Tag Archive for: retirement

This is NOT What Retirement Should Be Like

Imagine for a moment that you’re having a conversation over dinner last Friday night with your brother and his wife.  Answering the common question, “what’s new,” he dives right in and shares what he’s been up to.

In addition to the nice home he owns and lives in with his family, he also owns a two-family home in town which he has been collecting rent on for 15 years.

He explains to you that he called up his real estate broker last week on a Tuesday afternoon and asked the broker what she believed he could sell the rental property for that day.  He didn’t want to know what he could sell it for in a month or two, but right then.

Given the demand for a quick response, her answer was $600,000.

He then called back on Wednesday morning at 9:43 a.m. and asked how much she thought he could receive if he sold it then.

He then called back at 11:57 a.m. and asked the same question.

Finally, he called her back that same afternoon at 3:26 p.m. and asked how much she thought he could sell it for then.

Before you called the local hospital for the men in the white coats to come and take him away in a straight jacket, you asked him if he did this often.

“Oh, I do it all the time,” he said.

Why, you ask, do you waste your time if you’re not selling?

“I like to stay on top of things so I know how I’m doing.”

Brother #2

Imagine for a moment that you’re visiting your brother and his wife at their home in Florida.

In the first morning of your visit, you notice that he’s watching CNBC on television and there are two guys shouting conflicting opinions on the impact of The Fed’s latest announcement on raising interest rates on market prices.

As you’re all waiting on him to head out for lunch, you notice that he has Yahoo Finance pulled up on his iPad checking the prices on the different stock market exchanges.

“The Dow is down 120 points,” he laments as you’re walking out the door to the car.

At the conclusion of lunch at the restaurant, he asks the waiter to switch the channel on the television over to CNBC so he can see what the market is up to.

After some shopping in town, you head home in his car.  On the way, he has business radio tuned in on the radio so he can hear how the market closed at the end of the day.

After a nice meal at his home that night, you all settle in to watch Jim Kramer discuss his take on the market activity that day, and what he recommends everybody do in reaction to the day’s events.

After a futile attempt to get him to change the channel over to a comedy show that you can all watch, you gently ask him if he “paid this much attention to the market every day.”

“Of course,” he said.  “Don’t you?”

After replying that you don’t, you then ask him why he does it.

“I like to stay on top of things so I know how I’m doing.”


  1. Is the behavior by the brother in story #1 any different than the brother in story #2? If so, why?
  2. Is there anyone you know who resembles the brother in story #2?
  3. What is each brother looking for?

These are very important questions I’d like you to ponder for a moment!

What is Your Opinion?

So, what do you think?  Is the behavior exemplified by your brother in story #1 (real estate) any different than your brother in story #2 (stock market)? 

The answer is no.  There is no difference at all!  They’re both equally bizarre and destructive.

The only difference is the investment vehicle they’re using.  

Upon first glance, I suspect the behavior of Brother #1 (real estate) appears more outrageous.  

I also suspect you know someone who mirrors the behavior of Brother #2 (stock market). Perhaps you know someone like this quite well.

We all do and it’s becoming way, way too common.  The media has turned investing into a sport with minute-by-minute reporting of “points” on the Dow.  Why do you think they use that terminology?

The truth is that the behavior of Brother #2 (stock market) is no more bizarre and destructive than the behavior of Brother #1 (real estate). 

Randomly “checking in” via the internet, TV, or your iPhone, etc. multiple times a day to “see how ‘the market’ is doing” is the same as Brother #1 calling his real estate broker on three separate occasions in one day to find out how much she could sell his rental property for at that precise moment. 

Neither accomplishes anything. 

What Are These Two Brothers Looking For?

The bigger question is #3 which is what are they looking for?

What they’re both looking for is a sense of certainty in the short and long run. 

They want to make sure they’re not “falling asleep at the wheel” and missing out.

The reason they have this feeling and desire is their overall “big picture” interpretation, and thus ingrained belief of the world on a day-to-day basis, i.e. that world economies and financial markets are completely fragile, erratic, ungrounded, and out of control. 

And, that the bottom could permanently fall out of their financial lives without any warning whatsoever, and they could be permanently bankrupt because of it.

Please take a moment to go back and read those paragraphs again.  It’s that important.

This is the psychological state of most investors in America today, especially those approaching their retirement transition, and it is my strong opinion that it is not necessarily their fault (in the short run).  

I emphasize “in the short run” because in the long run, everyone has a responsibility to continuously seek the objective truth, and discard everything else which has not objectively been proven to be true.

What the Mainstream Media Feeds Us

What everyone is fed by the mainstream financial media over and over on a day-to-day basis confirms that economies and financial markets are completely fragile, erratic, ungrounded, and out of control.  And, that the bottom could permanently fall out of their financial lives without any warning whatsoever and they could be permanently bankrupt because of it.

If anyone were to take a step back and unemotionally evaluate this assertion, they could and would arrive at the truth which is that it is completely false.  

However, the daunting and fragile picture the financial media paints is not reported because of its level of truth.  It is reported because it keeps millions and millions of viewers tuned in day after day after day.

The Truth About the Financial Media’s Intentions You Must Know

Think about it.  If the financial media can perpetuate this myth, and they can get millions to buy into it, then they condition those millions (like Brother #2) to tune in multiple times each day in order to fulfill their conditioned desire to “stay on top of things.”

If engaging in this activity was of any value to you, I’d strongly endorse it in a heartbeat.  It is not. 

In fact, I recommend doing everything you can to avoid this trap. 

Investing is not a sport, thus scoring it on a minutebyminute basis, as the financial media would like you to do, is not only unhealthy, but it is ineffective as a means of helping you achieve total financial independence.

This does not mean that you should aimlessly bury your head in the sand.  What it does mean is that, in the face of the endless barrage of information coming at you every day, you must exercise extreme levels of awareness of the “intent” of the information, to remember that you are in control, and, above all else, protect your confidence!

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When Transitioning to Retirement, Reduce Complexity and Consolidate!

After recently losing her father to a long battle with cancer, and having to sort through his estate, one of our Relaxing Retirement members reminded me to share a very important strategy with you so nobody else has to go through the exhausting and unnecessary experience she went through.   

Sorting out all of her father’s bank and investment paperwork took almost two months because it was coming in from everywhere.

When she finally tallied it up, here’s what she discovered.  In addition to numerous bank accounts in several different banks, he had 14 different custodians for shares of stock that he owned, as well as various stock certificates for his original purchases that were located in his fireproof safe in his basement. 

Most of this came about from the break-up of AT&T years ago into all the “Bell” spinoffs like Lucent, Southwestern Bell, Nynex, Vodaphone, Verizon, etc.

In addition to those, he also had 8 different IRA accounts, including 3 in banks and 5 held directly at different mutual fund companies!

In all, that’s 22 different sets of statements in addition to his individual stock certificates! 

Why Did He Have So Many Accounts?

Right now, you must be asking, “OK, why did he have so many accounts?”

As she explained, her father grew up in a household marred by the Great Depression when banks had their troubles and innocent people couldn’t get access to their money.  So, the reason for the different bank accounts was probably to stay under the FDIC insured amount.

As for all of his stock accounts, both inside and outside of IRAs, there’s really no explanation other than he wasn’t aware that he could consolidate them all onto one statement.

Years ago, I had a gentleman in his 70s tell me that the reason for him holding a dozen different IRA accounts was “diversification.”

When I told him that he could keep all the same investments that he had but consolidate them all onto one easy to read statement, he couldn’t believe it.

Why You Should Consolidate Your Statements and Investment Holdings (including Individual Stock Certificates)

He was so conditioned to believe that multiple accounts equaled diversification.

For starters, you can and should consolidate all “like kind” accounts (same title, i.e. joint, etc.) into one account, especially IRAs i.e. Traditional, Roth, Rollover, etc.  This is also true of your retirement plans at prior companies or institutions.

There are several reasons for this, none of which is to boost performance:

  1. Instead of spending time locating statements each month, you can receive one consolidated statement that lists all of your investments broken down by account title.
  2. When it comes time to reallocate or rebalance your investments, you have one source to contact to make the change.  And, that company also does all the record keeping for you.
  3. IRA Required Minimum Distribution (RMD): Once you reach age 72, and you have to begin taking your RMD, you only have to calculate the amount to withdraw from one account, so record keeping is much simpler.  Instead of receiving notification of the required amount to withdraw from several companies, you will only receive one.
  4. Tracking Non-deductible IRAs: Consolidating your IRAs also makes it easier to keep track of non-deductible IRA contributions, and thus accurate filing of your income taxes when you take your annual distribution.  As a simple example with round numbers, if you have $100,000 in IRAs, and $20,000 of that comes from non-deductible IRA contributions over the years, then only 80% of your withdrawal is subject to tax.
  5. On-line access in one location: in today’s world of on-line account access, you can view all of your investment holdings on one website, including your bank accounts.
  6. Last, but not least, it makes it so much easier on your heirs.  Helping our member pull all of this together after the fact reminded me that I take it for granted that everyone knows that you can do this.  Your heirs will be extremely happy that you consolidated everything into one location.

As a final thought, in addition to taking care of this for your family, if your parents are still with us, you may want to approach them about this as well.  It may save you a few headaches down the road!

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A Critical Retirement Lesson to Implement

Over the last 33 years of coaching individuals and couples to a seamless transition to their retirement years, I’ve witnessed many similarities among those I’ve worked with.

Some of those similarities were positive like the tremendous discipline and dedication employed to save and build up a sizable Retirement Bucket™ of investments which eliminated their dependence on a paycheck from work and provided them with the option to retire or keep working.

On the flip side, however, I’ve also witnessed far too many who have no system in place for their decision-making, and it costs them dearly.

I’ve recently had the pleasure of working with a terrific couple who was referred to us by one of our Relaxing Retirement members.

Their “story” is one I’ve witnessed far too many times, but there’s a great lesson for everyone, so I’d like to share it with you.

In order to protect their privacy, I’m going to refer to this couple as Ron and Rita.

Ron and Rita are both 63 years old and they now find themselves in the same place many of our Relaxing Retirement members found themselves in. 

They’ve hit a threshold!  While they’ve enjoyed working up until now, they’re now emotionally ready to make the transition to Phase II of their financial lives and retire.

Can We Afford to Retire if We Choose to?

What Ron and Rita first wanted to know is if they could afford to stop working if they chose to.

And, if they can, how do they generate lifestyle sustaining cash flow they need because they’ve never done this before.

This is a key commonality that I see so much. They’ve never done this before and they’re just not confident making the transition.

One of the big reasons why they lacked 100% confidence is their investment performance over the last few years.

During Step 2 in our program, their Retirement Confidence Preparation System meeting, in addition to having an extensive conversation about their experiences and their priorities, I also had the opportunity to review their investment holdings going back a few years as Ron was a “spreadsheet guy.”

While reviewing their spreadsheets during our meeting, I noticed that there was a lot of activity (buying and selling) at random times, so I asked what triggered all of that movement.

Ron’s answer was one that I hear far too often: “I evaluate what’s doing well and what’s not and I reallocate.

My response was, “how do you determine what to sell and then what to buy?

Ron’s answer: “I sell what isn’t performing well and buy what is performing better.”

His answer was so matter-of-fact suggesting he thought that’s obviously what everyone should be doing.

Yes, They Can Afford to Retire

Before I comment on Ron’s answer, let me share with you what our analysis showed them.

When we designed their Retirement Blueprint™ and ran their Retirement Resource Forecasters™, taking into account all of their priorities and all their resources, we discovered that they had built up enough in their Retirement Bucket™ of investments to make it all work!

Enough money and income from social security and a small pension to continue living exactly the way they wanted without running out of money over their expected lifetime.

Now, as you can imagine, this was a huge relief for them, and something they did not realize before we met and designed their Retirement Blueprint™.

As you can imagine, they were on a real high at this point.  However, that soon simmered as I alerted them that there was a gigantic “BUT.

But, Not if They Continue on the Same Path

After carefully evaluating Ron’s spreadsheet of their investment activity, the gigantic “BUT” I had to report to them was if they continued doing what they had been doing, there was a high likelihood that they would run out of money within 8 or 9 years!

I know…ouch!

Now, why did I have to tell Ron and Rita this when I just told them that they had enough money built up to support their lifestyle for the duration of their life expectancy?

The reason I had to tell them this was their Retirement Resource Forecasters™ had some assumptions built into them.

First, we have to account for the fact that they’ll need higher and higher income each year just to remain in the same position due to inflation which has now reared its ugly head.

And second, we have to assume that they can earn the investment rate of return they need to earn in order to keep pace with inflation, which, for them, is not a very high return.

However, given Ron and Rita’s “system” of investing, they had little or no chance of accomplishing that.

What they actually employed was not a system, but random selection and timing.

Their allocation actually wasn’t that bad three years ago.  It was fairly well diversified.

However, they continuously killed that diversification by trying to shift out of “what just performed poorly” over to “what had performed better.”

What Ron and Rita Were Missing

Unfortunately, Ron and Rita’s investment “system,” or better stated: “behavior” is not unusual.

Statistics tell us that it’s the norm.

According to Boston-based research firm, DALBAR, here is what their 2020 Quantitative Analysis of Investor Behavior revealed about the 30 year period from January, 1990 through December, 2019:

  • The Average annual return of the S&P 500 Stock Market Index from was 96% (including dividends reinvested)
  • Over the same 30 year period, the average annual return of the “average” equity mutual fund investor (not investment, but an investor, i.e. a person) was 04%

Take a moment to stop and re-read those two numbers for a moment and let them sink in.

What these numbers tell us is that, while the S&P 500 Market Index delivered a strong average annual return over those 30 years of 9.96%, the average stock mutual fund investor (a person, not an investment) only achieved 5.04%!

That means that the average stock mutual fund investor’s return was only half of what the broad stock market index provided each and every year!

How incredible is that!

It’s mind boggling, but it doesn’t surprise me after what I’ve witnessed over the last 32 years coaching couples through this retirement transition.

Just think about Ron and Rita’s story that I just shared with you!

They’re Fighting the Wrong Battle

What you can’t help but take away from those statistics is that, while it makes all the news, markets (or bad investments) are not our biggest problem.

The BIG problem is what the average investor does with markets, i.e. investor behavior, which is driven by their “strategy” or lack thereof.

Forget for a moment about trying to “beat the market” which is what everybody loves to talk about and talk shows are built on.

The average stock mutual fund investor earned 49.4% less each and every year than the broad market S&P 500 index.

Think about that for a moment.  Something that we all can control is what our biggest problem is.

It’s uncomfortable, but it’s the only logical and rational conclusion we can reach given the results of this research report.  What else could possibly explain the massive difference in real life returns that people receive?

The obvious question is why, and what can we do to close this performance gap?

Well, there are several easily correctable “strategic mistakes” that I’ve personally witnessed over the last 33 years that I’d like to share with you.

Stay tuned.  I’m not sure there’s anything more important about investing during your retirement years than what I’m going to reveal to you in the coming episode.

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Confidently Spending in Retirement Requires This Strategy

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™ of investments, 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 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 flipping the switch from saving what you’ve earned to 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.

Get in touch with your numbers right now!

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When Approaching Retirement, Be Alert for This Confidence Vampire

Unlike the tiny percentage of the American population who live exactly the way they want after they transition to retirement, far too many who have already exercised tremendous dedication to accumulate a sizable Retirement Bucket™ of investments live in constant fear financially.  And this severely limits the lifestyle you’ve earned.

Unfortunately, maintaining your financial confidence in today’s ever-changing and fast-paced world is more challenging than ever. There are obstacles confronting you at every turn.  Today, I’d like to discuss the first of two Confidence Vampires you must be alert for.

Confidence Vampire #1: Financial Journalists

Take a step back for a moment and think about the “business” of financial journalism for a moment (newspapers, television, magazines, radio, internet).

I will preface this to by saying I mean no disrespect to financial journalists, nor do I question their right to run a profitable business.  However, if you want to develop and maintain the unflappable financial confidence necessary to live the life you’ve earned in Phase II of your life, it’s critically important to recognize that their goals and objectives are in direct conflict with your financial confidence.

The way the media makes money is not by informing, teaching, or advising us, and it’s not by providing us with the most relevant and timely information we need.  They make money through advertising “sponsors,” i.e. companies looking to promote and market their own businesses.

So, the #1 goal and objective of all forms of media is to convince as many thriving companies, who are looking to get their “message” out to as many potential consumers as they can, that they have the largest audience of viewers to deliver their advertisements to.

Skilled Copywriters Create Confusion and Unrest

How to do they accomplish that in today’s day and age?  Since investing, in and of itself, isn’t very exciting, their skilled copywriters are paid handsomely to stir the pot, generate confusion and unrest, and convince viewers that the world’s financial system is fragile and unpredictable, that markets could crash at a moment’s notice, and that the only way to protect ourselves is to “tune in” and watch.

It’s a great tool for them to sound unnecessary, but extremely effective alarm bells, capture your attention, and strip away your confidence.

Why Do They Use Points vs. Percentages?

The most blatant example of this is how they report stock market activity throughout the day.  You may recall that in October of 1987, the Dow Jones stock market index fell 508 points. Back then, that represented a 22.5% drop in one day!

Today, 508 five hundred points represents about a 1.5% drop, but the financial media still uses the term “points” throughout the day.  Why do they continue to do this when it’s clear to any rational observer that it’s a distorted measurement of what is going on?

The answer is two-fold. First, “points” sounds like a much bigger deal than it actually is.  If they say, “The Dow fell 500 points today,” that conjures up a lot more fear and anxiety in the viewer than “The Dow fell 1.5% today.”

The second reason, which is brilliant marketing on their part, is to condition you to “keep score” of your investments on a daily basis just like you would keep score of how your favorite team is doing.

Keeping score every inning in a baseball game is necessary to determine how well your team is doing.  However, when it comes to investing, everyone from Warren Buffett, to Peter Lynch, to Nobel-prize-winning laureates like Eugene Fama insists the last thing you should do is react to what’s happening on a daily basis, i.e. keeping score daily.

This is not a recommendation to stop paying attention. Simply be aware that there is a significant conflict of interest between the financial media’s goals and your goals when you tune in and protect your confidence at all costs.

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Retirement Challenges You Must Conquer

How easy is it to relax and enjoy yourself when you’re in a state of fear and unrest about anything in your life?   

Not very easy at all!

There’s a direct link between your level of confidence on a day-to-day basis and the quality of your life.

Specific to money, which is the means with which we all support our desired lifestyle, developing and maintaining supreme financial confidence is more necessary and critical today than ever before. 

Without it, you will continue to pull your punches, and miss out on living the life you’ve earned and enjoying the experiences you deserve due to fear. 

Today’s Financial Confidence Deficit    

Have you ever stopped to think about why there is such a low level of financial confidence today?

Well, unfortunately, there’s no long history, and very few good examples of individuals who have reached and maintained total financial independence over a long life. 

You have to remember that, for anyone other than the super wealthy like the Carnegies and the Rockefellers of the world, the whole concept of retirement, or being able to financially support yourself without having to work, has been around for less than 100 years. 

Stop and think about that for a moment.  Historically speaking, that’s not a very long time. 

Retirement Didn’t Exist

Before that, “retirement” didn’t exist.  People worked until they passed away.  Or, they lived with, and were supported by, their family.

What initially changed all of that was social security and fixed monthly pensions provided by lifetime employers. 

It was a lot easier back then because you could add up the amount you’d receive each month from social security and your pension, and if it was more than you needed to live on, you could make the determination if you’d be okay or not and feel confident about it.

However, all of that has now changed.  Fixed pensions have become a thing of the past for most Americans. 

Instead, employer sponsored savings plans, such as 401(k)s and 403(b)s have taken center stage as employers have removed themselves from the financial management business.

No More Guarantees

When you transition to retirement, you’re no longer “guaranteed” a monthly pension. 

Instead, you’re presented with a lump sum of money and it’s your job to determine:

a) First, is it enough to provide the cash flow we need right now, and down the road when inflation kicks in and our lifestyle costs more?

b) Second, how do we avoid all of the potential mistakes, and take advantage of the opportunities necessary for us to earn what we need in order to make our Retirement Bucket™ of investments remain intact for as long as we do?

In a nutshell, at the stage in your life where there’s no room for big mistakes, the responsibility for your financial independence and security has been transferred from your employer to you.


Massive Responsibility

Generating consistent, inflation adjusted cash flow…navigating ever-changing tax laws…managing investments and dealing with volatile financial markets…protecting your income and assets for your family….planning your estate.

It’s now all on you.

And, on top of it all, you are pounded on a moment-by-moment basis through various media outlets tugging at your attention with conflicting and confusing information.

There’s no mystery why there is such a lack of financial confidence out there, especially when you’re looking to make your transition to your retirement years!

In essence, this is why we created The Relaxing Retirement Coaching Program™.

The Relaxing Retirement Formula

The focus of many of the individuals and couples we meet with for the first time is often in many different directions. My recommendation is always to begin with the fundamentals and have them take a giant step back and clearly identify the lifestyle they want, and then the challenges and obstacles they face in getting there.

Let me give you a very simple, but critically important, example:

Challenge #1:       “Although we haven’t decided if we want to stop working or not, we don’t want to depend on a paycheck from work anymore, so we need to generate income some other way.”

Challenge #2:       “Our lifestyle costs a lot more than our pensions and social security incomes bring in. (i.e. we need $140,000 per year to live after paying income taxes, and our pensions and social security only bring in $60,000)”

Challenge #3:       “We need to generate cash flow from our Retirement Bucket™ of investments to support our lifestyle.”

Challenge #4:       “We don’t have enough built up to let it all sit in CDs at the bank and earn only 1 to 2% interest.”

Challenge #5:      “We need to earn better investment returns to keep pace with  inflation so we don’t run out of money.

Challenge #6:      “In order to achieve the better investment returns we need, we have to position our Retirement Bucket™ of investments where it has an opportunity to earn better returns.”

Challenge #7:      “Positioning our retirement savings where it has an opportunity to earn better returns subjects us to greater amounts of investment volatility.”

Challenge #8:      “If our Retirement Bucket™ runs out too soon, we have to either make cutbacks in our lifestyle, or we have to go back to work!”

This may all seem obvious, but most couples we meet with for the first time have no idea why they’re even investing in the first place, nor why they’re allocated the way they are.

In most cases, the reason they’re allocated the way they are is because Fund X seemed like a good fund, or recently performed well!

This is extremely dangerous in its simplicity!

If you don’t begin by first identifying all the potential obstacles in your way to enjoying a Relaxing Retirement, you will join the overwhelming majority of Americans who tend to wander and focus on things that are potentially important, but completely out of context and inappropriate for their unique situation and circumstances.

Begin with the fundamentals of The Relaxing Retirement Formula™.

Beware of Annuities for Your Retirement

I recently had a conversation with the brother of an existing Relaxing Retirement member who is unfortunately, and completely unnecessarily, experiencing some serious pain. 

He and his wife retired last year and now want to split time between a new condo in a suburb West of Boston, and a condo in Florida during the winter.

The reason he called was they were confused and completely frustrated with the answers they were receiving from their advisor, and he wanted a second opinion.

His dilemma, as he explained, was that they both rolled over their 401(k) plans into annuities inside of an IRA because they were told they could earn market returns “without risking their principal.” 

Uh-oh!  Does this sound familiar?

Their dilemma was they wanted to temporarily withdraw a chunk of money from their plan to help finance the purchases and moves.  IRAs allow you to withdraw money and re-deposit funds within a 60-day window without any taxes or penalties.

That was the good news.  Now for the bad news….

What they discovered was that they couldn’t withdraw any more money from their annuities without paying a 12% surrender charge to the insurance company!


On the $450,000 they want to temporarily withdraw and then re-deposit, that’s an annuity surrender charge of $54,000 that can’t be recovered later. 

And, that expense is not tax deductible. 

Can you imagine being in this predicament?  Frustrating and sad at the same time!

After my extended conversation with them, and after thinking about all of the questions I receive about annuities, I thought I’d take the opportunity to discuss the pros and cons so that you can independently understand and personally evaluate annuities for your own unique situation.

Preliminary Comments Regarding Annuities

Before we dig in, just a few preliminary comments…

The first is that an annuity is like any other investment vehicle; they’re a tool to put in your toolbox of potential options. 

They are not a one-size-fits-all solution.  This is one of my biggest pet peeves.  Agents and “advisers” are out there in droves pushing annuities as THE solution to every financial problem.

Like any investment, there must be a very good reason why you would invest in an annuity.  Hopefully, that comes after you’ve carefully and strategically designed a Retirement Blueprint™, and after understanding all the facts and ramifications first.

The second point is that, while there are a handful of annuities that could be a potential option for some to solve a very specific problem, I believe annuities are grossly oversold.  

In my estimation, 99% of the annuities sold are inappropriate. 

Given this, my goal is to help you better understand them so that you can make an educated decision for yourself. 

What’s an Annuity Anyway?

Let’s begin today by first laying out what an annuity is. 

An annuity is simply a savings instrument sponsored by an insurance company. 

There are many different classifications and variations, so let’s tackle those first:

Immediate vs. Deferred Annuity

A deferred annuity has two phases to it:

  • Accumulation: funds you deposit grow inside the annuity on a tax deferred basis until you withdraw funds.
  • Withdrawal or Distribution: you choose how you’d like to withdraw funds from your annuity, either by “annuitizing” the value and receiving a guaranteed monthly payment, or by simply taking withdrawals as you see fit.  (more on this in a moment)

An immediate annuity has no accumulation phase.  You simply place money into the plan and begin receiving monthly income for life.  If you currently receive a monthly pension from your employer, what you’re receiving payments from is typically a form of an immediate annuity that your employer has placed funds in to guarantee your monthly payment.

Accumulation Phase

During the accumulation phase of a deferred annuity, there are two broad options:

Fixed Annuity:  When you invest in a fixed vs. a variable annuity, what they’re referring to is the “investment” element.  In the case of a fixed annuity, your deposit is credited with interest paid by the insurance company.  How much interest you receive is based on the performance of the insurance company who sponsors the annuity, so in that respect, it acts like a CD at the bank.  Typically, they come with a minimum guaranteed interest rate for the life of the annuity contract.

Variable Annuity: In a variable annuity, in addition to having a “fixed rate” option to choose from, you are also provided a list of subaccounts which act like mutual funds from various mutual fund companies.  There are no guarantees.  The performance of your plan will be based on the performance of the underlying subaccounts. 

Withdrawal or Distribution Phase

During the withdrawal or distribution phase, there are also two broad options:

Random Withdrawal:  When you want to begin receiving money from the plan, the first option, within a deferred annuity only, is to simply take random withdrawals subject to the deferred sales charge limitations set forth by your company.  For example, within most companies, you may not withdraw the entire balance of your annuity within the first six to twelve years without paying a hefty surrender charge.  However, prior to the end of that period, many companies allow you to take a partial withdrawal without any charge.

Annuitizing (Guaranteed Monthly Payment): When you “annuitize”, you are choosing to receive a guaranteed monthly payment for a period of time, typically for life.  In this case, it acts like a pension or the social security income you receive. 

  • Single Life:  When you select the single life option, you choose to receive payments for your life only.  When you pass away, even if that’s in three months, the insurance company keeps the money.  However, if you live to be 156 years old, the insurance company must continue to pay you the guaranteed monthly check.
  • Joint and Survivor or Period Certain:  If you have a spouse who you want to protect, or if the prospect of passing away too soon and having the insurance company keep your funds is a problem for you, you may select a joint and survivor or period certain plan.  By doing so, you guarantee payments to your beneficiary either for life or for a certain period of time after your death.  However, in order to compensate the insurance company for this added risk, you receive a smaller monthly payment while you’re living. 

Now that we have the basics down, we’ll continue with a discussion of the pros and cons of using annuities in the next edition so that you can evaluate them for your own use.

Stay tuned.

Implement a Portfolio Life Mindset for Your Retirement

One of the biggest roadblocks I’ve witnessed with members over the last 33 years in my role as The Retirement Coach is not financial. 

There are three questions everyone has on their minds when we meet for the first time:

  1. Do we have enough built up? (i.e. to stop working if we choose to)
  2. How much can we afford to spend (and/or help our kids and grandkids) without the threat of running out of money?
  3. How can we make our Retirement Bucket™ of Investments last?

Once we remove the financial hurdle and custom design a Retirement Blueprint™ to answer those three big questions, there is a strange reality that kicks in for those who have done a great job saving money: after 30 or 40 years of working and saving, they no long “need” to do it anymore.

Note the key word in quotation marks, i.e. “need.”  Released from the burden of the need to work anymore to support themself financially, many active and successful folks struggle with what to do with the rest of their lives. 

And, with life expectancy growing and growing, that’s likely to be another 20 to 30 years!

The solution to this issue is never just one thing!  It’s many things which is why I have always loved David Corbett’s book Portfolio Life: The New Path to Work, Purpose, and Passion After 50

Corbett describes a “life portfolio”- a balanced mix of work, learning, leisure, family time, and donating time that individuals tailor to their personality and goals. 

He elaborates a disciplined, step-by-step process for creating this portfolio life with long and short-term planning. 

If you have ever struggled with the thought of “what’s next,”, I strongly recommend picking up a copy of Portfolio Life and reading it. 

I look forward to hearing your feedback. 

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Know Your Numbers to Confidently Transition to Retirement

If you want to free yourself, once and for all, from your dependence on your paycheck, there are four numbers you must know.

After you’ve discovered the first number we discussed in the last episode, i.e. how dependent you are on your Retirement Bucket™ of Investments each year, you have three more to go, so let’s tackle them today!

#2: How Long Does Your Retirement Bucket Have to Last?

The second number you must know is how long your Retirement Bucket™ needs to last.

That may sound like a very morbid question, but there’s a very big difference if you’re asking your Retirement Bucket to last 15 years vs. 30 years, so you must know your number to arrive at an accurate answer to your biggest question, i.e. do we have enough built up to stop working if we choose to?

Most people grossly underestimate how long they’re going to live, so let’s take a look at the IRS Joint Life Expectancy Table which provides the average age at which the surviving spouse in a couple passes away:

  • 60-Year Old Couple: 30.9 years (to age 90.9)
  • 70-Year Old Couple: 21.8 years (to age 91.8)
  • 80-Year Old Couple: 13.8 years (to age 93.8)

If you are a 60-year old couple, on average, one of you will live to age 91 so that is how long you must plan for. No small task!

#3: What Rate of Inflation Will You Assume?

The third number you must be 100% clear on is the rate of inflation you will assume because of the enormous influence it has over your purchasing power. 

Life is expensive and it keeps getting more expensive! 

Even if we only use the average historical rate of inflation of 3% per year, if your ideal lifestyle costs $10,000 per month right now, here’s how much you will need in the future to support the same lifestyle:

  • 10 Years: $13,000 per month
  • 20 years: $17,500 per month
  • 30 years: $23,500 per month

$23,500 per month during the final year of your joint life expectancy! The key distinction is that this is not to support a better lifestyle. This is to support your exact same lifestyle you enjoy today.

#4: How Much is Inside Your Retirement Bucket™?

The fourth number you must know to determine if you have enough built up and how much you can afford to spend without running out is how much you’ve accumulated in liquid investments, i.e. your Retirement Bucket™.    

It’s unlikely you will sell your home and/or cars to support your lifestyle, so let’s not count those right now. 

The key distinction to make is how much of your Retirement Bucket his held inside vs. outside of IRAs and 401(k)s. 

The reason why this is critically important is that funds held inside your IRA, 401(k), or 403(b) if you happen to work for a non-profit organization, are actually worth less to you when you withdraw funds to support your lifestyle because you have to pay more income taxes on everything you withdraw.

So, you must know the bottom line amount you hold in your Retirement Bucket, and the percentage of that total held inside vs. outside of IRAs and 401(k)s. 

With these numbers in hand, you are now way ahead of the curve and on the way to finding accurate answers to your three big questions:

  1. “Do we have enough built up in our Retirement Bucket of Investments to stop working if we choose to?”
  2. “How much can we afford to spend without running out?”
  3. “How do we manage our Retirement Bucket to make it last?”
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3 Answers You Must Have to Free Yourself From Dependence on Your Paycheck

Every dedicated saver we’ve worked with reached a unique inflection point in their lives which we call The Paycheck Dependency Threshold™.

After decades of working, raising a family, putting their kids through school, and saving a large percentage of their earnings, they all sort of paused, reflected, and asked themselves three very important questions:

  1. “Do we have enough built up in our Retirement Bucket of Investments to stop working if we choose to?”
  2. “How much can we afford to spend without running out?”
  3. “How do we manage our Retirement Bucket to make it last?”

If you don’t have full confidence and 100% certainty with your answers to these questions, then it’s highly likely that you will go down one of two paths:

Path One: You will continue to work longer than you need to because you think you have to when in fact you may not have to, or

Path Two: You will stop working and “retire”, but because of your fear of making a mistake and running out of money, you will have unnecessary anxiety and “pull your punches” by restricting your spending, and end up living like the masses who have to say, “I can’t afford that. I’m on a fixed income now.”

Unfortunately, there are no reliable rules of thumb, and two couples with the exact same level of savings can receive completely different answers to those three questions.

Here’s why….

No Reliable Rules of Thumb

Let’s take a look at two couples, Mike and Mary, and Ron and Rose, both age 62. To keep it simple using round numbers, assume each couple has:

  • $2,000,000 built up in their Retirement Bucket™,
  • the same social security retirement income of $3,000, and
  • the same monthly pensions of $3,000

From a quick glance, they look exactly the same and would likely receive the same answers if they called into a financial talk radio show.

That would be a terrible mistake, so let’s dig a little deeper to discover what else we know about them:

Mike and Mary have no mortgage or home equity line of credit, and they have recently completed many major upgrades to their home, i.e. a new roof, indoor and outdoor paint, a new furnace, new kitchen countertops and cabinets, and new bathrooms. They purchased new cars with cash in the last two years which they plan to drive for ten years.

Ron and Rose still have $300,000 outstanding on a second mortgage they took out to pay for their kids’ college tuitions, weddings, cars, and a condo down in Florida they bought a few years back. They both drive high end cars which they replace every three years. And, while their home is very nice, after 26 years, it is starting to look “tired” and will need significant upgrades in the next two years.

Even though both couples have the exact same level of Retirement Bucket™ of investments, and the same amount of income coming in from social security and pensions, their situations are drastically different because it will cost much more to support Ron and Rose’s desired lifestyle. 

In other words, Ron and Rose are much more dependent on their Retirement Bucket than Mike and Mary.  And, this is the first of four numbers you must know if you want to free yourself of your dependence on your paycheck, i.e. over and above income you may receive from social security, pensions, and rental property, how dependent are you each year on your Retirement Bucket™ of investments?

Before we delve into the best way to calculate your level of Retirement Bucket Dependence™, I want you to know that this is not about living on a “budget” and restricting your spending.  This is about having an accounting of what it costs you to live the way you want so you can have an accurate and reliable measuring stick to make decisions. 

There’s a big difference. 

To determine your level of Retirement Bucket Dependence™, you have to be very clear on your inflows and outflows.  On the inflow side, how much will you receive each month from social security, pensions, and rental property.

On the outflow side, what does your ideal lifestyle cost, including “fixed” or mandatory expenses, and “discretionary” (your choice based on your priorities).

Typical “fixed” expenses include utilities, insurances, groceries, clothing (at least most clothing falls under this category), mortgages, real estate taxes, etc.  These are expenses that must be paid, and typically they’re paid every month.

“Discretionary” spending, on the other hand, is where we’d like to spend all of our money, like meals out, vacations, presents for your grandkids, and entertaining!   However, when planning, most folks don’t account for them as much as they should. 

Remember, this is all about living exactly the way you want, so you want to be generous with your estimates.  If you guess too low, you’re only shortchanging yourself.

The difference between your inflows and your outflows during any one given year is your level of Retirement Bucket Dependence™, and this is the first of four numbers you must know if you want to free yourself of your dependence on your paycheck.

Stay tuned for number two, three, and four.

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Retirement Is Not Just About Stopping Work

Kevin and Barbara were anxious and came to us looking for answers to settle their nerves.  Their reaction when they discovered the answers to their biggest questions at this unique stage in their lives used to surprise us.  However, it has now become the norm among our members.   

Let me explain….

After putting Kevin and Barbara through our extensive program and creating their custom-designed Retirement Blueprint™ based on their priorities and resources, I had very good news for them.   

“Congratulations!” I told them. “You’re in wonderful shape. Given everything you’ve shared, you are no longer dependent on your paychecks and can stop working right now if you want to.”

Can you guess what their reaction was? Did trumpets sound and balloons fall from the ceiling? Did Kevin dance from the room and call his managing director to say he was finished?

No. What happened?

Instead, all I heard was crickets!

Stopping Work Can Be Scary

Kevin and Barbara turned to each other, confused. Now that they knew they could afford to stop working, they weren’t sure they wanted to.

Kevin derives an enormous sense of accomplishment from his work, and Barbara would miss the friends she has through hers. They wondered if perhaps they didn’t want to stop working.  They just wanted to know they could.

This is the reaction we see more and more among the dedicated savers we help. 

Kevin and Barbara weren’t interested in the conventional idea of “retirement” that has been portrayed in the media because they weren’t conventional people. For one thing, they’d done a better job than most of putting money away. For another, they’d never aspired to what most people strive to experience.

It’s About Freedom From Dependence

As your Retirement Coach, our goal is not to get you to stop working. Our goal is to get you situated so you never have to work—never have to do anything you don’t want to—ever again. In other words, our job is to help you live your best life, however you define it! 

Your ideal best life is one in which you do whatever you want, with whomever you want, where, when and however you want, free of dependence on your paycheck from work. 

Many of our Relaxing Retirement members have continued to work well past the point where they needed to because the work they are doing remains inside of their definition of their ideal best life

Drilling down to what “ideal” means to you requires that you set aside any fears and misconceptions you may have. Look at things you think are facts, and question if they’re really true. Call on your imagination to paint your perfect lifestyle. Even as an exercise, it’s a massive mindset shift to go from thinking about your responsibilities and constraints to imagining your dreams and freedoms. But that’s what your years of dedicated savings can purchase. You pre-paid then for choices now.

Define Your Ideal Lifestyle

As potentially morbid as this may be, here is how I recommend you begin.  Imagine it’s the day before your last day.  Reflect on any regrets you think you might have. In thirty years of doing this, no one has ever told me their vision of the future includes more time doing menial work.

Try to come to this exercise without preconceived notions of what you think you can do. Resist basing your expectations on what your friends are or aren’t able to afford.

Come to it with a completely different mindset. Go in thinking you can have anything you want. Later we’ll put a price tag on it and let The Relaxing Retirement Formula determine whether or not you can afford it all. Because if you could, wouldn’t you like to know?

  • What do you never want to do again?
  • What are you unwilling to miss any longer?
  • What will you regret not having done?
  • What have you wanted to do forever but didn’t think you could?

Create a picture of your ideal best life that is as detailed, as exciting and inspiring as you can.

Do this without putting any financial constraints on your imagination. Don’t worry whether or not you can afford it just yet. We’ll work on that in another edition shortly. 

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