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: 

Do You Know the Costs Associated with Your 401(k)?

It is always nice to watch your retirement savings grow.  When gains are posted to your 401(k) account, it has already overcome other significant costs — costs you may not even realize you are dealing with.  For example, if you were to see a 5 percent gain in your 401(k) this figure would represent what you made after the fees were paid. So in actuality, you probably gained 6 to 8 percent, but between 1 and 3 percent was taken out to manage the account. 

Consider, in addition, to these management fees, the following expenses to your retirement savings that you must take into account and determine what you can do to lesson them:

  • Loads.
  • Early withdrawal penalties.
  • Market risks.
  • Inflation.
  • Taxes.

So many people just dump money into a 401(k) without considering how that money is affected. You work hard and save money but these additional costs end up draining that money out of your “savings bucket”  almost as fast as you put it in.  


Then to add insult to injury, when you turn on the income at retirement, Uncle Sam has his mouth open to drain out even more in taxes.

My advice to you is to learn the rules surrounding your retirement savings and then talk to a financial coach (not a financial advisor) about what you can do to decrease these costs. Contact me today, or go to for help.

“Beet Thinning” Your Retirement Planning…

We have too much information available to us today, especially when it comes to retirement planning.  This gives us a false sense of confidence, so we think we can “do it ourselves.” But human nature shows that when we have too much on our plates of which we don’t understand, we procrastinate making decisions. Having lots of information often causes confusion.

Let me illustrate what I mean with an experience I had growing up in Idaho with beet-thinning. Our neighbor had planted a big field of beets and hired some of our family to thin their beets.  They explained to us that if we did not thin the beets, by cutting out two for every three beets growing, none would grow big enough to eat.  I tested this theory and left a few beets over in the corner of the field untouched, just to see what would happen.  Sure enough, the beets got so crowded in the dirt with each other, that when I harvested, they were all stuck together and tiny. By contrast, the beets we thinned grew big and were wonderful upon harvesting, so large as to dwarf the small ones.

Thinning beets taught me a grand lesson about planning for retirement. The secret to good retirement planning is not in the gathering and collecting of adequate information but in thinning out all the stupid and wrong information that will do you no good.  It is the process of “thinning” where we learn the most and can make the best decisions.  Do the research to gather information about retirement, but then thin it out until you have the few golden nuggets that make the most sense for your personal situation. Not everything that you read about applies to you.  Think thin, to have more!

What Are Your Real Retirement Risks?

Whenever I teach a class on personal finance, everyone asks about retirement planning.  Therefore, I ask all my students to explain what they are doing to prepare for retirement.  The most common answers that come back to me are things like, “which is better, saving in a 401(k) or an IRA?”  I search for more by asking if they can tell me how much money they will have at retirement and how long it will last.  Or I ask if they have a specific retirement date in mind.  Never have I had any student be able to answer these key, important questions… they’re just constantly caught up in the rhetoric they’ve heard from so-called “experts” about 401(k)s and IRAs.  Let me tell you, a 401(k) or an IRA is one of the least important things you should be worried about when it comes to retirement planning. What people really ought to be worried about is how to create a predictable retirement income they cannot outlive.

Most people do not know how to go about calculating what their money willshutterstock_128683532 (534x800) do for them in retirement.  And their 401(k) money manager can only tell them about where their money is invested in the stock market and how to change things up to hopefully maximize returns. This tells a person nothing about what will actually happen in retirement years. I have found that most people do a lot of hoping, but hope will not predict an adequate retirement income.

As I listen to hundreds of folks talk about their greatest fears in retirement years, here are just a few of the risks they are not comfortable with:

  1. Risk of living so long that they will run out of money. 
  2. Rick of dying too soon.
  3. Risk of a stock market decline so that they lose money.
  4. Risk of inflation and rising costs of almost everything.
  5. Risk of increasing taxes.
  6. Risk of health changing.
  7. Risk of needing long-term care and how to pay for it.
  8. Risk of Social Security not being there for them.
  9. Risk of their financial institution going broke.
  10. Risk of rising healthcare costs and how to pay for them.
  11. Risk of not knowing how to project future retirement income.

This list of eleven major retirement concerns is only the beginning of possible troubles.  There are at least eleven additional items I can think of that could undermine your retirement nest egg.  In future posts I’d like to take each of the items on this list and deal with them specifically. After coaching thousands of people for over 45 years, I do have some good ideas that are time-tested and proven to be successful.  Stay tuned.

Filling Your Buckets Appropriately for Retirement

When I am explaining retirement planning to my clients, I like to use the analogy of buckets to help people visualize what they need to do to prepare the most appropriately for retirement.

Think of retirement planning in this way:

There are five financial buckets a person needs to use, in a specific order, to achieve optimum financial success:

  1. Income
  2. Inflation
  3. Liquidity
  4. Long-term Care
  5. Legacy


Bucket 1 – INCOME:  With whatever amount of money you have gathered over your working career, the first task is to lock down a guaranteed income you cannot outlive.  I know there are many issues, but if you have a guaranteed income it solves most other problems.

Bucket 2 – INFLATION:  There is an inflation index called CPI, which graphs how living expenses have increased over the years.  But what is “real” inflation?  I have kept track of my expenses for several decades.  I can refer back to cancelled checks and receipts showing what I paid for living expenses in 1979.  For example, I can tell you what I paid for a postage stamp.  My calculations show that inflation has been twice what the CPI tells me.  Do this for yourself.Buckets  Keep track of what you pay for gasoline, food, utilities, taxes and so forth each year.  Refer to your past tax records.  Learn what life is really costing you and learn how to keep ahead. Without securing Bucket 1, you will not have anything to keep up with inflation.

Bucket 3 – LIQUIDITY:  Emergencies happen all the time.  Plan for them.  It is important to have extra money when surprises happen and this money needs to NOT be tied up in accounts that you can’t get at. It must be liquid funds. As important as liquid cash is in an emergency, remember you must first create Bucket 1.

Bucket 4 – LONG-TERM CARE:  If you have enough guaranteed income (Bucket 1), which is inflation-proof (Bucket 2), and adequate liquidity (Bucket 3), then you may not need to purchase a long-term care insurance policy. As you can see, the order by which you deal with each bucket is most important.  Many people have enough income, so they don’t need to worry about long-term care.  However, let us assume you don’t have enough guaranteed income to pay for care in your old age. Now what?  I am sure you understand that a prolonged visit at a nursing home or assisted living center or hiring home health care can quickly wipe out all your retirement savings.  After a prolonged illness, surviving spouses can be left penniless.  We love our spouses and will do most anything to assist them.  But what if you are the one to go to a care center?  What if you were the one who drained the retirement money, how would you feel?  To solve this, you will need to purchase a long-term care insurance policy.

Bucket 5 – LEGACY:  If you have prepared the other four buckets appropriately, you will create a beautiful legacy for your loved ones. The fifth bucket can only be filled once you have the other four in place. Once you do, then you are ready to do final preparations where you get organized, create a living trust with a will, and a medical directive with a power of attorney.  Keep this updated with family changes. When you die, you will make your family very happy if you have done all this organization in advance. You will be remembered as someone who truly loved his/her family, even from the grave, because you thought enough about those you love to plan ahead.   Contrast this with six out of seven people who die with no will/trust, no records, no list of assets and no written plan… essentially, no legacy. How do you think this disorganized person will be remembered?

Your life can be financially rewarding if you have planned well, lived well and died well.  Money is not the most important thing in life, but it has the largest impact on relationships and memories.  For you to achieve financial peace of mind in this life, I suggest you prepare these 5 buckets in exactly the order I have prescribed. If you do, you will be ready to retire, and ready to go when the time comes having prepared properly.

Getting Your Personal Bias Out of Retirement Planning

Let’s check your bias.  Read the following story and then tell me what your response would be.

One of the studies by the late Ziva Kunda brought a group of subjects into a lab and told them that they would be playing a “trivia” game. Before they started, they watched someone else play, to get the hang of the game.  However, this person already knew the answers and got all the questions correct, becoming the winner.  However, before they watched, half of the subjects were told that the winner would be on their team, while the other half were told they would be on the opposing team.

After this first round of trivia playing was over, each group was asked about the winner’s success.  The one group that were told they would be on the winner’s team were impressed, while those who expected to play against the winner were dismissive.  They attributed the player’s good performance to luck rather than skill, showing a self-serving bias.

It’s interesting to note from this little experiment that the exact same event receives diametrically opposed interpretations depending upon whose side you’re on.

Now, let’s apply this to you and your spending habits and what’s going to happen to you in retirement.  Knowing that we are all biased in some way, you are no doubt biased about your own success rate when it comes to retirement planning… you will naturally prepare the numbers using all your hopes and wishes and not necessarily based on a reliable reality.

Thus, when you are planning for retirement, you must leave all your own biases at the front door.  If you don’t, you ExcitedGuywill make mistakes that could cost you big time!  A simple technique to be able to do this is to keep a journal for several months and years about what you think you will have at retirement. Make projections, then use these journal entries to help you face changes that will occur to your financial situation over an extended period of time. This will help you see things realistically and get your own bias out of retirement planning because you will notice trends in your spending and saving behavior that will affect how well you will be able to plan for retirement. Knowing your skills and limitations based on a history of financial decision-making will help you overcome issues and make more predictable plans.  These journal entries can also help you re-check your numbers and will act as a guiding light.

A ship must have two stars by which it is guided. As the ship moves away from one star and toward another its captain knows exactly what direction the ship is headed.  It is the same for you… you must know where you are realistically in terms of current income, spending habits, and debt (your first star) and you must know what your actual goals for retirement should be, including an age, what income you can anticipate at that time, etc. (your second star). As you refer to your journal entries and read what you have recorded over an extended period of time, you will be able to see where your first star is and set a course to reach the second star based on reasonable data that has taken your personal emotional bias out of everything.


What You Need to Know about Long-term Care

According to a 2003 study by Roger & Komisar for the U.S. Department of Medicare, in the year 2000 almost 10 million people needed some form of long-term care in the United States. Of this population, 3.6 million (37%) were under age 65 and 6 million (63%) were over age 65. The study notes that 70 percent of people turning age 65 will need this type of care at some point in their lives.  

In this post, I have included information from this study that I think you need to consider so you will be prepared in case you or your parents need some kind of long-standing care in your later years. How you handle the difficulties of old age and disability will be unique to you, so here is a list of important questions for you to think about:

  1. What is long-term care?
  2. Who needs it?
  3. How much care will I need?
  4. Who will provide my care?
  5. Who pays for long-term care?
  6. Will I need an attorney to facilitate it?


What is Long-term Care?

Here is what Roger & Komisar explain from their study:

Many people think the phrase “long-term care” refers to an insurance policy. While insurance may be part of your strategy, long-trm care encompasses everything from [extended care] services, support systems, finances and to where you will live and how you will navigate the plethora of legal, family, and social dynamics along the way. It is a range of services and supports you may need to meet your personal needs. Long-term care is not medical care but rather assistance with the basic personal tasks of everyday life, sometimes called Activities of Daily Living or ADLs. 

These ADLs include bathing, dressing, using the toilet, transferring (from bed to chair, etc.), caring for incontinence, and eating.


Will I Need Long-term Care?

Once a person cannot do any two of the above-noted ADLs, then they will need long-term care. Of course the first place people turn is to family members — spouse, children and grandchildren perhaps, or even a devoted niece or nephew. If you need assistance and other family members are already deceased, you can suffer if you have not planned ahead.  My father-in-law said to me, at age 93, that all of his friends had already passed away.  He then quipped, “I wonder how many people will still be around to attend my funeral?”  He passed away the next year and had lots of wonderful family and friends attend but his point was 2397well taken:  Who will assist us as we age? If family and friends are not likely to be available, then you will need to plan to take advantage of paid long-term care either inside or outside your home.

What are your chances that you will need long-term care? The following online statistics posted at the U.S. Department of Health and Human Services may help give you an idea of your risks:

  • Women need care more than men and they usually need it longer, obviously because they live longer than men on average. Men need care an average of 2.2 years, while women need it 3.7 years.
  • Any services for long-term will last on average three years and be used by 70 percent of anyone reaching age 65.
  • Professional at-home services will last one year and be use by 59 percent.
  • Unpaid care only lasts one year and is used by 42 percent.
  • Assisted living will last less than one year and be used by 13 percent.
  • Skilled care in a nursing facility lasts one year and is used by 35 percent.
  • Information about caregivers shows that 1 in 4 adults were unpaid family caregivers to an adult or child in 2009.  About two-thirds were women and 14 percent of those giving care were over age 65.


How Much Long-term Care Will I Need?

Because there are other daily tasks that must be performed in addition to ADLs that can become more difficult as you age, you will need to consider purchasing long-term care services that include help with such things as:

  • Housework
  • Managing money and paying bills
  • Taking medication
  • Preparing and cleaning up after meals
  • Shopping for groceries or clothes
  • Using the telephone or other communication devices
  • Caring for pets
  • Responding to emergency alerts such as fire alarms


Who Will Pay for Long-term Care?

This is a hard one to answer.  The cost for assisted living is between $3,000 and $7,000 per month.  This kind of cost can quickly wipe out a lifetime of savings in a matter of months or just a few years.  Here is what the National Patient Advocate Foundation’s newsletter said as quoted in the September 2012 issue of the Patient’s Voice:  

Sixty percent of all bankruptcies are due to health care costs, and 80 percent of those [who declared bankruptcy] had health insurance.

The cost of long-term care will be a growing concern for the next 100 years as we all live longer and longer.  Just consider the cost of food for the next 20 years.  

Example:  2 people x 3 meals/day x $10/meal x 7 days/week x 52 weeks a year x 20 years = $436,800! Just for food alone!

Now consider retiring for 30 years or more.  If you worked for 40 years, this is only 10 years short of the time you actually worked!  It is a huge possibility that you may be retired longer than you worked.  

What to do?  You must plan ahead and don’t assume that counting on Social Security is “planning ahead.”  The actuaries that forecasted the tax needed to pay for Social Security benefits used age 75 for males and 77 for females as the death age. But actual life expectancy ages for males and females are 81 and 83, respectively. In a Reader’s Digest article by Alan Greenspan in 1988, he said that every year we live longer will require one trSocialSecurityillion more dollars to be paid out (in 1988 dollars).  Inflation will bring that number into the trillions now. The long and short of it is to not count on Social Security alone to help pay long-term care costs. It is up to you to plan ahead now. Look into getting a long-term care policy that you can pay on now in case you need it later. If you are a woman, there is a very good chance you will need it since you tend to live longer than us men.


Will I Need a Lawyer to Prepare for Long-term Care?

Because you need to be protected legally in your old age, it may be wise to get an attorney involved before you need long-term care. This will also take great burdens off your spouse and children at the time you begin receiving care. Here are some of the documents an attorney can help you prepare that you will need in a long-term care case:

  • Advance Medical Directive, or a “Living Will”
  • Power of Attorney
  • Will/Trust (these documents will be needed to help advocate on your behalf any disputes from insurance companies, etc.

Even little things like modifications to living quarters required by law to help you live can be arbitrated by an attorney, especially if you have aLegalAgreements landlord, for example, that doesn’t want those modifications made. In addition, an attorney could be needed to determine if you qualify for Medicaid.  Most elder attorneys do not charge for their initial consultations.  Take action in advance of the need by determining what attorney services you may need and by finding a good lawyer that you can trust and afford.

In conclusion, the need for long-term care will soon be upon many of us.  Remember up to 70 percent of us will be affected by this problem whether we like it or not.  Planning ahead can prevent unnecessary expenses and ill feelings with loved ones.  Do as Money Mastery Principles 5 and 7 teach and “Know the Rules” and “Always Look at the Big Picture” so you can be prepared for a life event that is more than likely to occur for you.  To find what resources are available to you, visit: