Can I Retire? is part of his “100 Pages or Less” series, and, well, the main text of the book ends squarely on page 99, so it’s truth in advertising.  His motivation in putting this series together was to give essential information on a particular topic in a size that wouldn’t be so daunting to read.  He fully admits that his book is just the beginning of answering the question in the title, so with that in mind, I read the book.

I enjoyed it.  The book was well written and free of financial jargon, but at the same time I didn’t feel like I was in third grade while reading it.  It was a quick read; I got through it in maybe 1 1/2 hours, and part of the time I was riding up to a friend’s house.  Which, again, is the point of the book:  It’s an approachable and doable introduction to the topic.

Standard topics with some essential details

The topics are nothing terribly mind-blowing:

• Calculating how much you’ll need to retire
• The 4% withdrawal rate rule
• Single-premium immediate annuities
• Index funds, exchange-traded funds, bonds
• IRAs and IRA accounts
• Tax consequences of conversions, rollovers, and the like
• Social Security

I picked up a number of things along the way.  Here are a couple of them:

• Dollar-cost averaging is a two-edged sword.  In a rising market, dollar cost averaging helps to automate the process of buying low (to sell high later).  But in a falling (or fallen) market, withdrawing a fixed amount has the opposite effect: selling low.
• The overview of annuities is very good.  I knew vaguely what annuities were but Chapter 4 laid the basics out very well, especially the pros and cons of annuities, fixed return vs. variable return annuities, and diversifying annuities.
• Having a tiered risk/reward investment structure in retirement is a good idea.  The idea and explanation of having short-, mid-, and long-term investments in retirement was clearly presented.  (Long-term in retirement is more than five years out.)

All in all, this was a well-organized introduction to answering the question of Can I Retire? and I recommend it.  The Kindle edition is certainly worth $5 if you’re new to retirement planning.

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Let’s just say for grins that this is going to happen.  Putting aside questions like “where will we fit us all,” what kind of a financial nightmare would this be? I thought about this and came up with a few ideas.

• Retirement?  Hah!  As it is, about half of us probably will run out of money before we run out of life on this planet.  And this is life on today’s mercifully short life expectancy:  mid-seventies to early-eighties.  Imagine planning for another lifetime after that.
• Working like you’ll never quit.  The quip about a 95-year-old polishing his resume won’t be a quip any more.  It will be good career advice!  Along with tips on dealing with college grads a sixth your age.
• Inheritances won’t help for a looooong time.  Rich great-great-great-great-grandpa still needs that money, after all.
• We’ll have lots and lots of sick, poor, really really old people.  Jack LaLanne was in fine shape until the day he died, but he also exercised his butt off and ate like a saint.  Most of us don’t, and I doubt that even if medicine can help us to live practically forever, it won’t be able to keep us healthy.  So, unhealthy people that we are, we’ll get to a point long before the end of our lives when we won’t be able to work.  Then we’ll become wards of the state (if that’s worth anything) or dependent on our children who themselves are getting on in years, too!

No thanks! Our current life expectancies already are more than many of us can handle.

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Me?  I’m holding the fort down back home, going to work, doing things as I do them pretty much most of the time.  I miss them and will be really glad when they make it home safely, but pictures, a few videos, and lots of stories are enough for me.  I had no real desire to go out there, and that seems to be just fine with everyone.

Bucksome Boomer had a post on couples living apart in retirement.  Some of the couples do it quite a bit, and it seems to work for them.  If one likes to travel, and the other doesn’t, so what?  “Have fun, honey!”

Admitting this kind of thing, and even embracing it, can save a lot of stress and even a bit of money.  This trip out to Wyoming cost less for the people that actually wanted to go (I don’t really travel well).  One less plane ticked needed to be purchased.  Fewer meals out.  Renting a smaller car.  Plus, we didn’t need to get someone to take care of our house while we were all gone.  I could do some of the chores that my wife usually does (though probably not as well ) and I could watch the dogs, which would cost us $50 per day at the kennel if we couldn’t find someone to do it for less.

As far as stress level, I think it’s less for everyone, including the people on the trip. My wife knows I’m looking after things, going to work, etc.  From my end, I didn’t need to compress my work schedule (at the time, I had a deadline approaching and taking a week off would have almost ruined the vacation for me).  And — I admit it — I do like my own bed.

Forcing an everyone-goes vacation for the family isn’t always necessary, and it can be counterproductive.  It’s not the cheapest way to relax.  It may not even be the best way.

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OK, that last one was pretty scary.  Sorry.  But seriously, there are about 24.5 bajillion different bad things that could happen anywhere between 30 seconds from now until the Second Coming.  And every last one of them has enough reading material and commentary and YouTube videos and books and newsletters to consume every last spare moment you have.

A gentleman I know worries a lot about where the economy is heading.  He reads a lot about this subject.  He’s practically immersed in it.  He keeps track of certain aspects of the issues better than anyone I know.

But he’s reached the conclusion that we’re all screwed, and that most of us are going to get robbed blind by the powers that be, and it paralyzes him, really.  Analysis paralysis to the max.  He needs to keep tabs on the issues, yet it just depresses him more.  It’s a vicious spiral.

Worrying without action does nothing

He knows that I blog, and asks me how it’s going.  I suggested that he started one, too.  First, the software (WordPress) is so advanced and powerful that almost anyone can use it.  Second, writing a blog can bring in extra income that’s independent of his current job.  But most importantly, he’d be doing something rather than just letting all of this information eat at him from the inside out.  He’d feel like he’s in control of something rather than at the mercy of those who would take everything away from him.  He’d be moving forward with something rather than just spinning his wheels.

A good antidote for worry is action.  It’s more than just getting your mind off of what’s worrying you, because that only works for a while.  It’s taking steps to make the source of the worry go away.  If the worry is getting stiffed on a pension, then take steps to get a business that can carry through retirement age and beyond.  If the worry is about a tanking stock market, then take steps to diversify.  If the worry is that your job will be eliminated, then take steps to invest in yourself.

Is something worrying you — especially something financial?  What steps can you take right now to make that worrisome outcome less likely?

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If you’re stashing your cash in a traditional savings account earning next to nothing, you’re wasting it. Make sure you’re getting the best return on your money. Search for the highest yields on CDs and money-market savings accounts. And consider using a free online checking account that pays interest, such as ones offered by Everbank and ING Direct.

Now, there isn’t a thing wrong with these banks.  I’ve used ING Direct for years, and I’ve had nothing but good experiences with them. I’ve heard many good reviews of Everbank as well.  I guess over the past few years we’ve had our expectations of “high-interest savings account” lowered a bit.  Both ING Direct and Everbank are quoting rates around 1% APY.

One percent per year. And this is supposed to be an alternative to wallowing in a low-interest account?!  By most measures, this is wallowing in a low-interest account!

Certainly it’s better than earning nothing, but truth be told, it’s not a whole lot better than nothing.

It makes me wonder if the whole idea of passive retirement income is out of reach for most people. How much would someone have to have saved up to have a retirement income of $50,000 per year in investments earning 1%?  Fifty thousand dollars is one percent of $5 million.  And this income is before taxes and the devaluing due to inflation!  Even if the return rose to 5% — say, with some very well-chosen dividend stocks — then this still requires $1 million invested.

Five million dollars is a lot of money, and with average retirement savings not even cracking six figures it’s not an amount of money that most people have at their disposal.  So for most people, there has to be more.  There probably has to be some kind of active income earning going on.  Things like building up a side business in an area that can be done part-time (or even full-time) in the normal retirement years.

This transition is far easier if the business is already chugging away when the traditional retirement age comes.  But this requires planning and consistent effort well before that time occurs.

Are you on top of this?  Are you laughing in the face of low-interest passive investments and taking the bull by the horns?  I hope so.

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And we hear about retirement all along the way.  We hear about retirement planning: how to save, in what, how much, and for how long.  We hear from retired folks.  At the very least, we know some retired folks.  If we pull down any kind of salary, we likely have means through our employer to use a 401(k) plan.

With this much warning, if we didn’t arrive there prepared, what excuse do we have?

This article by Dave Carpenter suggests that there are many people entering their 60s very ill-prepared for old age, yet expecting to retire or at least severely dial back their work schedule.  Mr. Carpenter reports on a gentleman who was laid off about a year ago from a six-figure sales job.  How much does he have saved up?  Only $5,000.  He will start drawing Social Security in April, at age 62.  He rents an apartment.

He blew it.  (The article says that he knows he blew it.)  What kind of retirement is he going to have?  Will it even be a retirement?

Michael Mihalik, author of Debt is Slavery: and 9 Other Things I Wish My Dad Had Taught Me About Money, emphasizes that retirement is about money, not age.  There’s nothing magical about age sixty-five, sixty-two, forty, whatever.  You either have the money saved up to support your desired standard of living until the day you expect to die, or you don’t.  If you end up with too much life at the end of your money, you’re either dependent on others, or you exit retirement.

There really isn’t much more to it than that.

Make sure your retirement savings is on track before you arrive at your sixties with only $5,000 to rub together.  Don’t blow it!

(Hat tip to Sustainable Personal Finance for including this post in the Carnival of Personal Finance.)

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But anyway, this is from his latest net worth post:

But wow, what a month!  Going on back to back ups here – love it.  Even though I really only worked hard at 1/2 of this $11k increase   As always the rest was left up to the stock market Gods…

To be completely fair here, he does have $66,000 in between his savings and his emergency fund, which is huge.  And to boot, he’s even covered what I’m going to talk about.

In the short run — certainly a month is short-run — the stock market gods (volatility) can bring a portfolio up or down.  That’s the risk, which is hopefully justified by a greater reward.

But what if the reward bypasses a generation?  This article from MSN MoneyCentral suggests that the market can be really good for some generations, and mediocre to bad for others.  (Basically giving investors the pagan equivalent of forty years wandering in the wilderness.)  Hitting one of those bad patches means either (a) there won’t be enough money waiting for you in retirement, or (b) there will need to be a lot more investing needed to arrive at the  happy number.

If you’re not near retirement age (and neither J nor myself are, though I’m closer than he is!) then investing in yourself is a great end-run around the stock market gods that play roller-coaster with your portfolio.  Get some side projects going.  Learn some skills.  Create something you own rather than buy stock in something that someone else owns.

This isn’t without risk either, of course, because you either succeed or you fail.  It’s no one’s fault but your own.  But if you don’t sink a lot of money into starting things up, and start early enough, a failure or two is fine, and they improve your odds of success later.

Whimsy is flimsy.  Take some of the whimsy out of your investment portfolio!

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Everyone knows that a 401K is set up almost exclusively as a retirement plan, and as such, it comes with some pretty hefty penalties for early withdrawal (which is to say, before the age of 59 1/2). However, this hasn’t stopped many people from taking funds from their 401K, and finding ways to avoid the astronomical costs of doing so. Whether you’ve lost your job, you’re facing a medical emergency, or you could simply use the extra dough, there may be a way to access your 401K early. But there are a few things you need to know about before you treat your retirement fund like an ATM:

1. Income tax. The first penalty you will be hit with is income tax. Remember, any monies you filter into your 401K enter the account pre-tax. So the moment you begin to withdraw, the money is subject to income tax, just like any other earnings. Not only will you have to pay the government their normal pound of flesh, if your withdrawals happen to bump you into the next tax bracket, you could be facing a lot more expenditure come April 15th.
2. The 10% tax. On top of any income tax you will be required to pay, there is a standing, across the board 10% penalty applied to any funds you pull from your account before the age of retirement. When you think about it, you may as well be flushing that 10% down the toilet. Honestly, even check-cashing services don’t charge that much!
3. Exemptions. Luckily, there are a number of exemptions that will allow you to withdraw money without the 10% penalty (although you absolutely cannot avoid the income tax). Death, permanent disability, loss of employment after age 55, excessive medical expenses, and court-ordered divorce settlements are just a few instances of ways that funds can be withdrawn early without penalty, so you may want to see if you qualify for any of these exclusions (although if you do, you are probably in a pretty sorry state).
4. Borrowing. Some plans also offer a lending option where the 401K is concerned (although this is an addition to the policy that must generally be adopted by the company you work for, and most companies don’t want to pay extra for this feature). If you are lucky enough to have this option, you can pull money early and pay it back like any other loan: with interest (usually based on the prime rate). Of course, most companies restrict the uses for this money to circumstances like paying for schooling, purchasing a home (or staving off foreclosure), and medical expenses, just to name a few.
5. SEPP. A substantially equal periodic payment plan is another way to withdraw funds early, but it, too, comes with some unfortunate side effects. It works like this: you set up an account that pays you a certain amount annually from your 401K as a way to supplement your income, and you don’t have to pay any penalties to do so. Sounds pretty good, right? It is, except for the fine print. Once you set up a SEPP, you can no longer contribute to your 401K, thereby depleting your retirement fund. Plus, you have to continue to withdraw either for five years or until you reach retirement age, whichever is longer.

While you may be tempted to dip into your retirement account early, you are almost guaranteed to take a financial hit if you choose to do so, whether you pay penalties or you simply lose out on the interest that the money could have been earning if you’d left it alone. There are certainly ways to buck the system, but in the long run, you are essentially only hurting yourself when you opt to use your future funds today.

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But if that sounds like way too much work, there’s always the chance you can hit the jackpot by suing the entity that consumed most of your time for an obscene amount of money.  That’s what Craig Smallwood is doing to NCSoft, creator of Lineage II, a 3-D massively multi-player online role-playing game.  Allegedly Mr. Smallwood spent 20,000 hours playing the game from 2004 to 2009, and is now suing NCSoft for damages under the guise that he wouldn’t have started playing the game had he known that he would have become addicted to it.

First, let’s break this down a little bit.  How much time is twenty thousand hours?  If we take the time span (generously) to be six full years (January 1st, 2004, to December 31st, 2009), 20,000 hours is over nine hours per day, seven days a week, 365 or 366 days per year, for six full years.

That’s mind boggling, but not nearly as mind boggling as (a) his allegations that this stupendous waste of time wasn’t his fault, (b) the fact that this lawsuit wasn’t thrown out immediately, and, most importantly, (c) how far ahead he’d be now if he even played that game just five hours a day and invested the difference in himself. Five hours a day is still way too much time, but there’s a whole lot someone can learn in about 9,000 hours.  It’s enough time to not only become proficient at, but completely master a skill, or maybe two skills!

What’s the alternative to hoping for a misguided jackpot judgment like this guy is?

I’ll let you in on a little secret.  I have a very addictive personality.  I’ve spent more than my fair share playing mindless games and surfing sites that I really shouldn’t be surfing.  The only thing that’s really helped me battle the game sites and other junk was installing a content filter and having my wife be the only one who has the password to change the permissions and delete the surfing logs.  Before, I could pretend like I wasn’t spending all of this time, but now I can’t.

What’s even better is that the best one I’ve found is free:  Blue Coat K9 Web Protection.  In addition to categories aimed at protecting children from content related to violence, drugs, hate, adult content, etc., and categories that should be limited or controlled (chat sites, social networking, peer-to-peer, etc.), it also can filter a whole bunch of (potentially costly and/or damaging) time-waster categories:  gambling, shopping, and games.  In addition to the bad sites, I block the game sites.  I know that how I spend my time is my own responsibility, and that I have to ask for help if I can’t use it productively.  Suing MiniClip.com for my lost productivity makes about as much sense as suing McDonald’s for not telling me that I could burn my legs if I spilled their coffee on them while I was driving.

So, the main point is this:  If something is eating up a lot of your time and affecting your finances and even your life, don’t blame or sue someone else.  Own up and get it out of your life.  Get help if you can’t do it yourself.  Those who depend on you and love you will thank you.

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Now, to be fair, the $12 million figure comes from assumptions are out of reach for most people:

• In retirement for sixty-five years, starting at age 35 — plenty of time to perfect that shuffleboard technique, I suppose!
• Living in Manhattan, one of the priciest locales in the universe.
• Spending $400 per day outside of housing — now New York City is expensive, but that’s still living fairly large.

David Ning argues, reasonably, that this is a ridiculous lifestyle that few people would actually want to live:

• Why NYC until you’re 100?
• Why are you still renting your apartment?
• Why are you spending so much?
• Why are you retired for so freakin’ long?

These are perfectly reasonable, well-thought-out arguments for why most people don’t need that much money to retire comfortably, especially for people who are already near the classic retirement age.  Under these arguments, though, is a huge assumption.  That assumption is that retirement expenses will remain about the same as they are now.  I think that’s a very poor assumption.

By the time I reach retirement age, my income will be relatively lower than for current retirees, and my expenses will be far higher than for current retirees.  $12 million may not be enough to have a comfortable retirement.  Here’s why:

• Social Security income will be far less, if it’s there at all. The system is in trouble.  The system is now paying out more than it’s taking in.  The imbalance will get worse:  baby boomers are retiring.  How to solve this imbalance?  Lots of ways that aren’t surprising:  raise Social Security taxes; remove the tax cap on earned income; reduce benefits; increase the retirement age for full benefits; institute a means test.  It’s the last one that would hurt people who saved.  Their contributions would go to the people who didn’t.
• Taxes will be higher. The US Federal debt is now past $13 trillion. It passed $12 trillion this past November.  The debt is blowing through milestones like you-know-what through a goose.  Deficits do matter, eventually, and eventually is just around the corner.  If the debt is owed to ourselves, we’ll be forced to pay ourselves back.  Right now we owe over $120,000 per taxpayer.  When this number climbs, when the interest payment on the debt exceeds the GNP, who will foot the bill?  Why, the rich people, of course!  The people who have the most saved up will pay up for themselves, and the people who didn’t.
• Good medical care will be very expensive. Universal health care or not, good health care will be harder to come by, and it will be more expensive if you don’t want to spend your retirement years waiting in line.  This requires money, and finding a doctor who has distanced herself from the Medicare system.  What they lose out on volume, they’ll have to make up on price.

It could be that we all can get by with less than we thought we’d need.  But why count on that?  Why aim for only $2 million?  Why not aim higher?

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