How to Live a Long Life and Love It

One of the secrets to living a long and happy life is to save 10 percent of your income for the rest of your life.  If a person can save 10 percent of their income when they are a teenager, they are smart.  If a person can save 10 percent while going to college and not incur student loans, they are brilliant.  If a person can save 10 percent up and through their working years and into retirement, they are an absolute genius.  Which one are you?

Take the example of a person you work with who always comes to a scheduled meeting late.  That is just them.  They are late, late, late all the time!  Ask yourself why?  To me it is a habitual thing.  They just don’t plan to be early. 

So it is with money. Many people just don’t plan to save as much as they should. Why is it that most people don’t have money saved for an emergency? To me it is a habitual thing.  They just never got in the habit of doing it, so they have no plan to secure it. In addition, they don’t save money into the right categories. Not only should you be saving 10 percent of your income, but you should split that savings into three categories:

  • Emergencies
  • Emotional
  • Long-term (Retirement)   

Nothing will derail a long-term retirement plan quicker than putting all your eggs into a deferred investment program where you have no access to liquid funds. Break off some of your savings into a liquid passbook savings account that you can get at in case of an emergency, because they are guaranteed to happen. If you have nothing with which to replace the broken water heater, for example, you will put that expense on a credit card and incur further debt. Piled up debt will eat into all that long-term retirement money when it comes time to withdraw it. And on top of that, it’s not likely that the conservative funds you are invested in with your 401(k) or other IRA program are going to give you a rate of return greater than the rate of interest you are paying on your debt.

Another event that’s sure to happen will be emotional spending, where you spend money for nothing more than pleasure or impulse. There is nothing wrong with this, if you have planned for it, because this impulsive spending is bound to happen to all of us. The problem is when you don’t have any money saved for such events in an emotional savings account. You see a  new pair of shoes you really must have and purchase them on impulse with guess what — that’s right, your credit card. This kind of spending without a liquid savings plan to account for it will, just like emergencies, pile up debt to the point that your retirement income is in jeopardy.

Breaking old habits — like not putting any money away or worse yet, not putting that money into the right savings categories — is hard to do.  But it can become easier if you forecast yourself into retirement and envision what it will be like if you haven’t saved for emergencies, emotional needs, and long-term goals.

We all can learn new tricks, even if we are old dogs.  Don’t give up. Read the book, MONEY:  What Financial “Experts” Will Never Tell You” for some great info on how to start saving today, even if it’s only 1 percent, and working your way up to the magical 10 percent amount — a savings amount that truly will affect whether you live a long and happy life, or not.

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.

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.

Have We Become a Nation of Spoiled Brats?

In 1935 our nation was in the worst economic depression of all time.  Unemployment was at 40% and senior citizens did not have enough food to survive.  President Roosevelt created a welfare system called Social Security.  It was designed to help give the bare necessities of life to the very poor of the poorest. When this new welfare system went into place the average person was living to the age of 67.

Fast-forward to today and we see that the average person reaching age 65 will live to be age 84 for males and age 87 for females.  The average family will have made $2,500,000 over their lifetime of work, yet have less than $60,000 of total assets to show for it, including equity in their homes! To top this off, 91% of all people retired are totally dependent upon their monthly Social Security check.

What happened between 1935 and today?  My thought is we got spoiled with all the new growth of our nation’s population and technology. We took for granted our better education, incredible travel opportunities and medical improvements.  We assume all these improvements are just expected and natural and assume they will never stop!  In short, we have become spoiled.

If we went without the latest gadget, clothing fad, classy automobile, and foreign travel, surely as a nation we could have saved more by now.  We have not been willing to wait for things we want and have spent our future.

Don’t be one of our nation’s spoiled brats. Learn how to control spending and get out of debt!  This applies to me just as much as it does you. In a country where there is so much opportunity to spend, it can be hard to learn how to control it. But we can all do better and we should.  Let me just be the voice of warning to help encourage us to change our course of action and do better.  For help, please contact me: peter@moneymastery.com

Social Security: Will It Be There for You?

Answer to this big question:  Since you pay 7.15% of your income to FICA, you have a right to receive what you pay for, right? So will the money be there when you need it?  My answer is a well-educated guess:  

You will get some benefit, but not even close to what is being projected. 

The reason I give for this is because we cannot possibly afford all that we have committed to our Gross Domestic Product (GDP).  The Congressional Budget shows that our statutory commitments, meaning what is already law, commits our total GDP to these prior agreements, all since 2009.  This is seven years of commitments larger than available money.  How can the government possibly keep this going and expect to pay out full Social Security benefits?

The point I am making is YOU need to save money and stop counting Social Security — become independent from any government benefit.  If you do receive some amount of Social Security income, then great — you will be both surprised and happy.  But to plan your retirement around this income is foolish in my opinion. Make changes today, to create a cash surplus that can make you more. For information on how to do this, contact me: peter@moneymastery.com.

Cost of Medical Care After Age 65 Will Bury the Nation… and Probably You As Well

National statistics report that healthcare costs for retired persons average $250,000 from age 65 through the remainder of life.  How can a retired person (or anyone for that matter) afford this expense?  Statistics show that 91 percent of those retired are totally dependent upon Social Security benefits for their monthly income.  How can any retired person take their Social Security income and carve out an extra $250,000 to pay for health care?  This is an impossible task!  If anything is done to curtail Social Security benefits it will totally destroy the senior class.  Medicare is soon running out of money and Medicaid is broke.  I predict healthcare costs will be the largest hammer to come down on our financial world in the next five years. 

As you read this article, take inventory and ask how you will pay for healthcare costs in retirement?  If you do not have an answer, then you will probably be in this same group of people in the U.S. who are currently incurring $250,000 in medical/nursing home expenses that eat up all their retirement and life savings because they were not prepared.  If you are not saving adequate money for retirement, then healthcare costs will eat up what little you have saved and destroy you right along with our nation. 

I suggest 91 percent of the population needs to cut all expenses and not buy new homes, new gadgets, new cars, or go on expensive vacations until they  have saved, saved, saved!  Times are troubled and only promise to get worse for those who are in debt and have not established passive income they cannot outlive. If you are counting on Social Security and a risky 401(k) plan, you have no chance of survival.

Gloom and doom you say? It is what it is.  The real magnitude of the situation just hasn’t hit the fan in your own living room yet, so you don’t see it but it’s coming.  Plan on making changes now, while you still can.  My word of caution is take action today! For more ideas on how to do this, contact me for a no cost consultation: peter@moneymastery.com.

What the Future Holds for Tax-deferred Accounts

Don’t you think it is better to have one bird in the hand, than two birds you can see in the bush?  Of course! Then why do so many people defer their taxes by using 401(k) plans, or others like it, when the future and the markets are so uncertain?  We all know the federal government is overspending.  We all know the feds cannot possibly pay out the Social Security and Medicare benefits it has already committed to.  Do you think taxes just might go UP?  Wouldn’t it be better to pay taxes now, and then never again? 

Since the average person reaching age 65 has less than $60,000 of total assets, why would you consider to deferring taxes until the worst possible time in your life, when you can least afford to pay them?

Consider this: When you start drawing money from these tax-deferred plans it can easily force your Social Security benefits to be included for income tax purposes also, meaning you will pay at a higher tax bracket.  So knowing this in advance, it’s time NOW to reconsider how you really want to fund retirement and how you want to pay your taxes. Don’t just go with what everyone else is doing, consider that there might be many other viable options for creating a predictable retirement you cannot outlive than throwing money into a 401(k). Contact me for these ideas:  peter@moneymastery.com.

Answers to Important Questions You Need to Know for Retirement…

What follows are 9 questions centered around my experience over four decades of helping people plan for retirement.  They are varied and don’t necessarily hook together, but they are quick and to the point.  See if they help you.  

  1. Are people shocked with taxes to be paid when they retire?  Yes, and no.  Some people have not accumulated very much money for retirement so taxes will not be an issue.  But for those who have saved all their money into a 401(k) plan, they will see taxes going from 15% to 25% when they add their Social Security benefits on top of earnings.
  2. What happens to people’s retirement funds when they reach age 70 Once a person reaches age 70.5 years old, they are required to take money out of all deferred accounts, like a 401(k).  This percent of balance grows as they get older so by age 80 it is close to 12% of the balance.
  3. Why should retired people stay below the 15% tax bracket?  Because this is the first level of tax, and it goes up to a higher bracket once a person reaches $75,000 annual income.  So if a person gets close to this level, it’s best to find a way to pay tax deductible items before the end of year so you don’t bump up into the 25% bracket.
  4. When should a person consider a Roth IRA?  Tax planning means to know where your level of income will be and convert funds from a deferred account into a Roth IRA years before you retire, and do it systematically so the amount you convert is low as you can get it, but still get the job done.
  5. Some folks have been able to save in a regular bank account, mutual funds and tax deferred accounts, like 401(k)s.  Where should they take their income at retirement from first?  It is best to even out your taxes over the years.  If all you do is defer everything, then at retirement and especially when age 70.5 arrives, the taxes will be much more than normal.  This really hurts to get to retirement and have to ask yourself, “Why didn’t anyone tell me about this before now?”
  6. What are some surprises most people find out at retirement People find they must have a spending plan (this is not a budget), or they will run out of money.  Up until retirement they could get along, wing-it a little because they might get a pay raise or a bonus or a large tax refund that gave them extra money to do fun things with.  But at retirement those extras go away unless you plan for them in your spending.
  7. What other surprises might someone find at retirement?  The biggest problem I see when people retire, then spend some money their first year, is that they find that within 7 years they will be totally out of money.  They kind of know this, but it hits them hard after the first year in retirement.
  8. What can a person do when they see they will run out of money in 7 years? They can slow their spending, get a part-time job making extra income, or sell an asset, and possibly get a reverse mortgage on their home to pull out extra money and turn this into income.  Many other ideas are available, but you will have to get creative. I suggest you contact me for some really great options that most other advisors will never tell you about:  peter@moneymastery.com. 
  9. Would you be willing to answer more questions that arise out of this retirement discussion Of course! It is hard for people to work at a job and learn all the rules about retirement.  They work hard and come home tired and the last thing they want to do is research tax code or call creditors. All I do is study various options surrounding the retirement decision so I can bring you lots of examples and ideas tailored to your specific situation so you won’t arrive at retirement broke, or run out of money in only a few years.  Call me or email:  (801) 292-1099, peter@moneymastery.com for a no-cost consultation.

How to Prepare Financially for 2017

Goals are helpful but everyone always complains about how hard New Year’s resolutions are to keep.  So what can you do to make the New Year financially successful and ensure that goals you set in January don’t end up on the back burner by February?  Here are some of my thoughts about money and personal organization that can bring a lot of success to your financial life in 2017:

New Year Challenge: During the first month of the year, sit down with your spouse and start the discussion by announcing that you are dead, at least on paper. Then begin asking him or her the following thought-provoking questions and see how many of them they can answer without any prompting from you. This little exercise will reveal just how organized you are financially (oh, and how well you can communicate about such things).

  1. How much life insurance do I have on my life?
  2. Where is the policy?
  3. Who is the agent to call and report my death?
  4. How much debt do I have?
  5. Will you have to sell the house or refinance the mortgage, and how do you find out which you will need to do?
  6. Do I have any savings or safety deposit boxes?
  7. What investments do I have?
  8. Do I have a will or trust?
  9. How long will it take to clear assets and take ownership of the trust
  10. Who is the executor of my estate?
  11. Do I have a burial plot paid for?
  12. Does anyone owe me money, and how can you find out?
  13. Where do I keep my tax returns and who prepares them?
  14. Does Social Security pay a death benefit to you upon my death?
  15. How much will Social Security pay you when I die, and why/when?
  16. What attorney should you use and what will be his/her average costs to settle the estate?
  17. Where will the funeral be held and what will it cost?

Now you may be thinking that some of these questions most couples would know the answer to, together. But you might be surprised by how many spouses stay completely out of the finances and let the other partner handle everything. When their spouse dies, they have no idea what to do or what problems they may have to handle.  Asking these questions gets you both thinking and gives you a chance to review exactly what each partner knows or doesn’t know and what needs to be done to get on top of things financially so BOTH people are taking responsibility for the financial success of the marriage.

I urge yo to take this challenge in the New Year as a catalyst for getting completely and totally organized financially. For more ideas on financial organization, contact me at peter@moneymastery.com. The Money Mastery Master Planner organizational system I use personally and with my clients will totally change your life and help make 2017 the best year ever!

Retirement Questions Answered by an Experienced Financial Adviser

Are people shocked with the amount of taxes to be paid when they retire?  Yes, and no.  Some people have not accumulated very much money for retirement so taxes will not be an issue.  But for those who have saved all their money into a 401(k), yes, they will be very shocked when they see taxes going from 15 percent to 25 percent whenTaxes they add their Social Security benefits on top of everything.

What happens to people reaching age 70?  Once a person reaches age 70.5 years old, they are required to take out money and pay tax on all deferred accounts, like a 401(k).  This percent of taxes to be paid on the balance grows as they get older so by age 80 it’s close to 12 percent of the balance.

Why should retired people stay below the 15% tax bracket?  Because this is the first level of tax, and it goes up close to the $75,000 income range.  So if a person gets close to this level, it’s best to find a way to pay tax-deductible items before the end of year so as not to be bumped into the 25 percent bracket.

When should a person consider a Roth IRA?  Tax planning means to know where your level of income will be and convert funds in a deferred account to a Roth IRA years before, and do it systematically so the amount you convert is as low as you can get it, but still get the job done.

Where should I take income for retirement first, a regular bank account, mutual funds, or a tax-deferred account like a shutterstock_128683532 (534x800)401(k)? It is best to even out your taxes over the years.  If all you do is defer everything, then at retirement and especially when age 70.5 arrives, the taxes will be much higher than you have paid in the past.  This really hurts to get to retirement and have to ask yourself, “Why didn’t anyone tell me about this before now?”

What are some surprises most people find out at retirement?  People find they must have a spending plan, or they will run out of money.  Up until retirement they could get along, wing-it a little because they might get a pay raise or a bonus or a large tax refund that gave them extra money to do fun things with.  But at retirement those extras go away unless you plan for them in your spending.

Anything else that may surprise people reaching retirement?  The biggest problem I see when people retire, then spend some money their first year, is finding out that within seven to eight years they will likely be entirely out of money!   They kind of know this, but it hits them hard after the first year in retirement.

What can a person do when they see they will run out of moneyscreen-shot-2016-09-16-at-2-31-17-pm
in 7 years at retirement?
  They can slow their spending, get a part-time job making extra income, sell an asset, or possibly get a reverse mortgage on their home to pull out extra money and turn this into income.  Many other ideas are available, but a person will have to be creative, and will need help from an experienced financial coach.

Will you be willing to answer my personal questions about retirement?  Sure! It is hard for people to work at a job and learn all the rules about retirement.  They work hard and come home tired and the last thing they want to do is do research on tax codes or call creditors and ask what happens when they retire. All I do is study various options surrounding retirement decisions and have coached thousands of people on how to apply these options wisely and responsibly for the past 35 years; this is my life and I’m happy to share my knowledge with you. Contact me today for a no-cost conversation:  peter@moneymastery.com. I will bring you more examples and ideas to the table of how to make income work, even if you think you might arrive broke at retirement.