Coach is very similar to the race car driving instructor.  You won’t find me physically grabbing your head and turning it, but every time there is a “crisis” of some degree reported, I want to be there to help you instantly gain perspective, keep your focus on where you want to go, and what I believe is the strategic path with the highest probability to get there. 

Just like the positive outcome my friend experienced when he adjusted his focus away from the wall he was about to crash into and back to where he wanted to go, condition yourself to remain focused on the long-term outcome you want and watch all the good that comes as a result.

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