Jonathan Clements's Blog, page 185

Coming Back to Me

I WISHED I HAD MY��friend Chuck���s memory. He can remember things from our college days as if they happened yesterday. My memory isn���t nearly as good. There are, however, a few moments I���ll never forget.

I remember in high school when a classmate asked a girl, who was also in our class, if he could have her leftover orange peels. I knew Floyd well enough to know he went to school hungry some days. I offered Floyd my lunch. I thought he needed it more than I did. I also wasn���t crazy about the tuna fish sandwich my mother had made me.

I was lucky when I was growing up. My parents provided me with life���s necessities. We weren���t rich. My father was a machinist and my mother was a switchboard operator at a department store. But they made enough to provide for my sister and me.

The money I made working summer jobs put money in my pocket. I didn���t have to contribute to the household income. As a result, I was able to buy myself lunch the day I gave Floyd my tuna fish sandwich.

I remember when I was in the fifth grade and Hershel came to school with red lipstick on the side of his face. I guess his mother kissed him goodbye that morning. Hershel didn���t have a father.

The kids teased him. Not me. I talked to him as if nothing happened. Hershel was a tough kid, but that lipstick episode revealed he was actually a nice guy under his rough exterior. We became good friends until he moved away the following school year.

One day, I was going into a store and a young girl was outside selling candy bars to raise money for her school. She was by herself. There was no parent by her side. There wasn���t much foot traffic, so there weren't many opportunities for sales. I felt she could use some help. I bought quite a few candy bars. I told her to keep them and sell them to someone else.

I don���t know why I still remember these various small moments. They say people enjoy spending money on others more than on themselves. Maybe being kind and helpful to others in some small way can also provide memorable moments you cherish for life.

That���s why it might be best, if you can afford it, to start giving money away while you���re alive. That way, you can get the enjoyment of watching your money help loved ones or dear friends in need. One of the best ways to give away money to individuals is by taking advantage of the gift-tax exclusion. You can give up to $16,000 in 2022 to as many individuals as you wish without paying the gift tax.

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Whip Inflation Now

I MUST ADMIT THAT��a part of me finds the subject of inflation a little boring and yet endearing, because it reminds me of conversations with my late mother. She���d balk at paying $2.50 for a cup of coffee at Dunkin������hey old-timers, that���s what they call it now���as she distinctly remembered buying a cup of coffee for a nickel the day Pearl Harbor was bombed.

Another part of me, though, is feeling a little pinched. In my prior article about inflation, I reviewed some of the obvious antidotes: Don���t drive a pickup truck, slow down, don���t buy bottled water, shop at Aldi, turn up the thermostat and get Fidelity Investments to give you $100. I subsequently realized that the fight against higher prices goes on and that these further countermeasures may need to be deployed:

1. Pop your own corn. In 2018, I stayed in an Airbnb in Montague, Michigan, that came with a gratis container of loose corn that renters could pop ���the old-fashioned way������that is, by heating kernels in a saucepan. The secret is applying a generous layer of olive oil to the bottom of the pan.

It was a revelation, as this popped corn tasted far better than all the previous corn I���d ever popped, including using a microwavable bag of indeterminate composition. Since that fateful day, I���ve never gone back. As investments go, this has to be my most profitable, with an internal rate of return that���s over 1,000% per serving. It has the added benefits of healthier and tastier snacking. Eat it straight or with a twist of salt.

2. Do or don���t rotate your own tires. When it comes to car advice, I only trust two men: Click and Clack, the Tappet Brothers���the auto mechanics who used to have the show on National Public Radio called Car Talk . While their automotive knowledge was quite extensive���both were MIT-educated���I appreciated that it was delivered with a modicum of humility and a maximum of humor.

They believed that paying more than $20 to rotate your tires didn���t make economic sense. As that advice is more than a few years old now, I���m going to adjust that to $25, to account for the subject at hand���inflation.

Since the local auto repair place charges $25, I realized that I needed to skip the tire rotation, adjust the Tappet Brothers��� cutoff for inflation or rotate the tires myself. In this case, DIY can be a burdensome and time-consuming experience, but hey, I���m retired.

Note: You may not want to rotate your tires the day before a road trip to Bentonville, Arkansas, in 95-degree weather, as you may strip the wheel lock key, forcing you to drive like a maniac to a local dealer just before closing and pray to dear God they have a master key. This is all hypothetical.

3. Drink economical whiskey. When my old employer used to buy me a Manhattan on the rocks, it always seemed to come with Woodford Reserve. Now that I���m retired, it always seems to come with something else, though lately the price of something else has increased a little more than I���d prefer.

Thankfully, I���ve stumbled across a fixed-income remedy, Mellow Corn��Straight Corn Whiskey at $17.99 a bottle. It���s pretty damn good. I wouldn't drink the stuff straight, but mixed with a little sweet vermouth, bitters and two cherries, it���s a real inflation buster. I guess I could just reduce my drinking. But did I mention that it comes in at 100 proof?

4. Use Capital One Shopping. In a prior article, I mentioned the virtual credit card benefits of Capital One. Another benefit, which doesn���t require a Capital One credit card, is called Capital One Shopping, which is an app installed on your web browser that scours the internet for a better deal than the one you���re currently offered.

I used this on a recent trip to��Jefferson City, Missouri, to save $35 on a two-night hotel stay. It also plugged a promo code into booking.com that saved me 10% on a seven-night stay in Seattle.

5. Buy the Joy of Cooking��cookbook. If I���d invested what I paid for every cookbook in my basement, attic, closet and garage in Amazon stock, I most likely wouldn���t be writing this thesis���at least not from the confines of the conterminous United States.

Cookbooks are like porn. You read them and think, ���Yeah, I could see myself doing that,��� though in all likelihood you will not. You might as well limit your wallet and bookshelf to just one cookbook���the best one. Unlike most, it���s not just a book of recipes, it���s a tutorial on everything from alcohol (see No. 3 above) to zucchini.

As Kierkegaard might have said���if instead of being born into an affluent family in Copenhagen in 1813 he was, like my mother, born in Queens, New York, in 1921, lived through the Great Depression and 13.55% inflation in 1980��� ���Life is not a reality to be experienced, but unrelenting inflation to be ameliorated.���

Michael Flack blogs at��AfterActionReport.info. He���s a former naval officer and 20-year veteran of the oil and gas industry. Now retired, Mike enjoys traveling, blogging and spreadsheets. Check out his earlier articles.

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Where’s My Rate Hike?

RISING INTEREST RATES are impacting everyone. The Federal Reserve has raised short-term rates at its last five meetings. It hiked interest rates 0.75 percentage point at its September meeting, the third time this year it���s raised rates by that amount. Bankrate reports that current projections see the Fed boosting rates by another 1.25 percentage points before year-end.

These increases affect what consumers pay for mortgages, car loans and credit card debt. As I write this, Bankrate says the current average rate for a 30-year fixed-rate mortgage is 7.06%. This is almost half a percentage point higher than a week ago.

With all these rates rising, why aren���t my bank accounts following this meteoric path? Capital One 360 Savings is currently paying 2.2%, but its checking account still pays just 0.1%. That 0.1% is also typical for savings accounts from big banks, according to Bankrate. Meanwhile, one-year CDs are 3.25% and five-year CDs are 3.5%. Vanguard Federal Money Market Fund (symbol: VMFXX) is yielding 2.78%.

I understand that banks need a margin between what they charge customers to borrow money and what they pay savers on deposits. The difference is how they earn a profit. But it always feels like the borrowing rates go up faster than the savings rate.

Earlier this week, The Wall Street Journal ran a story that helped explain this phenomenon. The article said large banks have plenty of cash to cover all their lending, so they don���t need to raise rates to attract new savings.

Some banks have increased their yields, especially online banks, in response to the Fed���s rate increases. But there are many still paying paltry interest. My TD Bank checking account is paying 0.1%. How do banks get away with this?

I was surprised to learn that the problem is us, the saver. Apparently, we don���t seek out higher rates. Inertia keeps us in our current accounts because we view switching as painful.

Depending on your balance, the increased interest payment may not be worth the trouble. The Journal��article said the median bank account balance in 2019 was $5,300. As the reporter noted, earning 3% in interest, rather than 0.1%, would only amount to some $160 a year. Many of us don���t find that a compelling reason to switch.

People with larger balances have a greater incentive to change. That same three-percentage-point increase in rates on a $50,000 balance brings a $1,500 reward. That is indeed worth a little effort.

I think one reason for our inertia is that many of us have automatic withdrawals and deposits linked to our accounts. Changing may entail more than simply setting up a new account. We may need to adjust multiple regular transactions, such as our Social Security deposit and our monthly health insurance payment.

One option is to have two accounts. One would be for monthly transactions. That account could be the repository for regular deposits and have enough funds to cover monthly expenses. This account should be convenient and easy to use, with up-to-date security measures and bill-paying capabilities.

Another account could hold the bulk of a family���s cash reserves���money we want to keep liquid, but don���t need on a regular basis. This is the account we could move to a higher-yielding account whenever it makes sense. Creating new online accounts is relatively easy, so it���s not a big burden. I���ve done a little of this over the years. Still, I have to admit, I���m as susceptible to inertia as the next person.

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Fulfilling a Promise

MY INVESTING BEGAN in the mid-1980s with savings bonds. Initially, it was a way to set aside some emergency money. I would automatically buy EE bonds through payroll deduction and have the bonds sent to my home. This gave me a sense of accomplishing something for the future. It also showed me that you won���t miss something���money, in this case���if it never makes it into your hands.

Some argue there are better saving and investment strategies. They prefer certificates of deposit, annuities, exchange-traded funds, money-market accounts and other investments. I own some of these assets. Nonetheless, my savings bonds have served me well, and I continue to buy government bonds today, including Series I savings bonds, EE savings bonds and regular Treasury bonds. I purchase them as payable-on-death gifts for my extended family, and also for my wife���s and my retirement.

In addition, the savings bonds helped us meet an important goal. By the 1990s, I had gotten out of the military, had two children, entered the Air Force Reserve and started working for Atlanta���s metro transit system. Our two children were young. Both had special needs���though I���d argue every child is a special needs child.

My wife and I were determined to not only send both children to college if that���s what they wanted, but also to pay for all four years. After all, my wife���s parents ensured all six of their kids graduated college. Surely, we could find a way to pay for two. That was one of my reasons for wanting to learn how to invest: I wanted us to be able to cover the cost of college.

I cashed in some of my savings bonds and started a 529 college savings plan for our children. I also worked several jobs, on top of the Air Force Reserve and my primary job with the transit authority. I wanted to boost my income and make good on the covenant my wife and I had made���that we would pay for college for both kids. My wife and I did indeed fulfill that promise: My daughter now has a law degree and my son has a bachelor���s degree in psychology.

How did I learn about investing? I remember reading The Beardstown Ladies��� Common-Sense Investment Guide back in 1996. The book said that the Beardstown Ladies��� investment club had generated a 23% annual return since 1980���a claim that was later debunked. The actual return, calculated by PricewaterhouseCoopers, was 9.1%.

Still, the book influenced me to start an investment club with my fellow Air Force shop mates. It took only a few months to realize that, even though all the members agreed to the idea, only a few were truly committed.

But it wasn���t a complete loss. What I learned from reading the Beardstown book, from the materials from and calls to the National Association of Investors Corp.���which helps folks set up investment clubs���and from my own research, made me look differently at the stock market. This awareness stayed with me long after our investment club was dissolved. I started to understand the differences between stocks and bonds, as well as the various types of mutual funds that are available.

What about retirement for my wife and me? My job with the transit authority offered a pension and a 457(b) plan, but there was no employer match. Still, I made regular payroll contributions to the plan. As with the savings bonds I bought through payroll deduction, I never missed the money���because it never made it into my hands.

I���ve always kept my ears open���and an open mind���to potential investment opportunities. My friends, classmates and co-workers would often talk about stocks. Initially, I didn���t have a lot of money to invest. But just as I did with savings bonds, I had money deducted from my paycheck to invest. This money was sent to my brokerage account. I bought shares in familiar stocks like Home Depot, Coca-Cola, Microsoft and GE, to name a few. My results were good but not great. I would hold on to some stocks too long, while others I traded too soon. I soon learned you can never really predict the stock market.

Where do things stand today? My wife took a new position in 2020, one that���ll give her a pension after five years. Meanwhile, I have two years left before I retire and reach my full Social Security retirement age.

Investing started as a hobby, but it���s now all about saving for retirement. For regular income, I���ll have Social Security, my pensions from the transit system and the Air Force, and the savings I���ve accumulated in retirement accounts. I���ve also amassed a five-figure ���fun(d) money��� brokerage account. In addition, I���ve set up a trust fund for my nieces, nephews and any future grandchildren we may have.

Donnie Mattox is an Air Force veteran and former radio technician with Atlanta���s metro transit system. He���s currently employed with Delta Air Lines as an aviation maintenance technician. Donnie has been married to his wife Viola for 34 years, and they have two adult children, Victoria and Darius. His previous article was A Perfect Score.

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Happiness at Home

I HAVE READ THAT spending on experiences brings more happiness than spending on things. But what about the experience of buying? Can that make us happy?

I���ve lived in my small community for 21 years. Over that time, my regular buying habits have led me to discover people who provide me with excellent service. They also supply me with a generous measure of genuine satisfaction.

Every third Friday, I sit and listen to a great raconteur as he cuts my hair. Rick���s��stories are sometimes touching, sometimes indignant, but always humorous. His talk is voluminous and rapid. I have to slide in my stories edgewise. Rick gets a raise as my income goes up, and I don���t mind paying it. I leave with a happy heart as well as a haircut.

I own several gasoline-powered tools, which means I frequent a shop run by Javin, a master of small engine repair.�� We always take a moment to catch up. He updates me on his father, who operated the shop before an illness forced him into early retirement. We worry about the weather, which affects his business and my garden. I could save money by doing some repairs and maintenance myself, and sometimes I do, but I don���t mind giving work to Javin. I find pleasure in doing my part to keep his business open.

My heart sank the day last year that Arnie told me he was closing his car repair shop to take a teaching job at the local technical college. For years, he had helped me milk more miles out of my cars. I was happy for him, though, because I knew dependable help was scarce and he was overworked. Arnie didn���t leave me stranded. He recommended a mechanic friend who has since proven his worth. I���m hopeful that he will become my new friend.

These people, and others like them, are a part of my life. I���ve helped them celebrate their good times and commiserate their dark days. I care about what happens to them and their families. Our relationships have their ups and downs, but the friendships endure.

The happiness of a shared experience in an exotic location is sweet, but that���s not the only place it lives. If we hunt for it, we can find happiness in the mundane transactions that make up the life we live at home. We might discover it at the hardware store or the shop near the train station where we get our morning bagel.

I���m all for the big experience, the search for adventure in a faraway place. I like savoring the anticipation of something new. But I also like making regular deposits to my happiness account here at home.

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Ripoff Royalty

WHEN I WORKED FOR��a personal finance magazine in the mid-1990s, I wrote a story about conmen who met their marks in internet chat rooms devoted to stock investing. One of the slickest tricksters went by the name of Josef von Habsburg. He told people he was descended from Austrian royalty.

In researching the story, I called the police in von Habsburg���s hometown of Birmingham, Michigan, a suburb of Detroit. The local police knew him as Josef Meyers and said he was about as royal as you or me. He was a gifted storyteller, however, who maintained an elaborate false identity for more than 20 years, including speaking English with a vaguely European accent.

In investment chat rooms, he���d identify himself as a foreign exchange trader and heir to an Austrian royal fortune. A 61-year-old Texan who met von Habsburg was among those taken in. He sent him $10,000 to invest in a hedge fund that von Habsburg claimed to run.

���Very early on I asked him if he was licensed as a broker,��� the man told me. ���He said, ���Oh, you have to be.��� I took his word for it.��� After the spell of Habsburg���s stories wore off, ���I was terribly embarrassed,��� the retired IBM executive said. ���I knew I���d been screwed.���

The types of scams people pull have changed over the years. Cryptocurrency thefts and computer hacking now predominate. What hasn���t changed is human nature, including the desire by some to profit through deception.

I thought von Habsburg���s grift was finished once my story was published in February 1995. By then, he���d been charged with securities fraud by the Securities and Exchange Commission in the fake hedge fund case, and been publicly identified as a conman in a national magazine. I went on to other stories and never realized his career was only starting to blossom.

A gifted conman doesn���t stop spinning yarns just because he���s been charged. He just trains all his skills on the officials trying to put him behind bars. In this case, von Habsburg was able to maintain his false identity while he worked as a confidential informant for the FBI in New York for many years.

Von Habsburg would ingratiate himself with shadowy figures operating on the margins of Wall Street, and then introduce them to his handler, an undercover FBI agent named Michael Grimm. Over lavish lunches at places like the Waldorf Astoria, the mark, the conman and the FBI agent would discuss possible financial frauds, such as international money laundering���all while their conversations were secretly recorded.

When the net was sprung, the mark got arrested, charged and typically pled guilty. Von Habsburg was free to reel in another mark for law enforcement. He also ran cons of his own on the side, like allegedly forging a $100,000 check. If he got caught, his FBI handler would talk to the judge and prosecutor privately. The charges would get dismissed and von Habsburg would walk away a free man.

I only learned about the second half of von Habsburg���s career years later from a writer at The New Yorker. How had I found out about von Habsburg, the writer asked me? I told him I���d gone to the Securities and Exchange Commission and came across his name in the files of enforcement actions.

The writer, Evan Ratliff, said he���d looked through the SEC���s files, too, but found nothing under von Habsburg���s name. I told him I���d be happy to run my search again and call him back. I hopped online and went to the SEC���s Edgar database. I ran my search a dozen ways using several different names. Von Habsburg never came up. It was like a scene in a spy movie���the undercover agent���s identity had been scrubbed from the federal database.

Giving von Habsburg a ���get out of jail free��� card was like turning an arsonist loose in a match factory. He eventually became friendly with Barbara ���Bobo��� Rockefeller, the elderly ex-wife of Standard Oil heir Winthrop Rockefeller. After he talked his way into living in her Upper East Side mansion, her children noticed that a valuable��French antique had disappeared. Von Habsburg said he���d removed it for safekeeping. It later reappeared���for sale at a Sotheby���s auction.

A Detroit News article identified him as both an FBI undercover witness and one of Michigan���s biggest deadbeat dads. Years before, he���d abandoned a wife and children in Michigan, who were owed a large sum in child support. When the FBI didn���t step in to protect him in the highly publicized case, he was sentenced to three-and-a-half years in prison.

What became of his FBI handler, Agent Michael Grimm? He parlayed his law-and-order experience into a seat in Congress, representing Staten Island. After losing re-election, he kept two sets of books at a Manhattan restaurant he���d opened. He was convicted of wage fraud and underreporting his income, and was sentenced to eight months��in prison.

Is there a lesson to this story? I know HumbleDollar readers are too smart to buy securities based solely on internet discussions, especially when they���re portrayed as an inside tip or the score of a lifetime.

Still, one thing I learned from my reporting was that conmen target marks who live far away. It���s unlikely the police in Texas will fly to New York to investigate a white-collar crime if no victim was physically harmed. Today, grifters often pursue their con over the computer while living in foreign countries.

Back then, marks might be asked to invest by overnighting a check by FedEx. The conmen wanted to avoid U.S. mail or bank transfers, which trip off mail and wire fraud charges that are policed by national law enforcement agencies. Today, criminals manage money transfers online, and bounce the funds around through overseas accounts to make them impossible to track.

The good news: It���s a snap to see if someone���s a registered broker by looking them up on Finra���s BrokerCheck, which contains a wealth of information. As a favor to a friend, I once looked up her broker and found that he was facing Ponzi charges in Massachusetts. She said she was disappointed because he was so friendly and always seemed to call with such good investment suggestions.

It just goes to show that it pays to be skeptical���especially when someone seems like a real prince.

Greg Spears is HumbleDollar's��deputy editor.��Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger���s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph���s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.

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Failure Is an Option

I RECENTLY LISTENED to author JL Collins on the Bogleheads Live podcast. Collins mentioned several times that stock declines never last. He isn���t alone in this assertion. You can read any number of books or articles that talk about the need to remain invested during stock market downturns because the market always recovers.

Perhaps it���s my training as an engineer. We���re taught to think about failure rates and probabilities of failure���which brings me to an uncomfortable notion: Just because the U.S. stock market hasn���t yet failed to recover doesn���t mean it���ll always recover. There are cases where the entire stock market has disappeared. Think Russia in 1918, Romania and Czechoslovakia in 1948, or Cuba in 1960.

It can also take a very long time for the stock market to recover���so long that many investors would give up or die before recouping their losses. It took the Taiwan stock market 17 years to return to its 2000 peak and the U.S. market 25 years to regain its 1929 peak. Meanwhile, the Japanese stock market hasn���t yet returned to its year-end 1989 all-time high. That���s 33 years and counting.

To be sure, if stock investors reinvest their dividends, they���d be made whole much sooner. Unfortunately, reinvesting dividends may not be possible for retirees living off their investments.

Let me be clear: I���m not predicting wholesale confiscation, as happened in communist countries. I���m also not predicting a prolonged bear market. I personally remain significantly invested in global stock markets, with a heavy tilt toward the U.S.

My only point is that market participants get rewarded for taking risk. There���s some small risk that a particular stock market will provide no price appreciation for decades���and perhaps even decline to zero.

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Looks Can Deceive

WHEN I TURNED AGE 24, a friend and I took a road trip from San Francisco to Vancouver. It was 1975. I was excited���it would be my first visit to Canada.

I didn���t know what to expect when we got to the Canadian border. All I knew was we didn't need passports. The border officer gave us a suspicious look. After being on the road for a spell, we didn���t look our best. I was unshaven and wearing my usual T-shirt and jeans.

I remember the officer kept asking us how much money we had on us. It seemed that was his biggest concern. We tried to convince him that we had enough money for our visit by showing him the cash and credit cards we had in our wallets. Eventually, we were allowed to enter Canada.

I���ve never forgotten how I felt that day at the border. I felt inadequate���not good enough. But later, I realized there wasn���t anything wrong with me. I just didn���t look like someone who had a lot of money.

I learned an important lesson that day: Looks can be deceiving, particularly when it involves people and money. This is especially true for individuals who live below their means, so they can save more money. And yet that���s how most people build wealth.

If I were to teach a class on how to become financially independent, I���d start the class by showing the picture below. The stairs led to my old studio apartment in an alley above a garage. My home was the first door on the left. I lived there for five years until the new owner increased my rent by some 30%.

I���d then show the class a second picture. In 1985, I bought the 789-square-foot, one-bedroom condominium in the photo below. I lived there for 35 years. Both homes allowed me to save a lot of money by keeping my housing costs low.

I don���t expect everyone to live as spartan a life as I have. But if you can keep your living expenses low, it���s an important step toward financial freedom. Here are five more steps that can lead to financial security:

1. Start saving early. The earlier you begin saving and the longer you leave your money untouched, the easier it is to accumulate wealth. Since the dollars you invest compound, you don���t need to save as much overall as those who start saving later.

2. Automate your investing. Put your regular savings on autopilot by having money automatically deducted from your paycheck. That���s a relatively easy and painless way to set aside a large sum each year. If your employer offers a 401(k) plan, the annual contribution limit for 2022 is $20,500. Under the catchup rules, those age 50 and over can contribute an additional $6,500.

3. Save at least 15% of your gross income. Many financial experts believe that if you start early and invest at least 15% of your pretax income each year, you should have enough money for retirement. For instance, a Fidelity Investments study found that if you saved 15% of your gross income each year from age 25 to 67, and received Social Security, it would ensure you had enough income to maintain your current standard of living in retirement.

What if you have a 401(k) plan with an employer matching contribution of, say, 5%? You���d only need to save 10% of your pretax income.

4. Maintain your health. Saving for a long-term goal like retirement can take many decades. Poor health that prevents you from working and generating income is one of the greatest threats to financial security.

According to the Centers for Disease Control and Prevention (CDC), more than a quarter of American adults���or 61 million people���live with a disabling condition. Meanwhile, the Bureau of Labor Statistics reports that only 31.4% of those ages 16 to 64 with a disabling condition were employed in 2021. Seeing your doctor regularly and eating a healthy diet are two ways to increase your chances of a long and prosperous career.

5. Protect your wealth. The unexpected can ruin your financial plan. Shield yourself from lawsuits by purchasing an umbrella liability insurance policy. It offers additional liability coverage on top of the coverage included in your home and auto policies.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor's degree in history and an MBA. A self-described "humble investor," he likes reading historical novels and about personal finance. Check out his earlier��articles��and follow him on Twitter @DMFrie.

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Going the Distance

ON THE CORNER OF MY desk, there are two binders. One contains my financial plan and the other my longevity lifestyle plan. One is no good without the other. How can I know if I���ve saved enough money if I don���t have a clear idea of what I want to do in retirement and how much that lifestyle will cost me?

The financial services industry���s focus has been on financial planning, with the objective of helping people accumulate as much money as possible. That falls short of what retirees need for a successful retirement. The industry���s focus needs to be broadened to include longevity planning���how people can live their best life for as long as they can. Here are three of the building blocks of longevity planning:

Longevity risk. While living longer is a terrific thing, it comes with the rising risk of running out of money. ���It is not realistic to finance a 30-year retirement with 30 years of work,��� says John Shoven, a Stanford University economics professor. ���You can���t expect to put 10% of your income aside and then finance a retirement that���s just as long.���

This risk is only going to grow, thanks to medical advances. What happens if they come up with a pill in 10 years that will help you live to age 150? Will you be able to afford it?

Longevity of income. How are you preparing yourself financially for a longer life? People who retire in their 60s now can have 30 years or more ahead of them. Traditionally, people relied on the three-legged stool of personal savings, Social Security and possibly a pension.

Additional sources of money may be required to go the whole distance. Will you need to work part-time? Downsize to a smaller home? Take out a reverse mortgage?

Longevity of health. The good news is, a person���s longevity and health are���80% of the time���determined by the lifestyle choices they make, such as diet and exercise. The bad news is, many people are making poor life choices, resulting in preventable diseases that often lead to some form of disability. It can cost them years of infirmity.

"The average American spends the last 12+ years of life with their activities at least partially and often seriously curtailed by illness, injury, or cognitive impairment,��� according to the 2022 report entitled Longevity and the New Journey of Retirement. ���Among those 65+, 88% are managing at least one chronic condition and nearly two-thirds have two or more chronic conditions. Over the age of 85, one in three Americans has Alzheimer���s or related dementias.���

Added to this is the financial toll of health care costs, which can catch people off guard. The report says that a ���couple needs an estimated $445,000 to cover health care costs in retirement. It���s no surprise that health care costs have become retirees��� number-one financial worry.���

Retirement requires some of the most important decisions we will ever make. It involves major changes that will either positively or negatively impact the rest of our life. People contemplating retirement need to be aware that it comes with significant emotional, psychological, physical, social and financial implications that will affect their overall well-being. These challenges need to be fully understood and prepared for���before we quit the workforce.

Believe it or not, most retirements fail for non-financial reasons, rather than for financial ones. I don���t want that to happen to you, so���for the past year and a half���five of my friends and I have been working on a new book, called Longevity Lifestyle by Design, to help people prepare for a successful retirement. Our mission is to help as many retirees as possible, which is why we���re giving the book away for free.

It was written to equip retirees, and those preparing for retirement, with the framework, insights and strategies to live their best���and longest���life. After reading it, you���ll know exactly what you need to do, what not to do and, most important, why. Click on this link to download your free copy.

Mike Drak is a 38-year veteran of the financial services industry. He���s the author of Retirement Heaven or Hell , published in 2021, as well as an earlier book, Victory Lap Retirement . Mike works with his wife, an investment advisor, to help clients design a fulfilling retirement. For more on Mike, head to�� BoomingEncore.com . Check out��his earlier articles.

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Getting to the Number

WHAT WILL RETIREMENT cost? One solution to this riddle is to save as much as we can and hope it���ll cover our expected expenses. Finding the right answer���the exact amount of savings required���can involve hours of calculation, and even then there���s a fair amount of uncertainty.

At my financial planning firm, we help clients with this calculation. Our starting point: We believe the foundation of most retirement plans should be Social Security. Many Americans choose to take Social Security earlier than their full retirement age (FRA). There are downsides to taking Social Security early, of course, the greatest of which is a permanently reduced benefit.

Waiting to file until age 70 is in most people���s best interest, I believe. Their eventual benefit will grow 8% for each year they defer filing beyond their FRA, yet many people feel they can���t afford to wait. At our firm, we help build an income bridge so clients can more easily defer Social Security until 70.

We use a portion of their portfolio to make up for the missing Social Security benefit. Our clients get the same income they would have received had they filed early. The bridge tends to take away feelings of loss and provides them with needed income.

By effectively swapping risk assets like stocks for a larger guaranteed Social Security benefit, we hedge the risk that folks will outlive their other savings���and, for many, move retirement from a possibility to a reality. Now I hear what you���re saying���that I���m removing a piece of their portfolio to annuitize it. Yes and no. Unless they die early in retirement, they���ll get back the money in the form of a larger stream of guaranteed income, and that income will be delivered when it���s truly needed.

Many of my clients worry that Social Security won���t go the distance. Yes, the Social Security trust fund will be depleted by 2034, according to the latest estimate from the system���s trustees. Benefits may eventually be means tested, meaning they���re trimmed for those with higher incomes. But for those already collecting Social Security, I believe the likelihood of a benefits reduction is low.

For married couples, the longer the higher-earning spouse defers, the greater the survivor benefit that the lower-earning spouse will potentially receive. One objection I hear: Lower-earning spouses lose their entire benefit when they inherit the higher benefit of their spouse. This is true. But the surviving spouse���s cost of living should be lower for items such as food, health care and certain utilities. A financial planner can put a pencil to these expenses to calculate how your budget might change.

It can feel strange to no longer have a paycheck once you retire. To replace it, you���ll need to liquidate savings to sustain your lifestyle. The traditional approach is to withdraw 4% annually���in addition to guaranteed income from pensions and Social Security.

For instance, if you need $100,000 a year in retirement, you and your spouse might receive $50,000 from Social Security and $20,000 from pension income. That means you need to draw another $30,000 from savings. A quick calculation suggests you���d need savings of $750,000, assuming a 4% withdrawal rate.

Many clients say that once they have $1 million saved, they should be fine. Is this true? That depends on living costs and goals. Do you have legacy aspirations, including leaving money to charity or to family? Do you want to see the world, play golf five times a week or join a country club? You need to think about more than just a big round number.

Digging deep into what your life might look like tells us how much money you could need. Of course, it���s not just about the amount of assets. It���s also about how they���re invested. For individuals with a large nest egg but little guaranteed income, sequence-of-return risk comes into play. This is the risk of encountering down years at the start of retirement.

It���s human nature not to want to take money out of a depreciated asset. When the market is down, however, you may be forced to sell investments to cover living expenses. Once you���re forced to sell that asset, you may never recover your portfolio���s value when the market goes back up. How do you offset this risk?

Adding in guaranteed income sources, such as single premium immediate annuities and deferred income annuities, including qualified longevity annuity contracts, is one way to do it. Some of these can be purchased with a cost-of-living adjustment rider, where annual payments increase by, say, 2% or 3% each year. Having 60% to 70% of your expenses covered by guaranteed income���whether Social Security, pension or annuities���greatly reduces longevity risk.

Some people aren���t comfortable annuitizing, which is fine. We can help them ladder Treasurys or other bonds to produce the income they need. There���s limited risk of principal loss���provided they hold the bonds to maturity.

Finally, we���ll stress test a retirement plan, factoring in such things as higher inflation rates and tax rates to see how the plan stands up to such challenges. We can even factor in a 25% cut to Social Security benefits.

People often get ���to��� retirement haphazardly. They gather assets through their career, hoping to have enough wealth to get them over the finish line. I help them start planning ���for��� retirement, which involves discussing what your day-to-day will look like and stress-testing the possibilities that may derail your new life.

Kevin Thompson is a former Major League Baseball player and now CEO of 9Innings Capital Group LLC . He is a Certified Financial Planner �� and Retirement Income Certified Professional ��. Kevin graduated from the University of Texas at Arlington in 2011 with a degree in finance. His previous��articles were Home Sweet Whatever and��Big League Lessons.

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