I Don’t Plan to Retire

 

Control Your Destiny“I do not plan to retire.” As I have crept ever closer to my desired retirement age, 60, I have heard that phrase more often than I would have thought.

Numerous recent studies have shown that a majority of workers are planning to work past the age of 65, many are planning to work past age 70, and some have no plans to ever retire.

In writing the book, running this blog, talking with others (friends, family and co-workers), my experience has been that there are generally three reasons people give for not planning to retire (or working well past their mid-60s, traditionally a time when people retire). They are not sure what they would do in retirement, sincerely enjoy their work/career or are not financially prepared.

This post speaks to those that might fall into one of the first two categories. I should note that this topic was touched on tangentially in SavvyPoll Number Three and Thoughts on Retirement, a guest post by long-time reader Brian.

For those that are not sure what they would do in retirement, I would encourage you to start giving some thought to what you would do; and for those that enjoy working, I hope that is always the case.

However, to those in both groups, I would say the decision to work – or not work and in fact, retire – may not be up to you. Therefore, it is absolutely in your best interest to develop a retirement plan that not only considers the financial implications of being retired, but also what to ‘do’ on a daily basis.

Unexpected Early Retirement: Surprisingly Common [Nearly Retired]

Some sobering facts. The Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI) notes that a large percentage of retirees leave the workforce earlier than planned (49 percent in 2014) and many who retire earlier than they had planned often do so for negative reasons, such as a health problem or disability (61 percent).

A 2011 study conducted by the Heldrich Center for Workforce Development at Rutgers University found that 35% workers over the age of 50 said they are not going to be able to work as long as they had expected.

Health Tops Reasons for Early Retirement [Life Health Pro]

Even if an individual is healthy well into their 60s and 70s, they may be the victim of layoffs, restructuring or downsizing. Other numbers from the study are equally sobering. Less than one in four workers (23%) over 50 years of age is working full-time; just under half (46%) expect to file for Social Security earlier than they wanted to; and another 18% already have done so.

The bottom line? Even if you love your job, are healthy and plan on working forever, the reality is that there are likely factors that will negatively impact your ability to do so. If your retirement plan is to work forever, I suggest you give the topic more thought. For everyone, a fully developed retirement plan is a must.

Are  you currently managing a well-developed retirement plan? Does your planning account for the fact that some things may be beyond your control?

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Living Frugally: Give Blood, Save Lives and Get Out of Debt

Donate BloodWhen someone asks me how they are supposed to get out of debt or get ahead financially, I give them several helpful tips including one that I think is underrated and often forgotten…Give Blood/Plasma.

I live about eight miles from a facility that pays around $25 every time I donate blood. Following the rules and regulations I can give blood twice a week without posing any danger to myself. (Side Note: It is very important not to give blood too often because you can do serious damage to your body and even die from it so please follow the guidelines of your blood donation center.)

Giving blood or plasma twice a week would yield $50/week to put towards getting out of debt or increasing assets. A maxed-out credit card with a $500 limit (+ interest) would be paid off in just over 9 weeks. A $50 weekly payment towards the principal of a car note would help pay off the vehicle sooner and help reduce total interest payments. Thinking of investing in stocks? Deposit that $50 into a brokerage account, like Scottrade.com or TradeKing.com, each week until you’ve accumulated the total amount you wish to invest. You’ve just purchased an asset without going into debt to do so.

FrugallyNot only does giving blood help you support a frugal lifestyle but you literally give the gift of life.

We are all familiar with the economic impact of a bread-winner dying. What if you gave blood, saved a bread-winner and therefore kept a family out of debt and above the poverty line? Imagine a child dying from loss of blood.

Not only is this emotionally traumatic, it affects work performance which then affects one’s wallet.

Giving blood not only saves physical lives but boosts the global economy as well. I challenge you to search for the blood donation centers near you. Ask if they offer payment for donations. Give blood/plasma, save lives & get out of debt!

What about you, SavvyReader? Have you ever giving blood/plasma as a way to help others and/or increase your income?

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Your Primary Residence is a Home, Not an Asset

Home as an AssetWhile there isn’t necessarily a great debate raging, there are strong opinions on both sides of the question, “is a home an asset or a liability?”

There are those that believe the home they live in should be considered an asset. However, there is a school of thought, popularized by Robert Kiyosaki (author of Rich Dad Poor Dad), that says a home, particularly one carrying a mortgage, is a liability.

Before we go any further, let’s look at Merriam-Webster’s definition of these two key words:

as·set [ˈa-ˌset also -sət] noun

  • A valuable person or thing
  • Something that is owned by a person, company, etc.

li·a·bil·i·ty [ˌlī-ə-ˈbi-lə-tē] noun

  • The state of being legally responsible for something
  • The state of being liable for something
  • Something (such as the payment of money) for which a person or business is legally responsible

Why Your House is an Investment, and an Asset, too [Monvator]

Looking at those two definitions, a case could be made for both. Certainly, historically, a house has been a valuable thing, even if you are still making mortgage payments. That supports the idea that it is an asset.

On the other hand, when your home is carrying a mortgage, you are certainly liable for the home and you are legally responsible for making payments.

I have adopted the belief that a home, a primary residence on which a mortgage is owed, is a liability. I previously touched on this topic, at least tangentially, in a couple of other blog posts, The Value of my Retirement Portfolio and How Do You Stack Up.

5 Reasons Why I Don’t Know My Net Worth [Common Sense Millennial]

I noted that when considering preparation for retirement – the focus of this blog – I like to look strictly at portfolio value (aka financial wealth) – which excludes things like home and car values – which are traditionally included in net worth, which is determined by subtracting the total dollar amount of all liabilities from the total value of all assets.

Home as a LiabilityMy rationale? When you are ready to retire, who cares how much Kelly Blue Book believes your car is worth or how much Zillow believes your house is worth? Those numbers are largely irrelevant.

While having a significant net worth may sound impressive, it isn’t particularly helpful if the majority of that number is based on what you – or Zillow – believe your house is worth. In the 2007 time frame, prior to home prices crashing, there were a lot of people with inflated beliefs regarding their net worth, which was largely based on perceived home values.

There are lots of people out there that profit from selling the idea that a home is a valuable asset and you should do everything in your power to own one. That is not always the case and you shouldn’t.

Even if you do everything right (e.g. buy the right sized house, buy at a good price, get a fixed rate loan, etc.), you will be better served by viewing your home as a liability and not give it consideration when calculating your net worth (or at least understand the difference between net worth and financial wealth) and conducting retirement planning.

If you are interested in investing in real estate, consider purchasing a rental property or Real Estate Investment Trusts (REITs). With respect to retirement, and specifically generating retirement income, it is much more useful to focus on passive and portfolio income, not your home.

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A SavvyInterview – Michael

Interview - Michael MunseyI met Michael through social media and was intrigued by not only the title of his book,  An Average Joe’s Pursuit for Financial Freedom, but also the suggestion on the cover to change your perception of money.

I’m glad he has taken some time to sit for a SavvyInterview and share some of his thoughts on personal finance.

RS: What was the catalyst that started you on the road to fiscal fitness?

Michael: In the Spring of 2009, my company’s management announced that they were going to restructure their assets. For those of you that have never gone through a company restructuring, it is another way of saying “possible layoffs.” At that time I was in the process of reading Robert Kiyosaki’s Rich Dad, Poor Dad book. The problem of my financial security became very clear while reading this book. I worked for a paycheck rather than having my money work for me.

The next question was how long could I live without a paycheck before going bankrupt. The answer was not very long. It was the Spring of 2009 when I changed my definition of “success.” It took me 12 years into my professional career to decide exactly what a “successful career” meant to me. I began setting goals that would help me to be free from a paycheck rather than climbing the corporate ladder to be a high paid employee.

RS: What is the one personal finance concept you believe someone seeking financial freedom should understand and practice?

Michael: In order to increase our success rate of achieving financial freedom, we must be able to identify ways to generate passive income. We must develop a habit of spending earned money on assets that create passive income and spending less of our money on liabilities that take money out of our bank account.

RS: Tell us about your book, “An Average Joe’s Pursuit for Financial Freedom.”

Average Joe's Book CoverMichael: An Average Joe’s Pursuit for Financial Freedom offers a different perspective on money than what is traditionally taught by our parents and in our school systems. The reason there is such a discrepancy between the wealthy and the poor is due to the difference in the way money is perceived. We are not born with the ability to maintain wealth; it is something that is learned.

The knowledge of knowing how to make money work to generate passive income is something that anyone can learn as long as they are disciplined. Average Joe’s Pursuit for Financial Freedom is based on practical concepts and discusses the problems that the majority of us face with our personal finance. The concepts in this book are based on theory by an author that practices what he writes about.

RS: What was the best financial advice you ever received?

Michael: The best financial advice I ever received was not to be afraid of the power of leveraging the money I have available. The quickest way to become financially free is to use borrowed capital for an investment using the cash flow to be greater than the interest payable.

RS: The worst?

Michael: The worst financial advice we are all taught as children, is a penny saved is a penny earned. I am not a fan of using 401(k) retirement plans and the stock market as a vehicle to obtain financial freedom. These types of financial vehicles require investing 100% of our equity. We are not able to borrow capital from banks to leverage our money in the stock market because stocks are too risky for a bank to loan money for investing. If the stock market is viewed by a bank to be too risky for a bank to loan money for investing, why would we invest the majority of our hard-earned money in a 401k retirement plan that invests in the stock market?

RS: How do you define wealth?

Michael: Being financially free or wealthy is using income that you do not have to work for to pay your daily expenses: housing, food, medical expenses, travel and entertainment. This income is generated from investments that create passive income rather than depleting your savings or your 401(k) retirement plan you worked so hard to set aside.

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What’s Your Savings Rate?

Meeting Financial GoalsA BBC documentary I was watching recently served as the impetus for this post. The documentary was discussing education, productivity, consumption, and the savings rate in China as compared to Western nations, primarily the United States and the United Kingdom.

The one topic that really jumped out for me was the savings rate in these countries. A quick note, a household’s disposable income is the difference between a household’s total income and the amount available for savings and consumption (the money spent on goods and services) after taxes have been paid.

New Reports Suggest Americans Are Not Saving Enough [U.S. News]

Therefore, the savings rate would be the percentage of total income that is saved/invested after taxes are paid; and money is spent on goods and services. With that as the backdrop, we can further state that since we have very little control over taxes, a household’s savings rate will be largely be driven by their appetite for consumption. The more that is consumed, the less that will be available for savings.

Chinese Piggy BankIn “man on the street” interviews in the U.S. and U.K. most of the respondents indicated that they were essentially living paycheck to paycheck, saving very little. Conversely, the Chinese respondents indicated that they were saving anywhere between 30 – 50% of their income.

Why the high savings rate? Most of the Chinese indicated they wanted to save for their children’s education and they also noted the lack of a social security net.

In other words, their attitude was that they are on their own and they would need to save to attain financial security. Does that suggest that one of the reasons Westerners save significantly less is because there is a belief that they can spend today – vice saving and investing more – with the knowledge, or belief, that a social safety net will catch them should they fall?

The documentary prompted me to do a little research on savings rates to see exactly where we stand here in the U.S. Also, I took a closer look at where my own household stands…about 39% as it turns out.

OCED Savings Rates

Source: OECD (2013), “Household saving rates – forecasts”, Economics: Key Tables from OECD, No. 7. doi: 10.1787/hssv-gr-table-2013-2-en

 And in China…

China Household Savings Rates

Source: National Bureau of Statistics, Flow of Funds data and Urban and Rural Household Survey. 

As you can see from the two charts, the savings rate (past and projected thru 2015) in the U.S. averages 5.1%. Compare that to China where the savings rate in the last year, 2009, is just under 30% in the Combined Urban and Rural Surveys.

My guess is that there are a number of reasons for this significant differences. As I touched on earlier, a different perspective on safety nets, or lack thereof, is probably one reason.

What do you believe may be more reasons why Chinese save significantly more than Americans?  How about you SavvyReader, what is your savings rate? 

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