Review: Your Confidence About Your Retirement Planning Is Probably Misplaced

By | Retirement Income Funding, Weekly Review, Social Security | No Comments

Most people don’t really understand how to prepare for a successful retirement. There are a lot of moving parts, and a lot of what you should be doing is not very obvious. For most people, the best they can do is throw money at the problem and hope that everything turns out okay (and a lot of people don’t even get here.) There are all sorts of reasons we have a retirement savings crisis, but one of the big reasons is that most people are just not financially literate. The article I linked above mentions a survey done by Financial Engines in which only 8 percent of respondents got six out of ten questions about financial topics right. I don’t know how tough those questions were, but any way you slice it, an 8 percent pass rate is not so hot. If you’re curious how you stack up, you can take our twenty-question retirement literacy test and find out. One of the areas they specifically called out was understanding Social Security. Only about a third of respondents knew that they could delay taking their benefits until they turned seventy. Deciding when to take your Social Security benefits is one of the […]

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Review: Warren Buffett is now Bank of America’s top shareholder

By | Investing, Weekly Review | No Comments

Warren Buffett is a pretty good investor. He’s also a very different investor from you or I – in many ways. With Berkshire Hathaway becoming Bank of America’s largest shareholder, it’s worth looking at one of those differences from a typical investor. When you or I invest in a company, we pretty much get what we get. I can’t call Tim Cook and offer suggestions about the next iPhone (I mean, I could – but I doubt Tim Cook would take my call). We’re along for the ride. Warren Buffett, and Berkshire Hathaway, are not along for the ride. Tim Cook would be more than happy to take Warren’s call – and he would seriously consider what they discussed. A lot of people seem to think about Berkshire Hathaway as something akin to a mutual fund, with Warren Buffett as the masterful portfolio manager figuring out which companies will beat the market. This is the wrong mental model. Berkshire Hathaway is a conglomerate. They invest in or buy businesses in multiple industries – and then help them operate more effectively. In a lot of cases, conglomerates end up subtracting value, but Berkshire Hathaway sure seems to be doing a good […]

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Review: How to know whether you have ‘enough’ to retire early

By | Retirement Income Funding, Reliable Income, Retirement Insights, Weekly Review | No Comments

Deciding when to retire can be a nerve-wracking decision. You’ve spent the last few decades working toward, and preparing for, retirement. How do you know when to call it a career? If you don’t have a retirement income plan in place, then really, you’re just guessing and hoping for the best. It’s possible everything will work out, but you’re taking a shot in the dark – with the rest of your life. You can be a lot more confident if you do have a retirement income plan in place – and you’ve been working on that plan. Pulling the trigger and starting your retirement will still be stressful (I still get nervous and triple check the dates whenever I buy plane tickets), but you’ll know you have given yourself the best chance possible to reach the retirement you have always wanted. The first, and most often overlooked, step is to decide what your retirement will look like. What do you want to do? What will make you feel fulfilled over the long term? Remember, you’re potentially looking at thirty-plus years of retirement. That’s a lot of Law & Order reruns and rounds of golf. Once you know what you want […]

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Review: 3 Lesser-Known Charts Revealing a Massive Disconnect in The Market

By | Investing, Active vs. Passive, Weekly Review | No Comments

Most people secretly believe it’s possible to predict what the stock market will do next. If you are just clever enough, and have access to the right information, you will be able to predict where the market is going. But the ugly truth is that we just can’t. No matter how clever you are, or what information you have, the market is still smarter than you. You may get it right – you have a 50/50 shot of guessing the right direction – but that’s just luck. There’s no evidence that active managers can consistently beat the market. And that consistency is the key. Articles like this one, touting things the rest of the market “overlooks” are annoying. If these “overlooked” metrics really had any predictive power, they wouldn’t be overlooked for very long. And the author certainly wouldn’t be writing about them. He would be trading on them. He would be trying to make sure that people didn’t find out about them. The fact that he’s writing about them suggests they’re more valuable to make him look smart than as a long-term trading advantage. This is an example of the gratuitous noise in the financial press. I only grabbed […]

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Review: When are those penny stock spam emails a good idea? Pretty much never.

By | Retirement Risks, Weekly Review, Healthy Aging | No Comments

We all hate spam, but clearly it works – otherwise we wouldn’t get so much of it. It may not cost much to send an email, but there still needs to be a positive return somewhere in the mix. This is true no matter what type of spam you get – winning a contest, weight loss, or stocks – someone is taking them up on the offer. I doubt that many people reading this are in danger of being suckered in by a pump and dump scam, but someone you know might be, especially older friends and relatives. Elderly folks tend to be more trusting and less informed of the latest scams, making them the perfect target for this type of garbage. Investment scams play right into one of retiree’s biggest fears – running out of money. And the spammers have just the answer. Unfortunately, financial exploitation of the elderly is distressingly common. When I moved to Maine, I had to transfer my licenses from Maryland, which required taking a class in Augusta. As far as I know, Maine is the only state that does something like this – everywhere else you just fill out a form and write a […]

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Review: How you can retire by the time you’re 40

By | Goals, Weekly Review | No Comments

A lot of people dream about early retirement, but they think it’s an unattainable dream. The truth is, it’s probably more possible than you think. To get there, you need to have a very clear idea of what you want, a plan for how to get there, and the willingness to work at it. Just saying that you want to retire at forty, fifty, or whatever your target age happens to be isn’t all that useful, though. That’s a wish. You need to have a concrete idea of what your retirement will actually look like. Are you going to keep working either as a volunteer or for pay? Will that work be full or part time? Are you going to sit around relaxing (this might get pretty boring after fifty years…)? The more specific you can be, the easier it will be to to build a plan that will take you from where you are today to your (successful) early retirement – and beyond. That plan is likely to call for higher levels of savings than most people are used to. Not only will you (often) be forgoing a paycheck after your early retirement, you will likely be spending from […]

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Review: This is how much fees are hurting your retirement

By | Retirement Income Funding, Weekly Review | No Comments

Fees are incredibly important. Almost everything in investing is completely unknown, and outside of your control. The markets are going to do what they are going to do. But you do control how much you pay in fees. And you should focus on this very closely, as this recent MarketWatch article makes abundantly clear. But you shouldn’t monomaniacally focus on investment fees. They are part of the entire package when you are evaluating investments. You should care about what you are paying, but you should also care about what you are getting. It doesn’t matter how cheap a fund is if it doesn’t accurately represent its asset class, or it acts differently than you expect. Investment costs vary among different asset classes. You can find S&P 500 ETFs or index funds that cost a handful of basis points (as a point of comparison, iShares S&P 500 ETF – IVV – charges 0.04% per year), but you won’t find a fund that invests in international small cap value companies at that price. You need to look at what provides the most benefit to your portfolio. Sometimes that means paying a little bit more for a better fund. One other point about […]

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Review: Stock strategists see possible 5% correction before this selloff is over

By | Investing, Investment Advice, Active vs. Passive, Weekly Review | No Comments

Technical analysis is always fun to pull apart. This article quotes several analysts predicting a potential 3 to 5 percent drop over a short, but unspecified, term – depending on how some of their indicators move. One of the great things about technical analysis is that it’s usually unverifiable. If we do see a drop (of really any magnitude) they get to claim success and talk about how brilliant they are. If the markets keep going up, then the conditions just weren’t right. Plus, how many people are really going to complain about the markets going up? But let’s take them at their word. I’m sure the folks this article quotes truly believe in what they are saying. So let’s do a quick and dirty analysis to see how common short term moves of this magnitude are. To keep things simple, let’s just look at the daily returns of the S&P 500 Index from 1/4/50 – 8/10/17. Over this period, the average daily move (the absolute value of the daily return) was 0.65 percent and the standard deviation of the daily moves was 0.71 percent. So a week of average daily movement puts us pretty close to the top range […]

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Review: How to gauge your chances of a phased retirement

By | Retirement Risks, Retirement Income Funding, Reliable Income, Retirement Insights, Financial Planning, Weekly Review | No Comments

A lot of people expect to work past “retirement age.” They either figure that they will need the additional income to live, or they just enjoy their work and everything that comes with it. Planning to work in retirement is a dangerous game. Working longer can have a huge impact on your retirement situation – not only will you still have an income, but you also won’t be pulling money from your savings. However, almost half of retirees leave the workforce before they planned to, and of those who retired early, over half left because of a personal or family health issue. That should be terrifying if your retirement income plan hinges on you working into your 70s. If you want to work in retirement, that’s great. But you need to recognize it’s a risk. You may not have that option. You owe it to yourself to look at the situation rationally and understand just how feasible your plan is. While 70 percent of companies say they are “aging friendly,” that doesn’t really mean all that much. Frankly, I’m curious about the third of companies that said they weren’t “aging friendly.” You need to look at what your company and […]

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Review: What if retirement makes you miserable?

By | Goals, Weekly Review | No Comments

Most people romanticize retirement. It’s really easy to do – even aside from the grass always being greener on the other side, you’ve been working towards retirement for the past 30 or 40 years. But that’s actually pretty dangerous. We may spend 40 years building up our savings, but you have a good 20 or 30 years of life left to live after retirement. Having a lot of money doesn’t mean that you will have a good retirement (though it does make everything a lot easier.) You need to think about what will actually make you happy in retirement. What is it that you are going to do all day? Will that actually be fulfilling? Some people really do want to sit on their porch sipping lemonade and reading a book. But most people will get tired of that pretty quick. So many of us have built our identity around what we do. Retirement means that goes away (at least to a large degree). What comes next? This is probably the most important question in the retirement planning process. Without knowing what you want to do in retirement, you can’t plan properly. The best you can do is simply throw […]

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