When Did the Concept of “Retirement” Come to Be?

As you can well imagine, the idea of “retirement” did not exist in Roman times, nor medieval times, and certainly not when Pilgrims discovered America.  What about during the days of Lewis & Clark?  Or when the wild West was being settled?  History teaches us that a Roman peasant had to fight for food every day of their life.  A peasant could not even fathom taking life easy, sitting back to watch the evening news, or going out to eat and taking in a movie. How could an English Lord even conceive of “retiring?” He had to manage a kingdom and train new knights to protect him and his vassal serfs.

Some examples of newly created words, along with the idea of “retirement” in the last 100 years include:

  • Internet
  • World wide web
  • iPhone
  • Light bulb
  • Polyester
  • DVD
  • Contact lens

We have seen so many advances in technology and medical care in the last century that we have a lot more time on our hands than anyone born before the turn of the last century. That extension of life plus all that time we have available has been the reason the idea of retirement even exists.  “Retirement” is a new concept, only around since just before World War II broke out. Up until 1920, most people died before they reached the age of 60, so retirement wasn’t even an option.  When people started to live past age 65, some elderly folks started to save money for when they could no longer work, and thus the concept of retirement was born.

Four problems came along with this new concept. The first problem is outliving your income. Today 92 percent of everyone who is retired is totally dependent upon their Social Security benefit.

A second huge problem is inflation.  Just use your Web browser to see what one gallon of milk cost 20 years ago and you will be shocked.  You will most likely need to double the money you think is needed at retirement, because of inflation.

A third problem is continual taxation.  As you take money from you retirement savings plan to live, this income is taxed and can cause Social Security benefits to be subject to income tax as well.

A fourth gigantic problem is the cost of medical, long-term care and nursing home expenses.  The national average shows costs for a retired couple for medical/nursing care is $250,000 before they die.  This kind of cost is eating up all possible savings most people manage to squirrel away for retirement.  When all resources have been exhausted, the surviving spouse becomes destitute and is classified as being on welfare.

Considering these four problems, now is the time to decide what “retirement” means to you and whether you will be able to make that vision a reality. You have heard about the importance of planning for retirement your entire life, while those who lived before 1920 did not even have an inclination of what that meant. Before it’s too late, define what you want to happen when you reach age 65 because unlike your grandpa and great grandpa you will likely live longer than 60 years, so you will need to be prepared for that long life and how you want to live it.  It’s never too late to get going on this.  Go to moneymastery.com and sign up for the Basic online training package and see for yourself how much money you need to be saving for retirement, or calculate how long your money will last. For more help, contact me directly: peter@moneymastery.com.

Know the Rules about Your Privacy… Or Lack Thereof

Money Mastery Principle 5 teaches: Know the Rules. In this post, I will illustrate the importance of knowing the rules when it comes to your financial privacy.

Following is a redacted privacy policy that you will notice is pretty much the same as every other privacy statement you have ever come across.  At the top the publisher will reference federal law that gives consumers the right to limit sharing of their personal information, “but not all sharing.”  

What this means is that federal law allows marketing to you at every level unless you know the entity’s particular rules of privacy and take action against them.  Examine this privacy notice and you will see you can only limit three things:

  1. “Our affiliates’ everyday business purposes;
  2. “Our affiliates to market to you; and
  3. “Non-affiliates to market to you.” 

Neither you nor I can maintain the actual privacy of our personal information!  Pretty much anyone can use your Social Security number and income, account balances and payment history, and transaction or loss history and credit scores.   This is horrible!

Okay, but you may say, “but look, they provide a phone number to call and ask to limit your information towards the bottom of the notice.”  My response to that is, “so what?”  Look at all the ways they can still share and sell your information off to so many other marketing organizations!!

Research shows that the vendor can sell your information off for some small fee.  Let’s use 17 cents for each purchase of your private information.  I use 17 cents because if you go to buy qualified information this is a standard rate that’s often used. Run the calculations:  This vendor sells your private information once a day for the entire year.  This means your personal information just paid the vendor $62 that year.  In other words, your personal Social Security number, income and payment history, and credit scores just made them a profit of $62.  Now can you see why you get so much junk mail?  Can you see why you get spammed and marketed all day long?

Can you do anything about junk mail offers?  You cannot stop them.  If you send the offer back as “return mail” and tell them to stop then they know this is a good address and will keep sending marketing materials.

Can you do anything about marketing offers through your email? You can block the sender and even report spam, but surely they are smarter than all that reporting.  All they have to do is move your personal information over to a new URL and start again.

What is the worth of federal law limiting your privacy?  I think it is not worth the paper it is printed on.  Nevertheless, I still make the phone calls and limit what I can and feel you should, too.  There needs to be more discussion and further legislation to prohibit this travesty. While not much can be done at this point, at least knowing the rules will put you in a position to take action and try to fix problems when the opportunity arises. Not knowing the problems prevents you from doing anything about them should the chance ver arise. 

Take Caution: Read Disclosure Notices on Investment Projections Before You Sit Back on Your Retirement Laurels

Following is a typical disclosure notice you might see at the end of an investment report. Take the time to read this disclosure,  you might be surprised what you find:

If a numerical analysis is shown, the results are neither guarantees nor projections, and actual results may differ significantly.  Any assumptions as to the interest rates, rates of return, inflation, or other values are hypothetical and for illustrative purposes only.  Rates of return shown are not indicative of any particular investment, and will vary over time.  Any reference to past performance is not indicative of future results and should not be taken as a guaranteed projection of actual returns from any recommended investment.

If you reviewed a report that said your retirement is going to be adequate but then get to the small print at the bottom of the report and it says, “Any assumptions as to the interest rates, rates of return, inflation, or other values are hypothetical and for illustrative purposes only,” how should you feel? How much credence can you place in the numbers from such a report when planning your future?  For example, if an assumed interest rate went from 5% to 3% in real time as you are saving for retirement, you might run out of money with 12 years left to live!

Or let’s say you use the past 40-year average market gains to forecast your future income and then read, “Any reference to past performance is not indicative of the future results.” You probably aren’t going to feel super confident about what your direction is going to be.

Of course we need to plan and project, using the best tools available, but how can you do any of those projections given all the unknowns?

In my experience, the best way to use forecasting projections is to keep track of each year’s projections and review from year to year.  As the years go by you can watch out for adjustments that will surely force some changes.  This way when something isn’t quite working out like you forecasted, you adjust. It’s the simple principle of tracking and you should be applying it when it comes to retirement funds, but what I have found is very few people do, only about 3 percent of us actually track and adjust each year.

Think of you being the navigator on an airplane.  As you fly from San Francisco to Dallas, you are seldom going straight to your destination because of wind and weather.  A navigator must keep adjusting and changing the course according to what affects the plane.  This is the same for each of us financially.  The forecasting is so important, but the adjusting to changes is critical.  So for the 97% of those who don’t forecast, they will not end up in Dallas, financially speaking, but probably Minneapolis.  I hope they like the colder north country. For information on how to create a more predictable retirement that you cannot outlive, contact me for a no cost consultation: peter@moneymastery.com.

What Happens to You Financially If Your Health Changes?

According to the Social Security Administration, 41 percent of all workers are required to retire earlier than planned due to a personal health problem — that’s four out of every 10 Americans. And the National Council on Aging has stated that about 91 percent of older Americans have at least one chronic health condition; another 73 percent have at least two.

What will you do if you’re one of the four out of 10 people who have to retire early?  How will you manage, and do you have enough money?  Get serious and create a plan based on the assumption that you might have this problem. After all, as stated above 91% of all seniors have a serious health problem — don’t gamble with those numbers and hope that whatever condition you get won’t keep you from working as long as you need to.  

Here are three things to do if you physically have to retire:

1.  Cut spending down to what money is available.

2.  Apply for Social Security benefits under handicapped status. This may take 6 months, but can help your income a lot.

3.  Stay mentally engaged with family, community and friends.

As you rearrange living expenses, this may lead you to consider downsizing your home.  This can help lower the cost of utilities and property taxes.  Think long-term when you are making these adjustments.

The Social Security administration has provided for those who get disabled at an age younger than 62.  This could be a source of income for the rest of your life.

When people finally retire, the most successful are those who stay actively engaged with the world.  They volunteer to make a contribution to the community around them.  By staying engaged, they are more alert and have a higher quality of life.

Plan for the event of bad  health and then if it doesn’t happen, you’ll still have the extra money plus you’ll have peace of mind, no matter what happens, and that is worth its weight in gold. peter@moneymastery.com.

Earn a $1,000 Credit for Saving…

The following information is taken directly from the IRS’s Web site on the Retirement Savings Contribution Credit (Saver’s Credit) program:

————————————————–

You may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan.

You’re eligible for the credit if you’re:

  • Age 18 or older;
  • Not a full-time student; and
  • Not claimed as a dependent on another person’s return.

See the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions, for the definition of a full-time student.

Amount of the credit

The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A). Use the chart below to calculate your credit.

*Single, married filing separately, or qualifying widow(er)

2017 Saver’s Credit

Credit Rate

Married Filing Jointly

Head of Household

All Other Filers*

50% of your contribution

AGI not more than $37,000

AGI not more than $27,750

AGI not more than $18,500

20% of your contribution

$37,001 – $40,000

$27,751 – $30,000

$18,501 – $20,000

10% of your contribution

$40,001 – $62,000

$30,001 – $46,500

$20,001 – $31,000

0% of your contribution

more than $62,000

more than $46,500

more than $31,000

The Saver’s Credit can be taken for your contributions to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.

Rollover contributions (money that you moved from another retirement plan or IRA) aren’t eligible for the Saver’s Credit. Also, your eligible contributions may be reduced by any recent distributions you received from a retirement plan or IRA.

Example: Jill, who works at a retail store, is married and earned $37,000 in 2016. Jill’s husband was unemployed in 2016 and didn’t have any earnings. Jill contributed $1,000 to her IRA in 2016. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $36,000. Jill may claim a 50% credit, $500, for her $1,000 IRA contribution.

In my experience, anytime you can get “free” money, go for it.  There are many people making less than $36,000 a year and to receive a $1,000 credit for saving $2,000 can make a big difference over 10 and 20 years.  In the above example for Jill, she is trying to save 10 percent of her annual income every year, so in her case that’s $3,600. When she adds this $1,000 credit to that annual 10 percent savings and keeps this money safe over 30 years it will grow to $265,000.  That’s a little over a quarter of a million dollars and an average annual growth rate of 8 percent! 

This may not seem to be a big deal, but a “free” $1,000 a year for someone making $30-35,000 annually, is like getting a 33 percent bonus.  If you will prepare a Get Out of Debt report and a Spending Plan using the Money Mastery tools, you will find even more money.  The younger you start, the better it will be.  Contact me for more information: peter@moneymaster.com.

Spend All Your Money on Paper so You Can See How to Create a Cash Surplus

We all want more money, but how can you make that happen?

First make a list of why you want more money.  Be comprehensive and make sure you don’t leave anything out.  Dream big and write down as much detail as you can so when you refer back to your list, you will be reminded of all these wonderful things.  Do this now.

Second, write down all the income sources, assets and other resources you have available to spend on this list.  Remember one of your assets is time, time to work extra hours, and time to get a better education and improve your ability to make more money.

Third, subtract the money you have from the list of wants and see if you come up short. This is the amount of money you need to find, learn how to earn, or acquire by selling an asset.

Let’s solve this money shortage problem right now.  In the illustration above let the circle represent all the money you will ever have in your lifetime.  Now you don’t know how long you will live, but just let this circle be the total amount of money you will have.  Don’t be critical of yourself for past mistakes in investments, don’t deride yourself for not getting more education, and don’t get depressed, just stay focused on this activity to the end.  I promise you will soon have more money.

Since this circle represents ALL the money you will ever have, why not spend it?  Use your list of wants and spend your money.  Take a slice of the circle and spend it on food and housing.  Then do the same for medical and dental expenses.  Spend some for vacations and fun activities.  Don’t use a monetary figure, just a percetage, like 1.5% for example.  Slice up your total money supply pie until it is all spent.  Don’t forget transportation costs and travel.  Now sit back and examine the money picture you have just drawn.  Remember you can have anything you want, you just can’t have everything you want.  So if you are a physician and will make $9,000,000 over your working life, you will not be able to spend more than that much money.

Your action item now, something for you to do immediately, is to take your “pie of money,” totaling all the money you will ever have, and spend it is such a way as to have a surplus and accomplish the essential goals of your life.  Don’t just spend it all, spend it so as to have a surplus. Doing this little exercise will help you see where you are spending money foolishly or help you see what you may need scale back on so that you can have a small surplus each month.

 Here are three case histories to put your “pie of money” into perspective in terms of creating a surplus:  The first case study is about a schoolteacher who lives in the mountains of Missouri making $23,000 annually.  She has debt and saves $300 each month.  The second study comes from Florida where he is a plastic surgeon making $100,000 a month, but has over-committed on leasing his building, equipment, plane and automobiles, so when he was called out of military reserves to serve a one year commitment in Afghanistan (making $29,000 a year), this forced him to have to file bankruptcy.  The third case history is a retired 87-year-old woman who lives in Stockton, California successfully living on $1,022 a month. We can see from each of these stories that it matters not how much you make but what you do with your money that counts. The school teacher isn’t making much and has debt but she still manages to create a surplus every month so she can save $300. The doctor is living large and has now lost that massive income on foolish living. He could have amassed a huge surplus by now but has spent it all. The elderly woman on a fixed income is managing her money by being smart about the way she spends so she has money to live on. Donald Horban taught this essential concept:

“We don’t need to increase our goods nearly as much as we need to scale down our wants.  Not wanting something is as good as possessing it.” 

Our financial peace of mind is to learn that a rich person is not one who has the most, but one who needs the least.

Don’t be discouraged, even though in my experience spending all your money on paper so you can see where you lack a cash surplus will be the hardest thing you will ever do.   Don’t procrastinate, create a circle representing your entire income of money and spend it.  Money is not the most important thing, but if you don’t have a surplus of it when you need it, it becomes really important.  I wish you all the very best! peter@moneymastery.com.

There Must Be Fun to Make the Hard Parts of Life Worth Living…

The Money Mastery system of personal financial management teaches that savings is actually just “delayed spending.” What this means is that all money is to be spent — some will be spent now, and the so-called “savings” we create will be spent later for future events.

So what kind of “delayed spending” accounts should we create? There are three:

  1. Long-term
  2. Emergency
  3. Emotional

The Long-term account is obvious — we need the most money here for the end of our life, when we stop working and hope to retire so we can do so comfortably.  I have written extensively about how to create this delayed spending account and I urge you to check out some of those posts here.

The Four C’s of Retirement Planning

How to Determine Retirement Needs Accurately

How You Define Retirement May Mean You Actually Get to Retire

The Emergency account is also obvious — problems crop up all the time and as I have tracked the emergencies my family has encountered it adds up to an average of $383 every month.  Because I have a historical picture of what life  has been like for our family through tracking, I just go ahead and set the $383 aside each month so I have this money to spend later when these emergencies arise BECAUSE THEY WILL HAPPEN JUST LIKE CLOCK WORK.  What about your family? Do you know what you need to set aside each month to plan for the inevitable?

The last account, Emotional, gets overlooked or in most cases has not even been considered as a needed delayed spending account.  But just like emergencies, the need for impulse spending for the sheer fun of it is bound to happen TO ALL OF US and if you’re not prepared for these events, you will spend money you do not have simply to fulfill an emotional need. And let’s face it, there’s absolutely nothing wrong with spending money impulsively, for no other reason than because you want to have fun and enjoy life — that is unless you have not prepared for it. Then spending money this way is what gets people into debt and keeps them that way for a long time.

My advice? If you don’t think you have much to set aside for emotional spending, start with a small amount like $25 for example. Put this away every month and then work your way up a little. That way, in a few months you have money that has been set aside only to be used when you want to do something fun on the spur of the moment. You can still pay your monthly bills while not depriving yourself or family members of the fun and enjoyment in life. Or let’s say you get a tax refund (which is something I suggest you not be getting every year but that’s a post for another time), but if you’ve gotten a recent tax return, I suggest you take a portion of that return, at least $500 of it and put it aside into a savings account to only be used when you want to do something fun on the spur of the moment. 

Now let’s spend this $500.  Let’s suppose that your spouse comes to you and tells of friends who went to a resort with natural hot water swimming pools.  He or she is sad and wishes your family could do something like this.  You spring into action and say, “Honey, let’s check our emotional account and see how much money we have.”  WOW, you have $500 and it would only cost $235 to do this same trip to the hot water pools.  All of a sudden your family gets to put some excitement back in life and together you have a wonderful family-bonding experience that provides happy memories for your children.

Not having money saved for emotional spending needs is like going on a diet and expecting to never eat another cookie or indulge in another ice cream cone again. Those kinds of diets do not work because they are too strict to give you the motivation you need to stay on them. Eating right is fine so long as you can splurge occasionally. The same goes for proper financial management. Fun times are needed every once in a while if you expect to stay on track. But, those fun times need to be properly funded, in advance.  Plan for emergencies, plan for retirement, but don’t forget to plan for emotional activities either.  Learn how by going to www.moneymastery.com.

Why You Need Money to Buy More Time…

As they say, if you learn how to handle money you will have a good life, but if you don’t you’ll always be running in circles. 

I know money is not the most important thing in the world, except if you don’t have any.  Money is kind of like oxygen, you don’t notice how much you really need it until it’s not there. So the premise of this post is to encourage you to get a proper system of financial management in place that not only helps you get in control of your money now so you can stop running around in circles panicked that you don’t have what you need, but also to have the means to go WAY beyond that — to build wealth on any income that will allow you to participate in the wonderful things of life that make it exciting!

What does this kind of wealth look like?

  • Enough money to buy time on the beach.
  • Enough to buy lots of extra time to spend with your family.
  • Enough to retire and take life easy, or better yet to have enough to do for others when they can’t do for themselves.
  • Enough to build up opportunities for growth and progress in your community and country.

How can you build this kind of wealth?

It’s possible only by understanding how TIME factors into everything. Notice in the above examples I have given, “If you have enough money, you can buy TIME on the beach.”  If you have enough money you can “buy lots of extra TIME to spend with your family.” Isn’t time what we really want, not money? The problem is, you cannot have time without the money to pay for it, whether it is on the beach, with family, in retirement, or in creating new growth and progress opportunities for others.

Since TIME is the ultimate goal, shouldn’t we all study more about the relationship between TIME & MONEY?  When we spend more than we make, aren’t we spending our time in the future. Don’t we lose time by working to earn interest on a loan?  When you learn how to better use time and how to manage your money, you will conquer the world as we know it.  Look around you and identify the people you know who have control of their money and how peaceful their lives are? I can guarantee you they have a system in place that allows them this kind of control.

One of the best ways to understand what kind of system you need to create this control is to read MONEY: What Financial “Experts” Will Never Tell You. Within it you can read about actual case studies where people finally understood the relationship between TIME and MONEY and took action to make them work in harmony using a correct system of financial management. 

Anyone wanting to have a much better life should focus on TIME and it’s relationship to money.  I give you my best by inviting you to go to www.moneymastery.com for more information about this critical subject.

The Four C’s of Retirement Planning…

Recently I was sitting in a retirement income training class and the four C’s of retirement planning were presented that just made good sense.  I have changed the details a little so that they fit the Money Mastery Principles and philosophy, but here you go:

First C:  Clarity of thought and action is the first strategy to begin building a predictable retirement income.  I ask these questions of the clients I coach and would like you to answer them as well:

  1. How much income will you need in retirement?
  2. How many years might you live in retirement?
  3. What resources do you have to fund your retirement?
  4. What is your risk tolerance?
  5. Do you plan to leave any assets to your beneficiary?

Second C: Comfort during retirement is a big concern.  Imagine for one minute that you are retired and that Monday arrives and you act like it is Saturday.  Tuesday is tomorrow and you act like it is Saturday, and so forth.  When you are retired everyday is like Saturday and we spend like we do on Saturday.  That is why we tend to spend more money in retirement than when we are working.  It is important to consider what kind of comfort you want in retirement so you are more cautious now during working years and not spend everything we make. 

Third C:  Cost of living is another big strategy to plan for and manage.  Health care costs will be the largest expense in retirement that you must prepare for. These expenses will be well beyond what you spend for food, transportation or living expenses.  In addition, inflation can slowly sneak into your pocket book and erode 20 to 30% of you purchasing power.  Be aware and make sure you are doing something to manage this creepy crawler.

Fourth C:  Certainty of income at a time we can not afford to run out of money.  Though you worked for 40 years, it is entirely possible that you will live 20 and 30 years more in retirement.  Market risks can be a huge drain if you are trying to make money last longer by investing more money, which adds more risks and chance of loss.

These 4 C’s are strategies that must be addressed for you to be at peace when arriving at retirement.  I have lots of great experience and advice with how to deal with these 4 C’s and am happy to share them with you: peter@moneymastery.com. 

What Is a True Financial Coach and How Do They Differ from and Adviser?

Many people confuse financial coaches with a financial adviser. These are two very different animals that need distinguishing.

Financial Coach:  A true financial coach focuses on your knowledge, your habits, and your ability to make wise decisions.  They don’t superimpose their feelings upon you.  A true financial coach knows that each person is unique with different goals, different attitudes about money, different challenges with math, and different strengths/weaknesses.  A true financial coach will know how to strengthen your where you are weak.

Financial Planner or Adviser:  This person is most often selling a product.  A financial adviser wants to profit on the money you have already accumulated.  The problem is that this is not what most people actually need.  Most people need and want to know how to create the money in the first place and then how to manage it wisely, perhaps with the help of a financial adviser, once they acquire it.

Think about how a salesman wishes to make money.  They sign up with an institution and then submit to their training.  What kind of training will that be?  Will it be training on five other competitor products so they can sell for them as well?  Absurd, not ever!  This employer wants to train you on his or her own products.  In the Time and Moneycase of a financial adviser, who are truly not a lot more than sales representative, they are encouraged to acquire knowledge and even
seek degrees like Certified Financial Adviser, to show the public that they are knowledgeable.  All of this effort by the sales representative can be helpful to you with a small part of the puzzle, but they very rarely have all the answers to every part of your financial life.  Have you ever thought about asking a financial adviser about what to do about your overspending? Of course not, they wouldn’t be likely to have much information about how to help you with this, and even if they did, this is not what they’re paid to do. What about how to get out of debt, or to create a passive income from better managing  your own money? They wouldn’t know the first place to start helping you with these important matters.  Where they can sometimes help is in what to do with extra money you have created, but that’s really where their “advising” ends.    

Here is the real difference between a coach and an adviser.  A coach helps you with problems you are having with managing your money and your emotions. People have lots of emotions surrounding money. The products financial advisers sell have very little to do with how to manage emotions and get in control on a grassroots level. They don’t teach you principles of financial management, they only sell tools that can help you once you have money to manage. A coach, on the other hand, offers solutions on how to control spending, get out of all debt, save for retirement, and pay the right amount of taxes. If you don’t have someone who can teach you how to do all of these things (at the same time) then you aren’t getting advice from the right place.

Here is a test question to ask a sales representative to determine if they are an adviser or a coach: “What do you recommend I do?”  Then listen carefully as to how fast they go directly to a product that they think you need.  If they make a specific recommendation they are a financial adviser.  If they say, “Tell me more about what you are trying to accomplish, today and in the near future?”  Then they search out your true feelings and even coach you along these lines before identifying options.  A true coach will strengthen you until you are making good decisions. Once you are making better financial decisions, then you can talk about what to do with your money from there.  

There are huge differences between a coach and an adviser, but it will take some time interviewing and asking questions of these people before you will see  how they approach helping you.  Most likely you will find 1 out of 25 advisers that will serve you like a true coach will.  For true financial coaching without the pushing of products, visit www.moneymastery.com