What’s it all about?

I am going to share a 40-year-old secret.

I was at my absolute favorite resort, Lago Mar, in Fort Lauderdale, FL. I held many meetings there during my career. As always, I went to check out the conference room the night before. The main door was locked. That was a good sign; they had set up the room and locked up the audio/video equipment.

As I approached the back door, I heard the piano in the back of the room begin to play. I slowly opened the door. I gasped! It was Burt Bacharach, the famous songwriter and entertainer. I tiptoed to the side of the room and sat on the floor behind a table out of sight. For over an hour I listened to him – my secret private concert. When he finished he quietly closed the cover on the piano and let himself out.

Burt was one of my favorites before that happened, but I was hooked for life. His songs were different, not only did they have a great melody, but the underlying lyrics were strong, many times about lessons in life.

I want to borrow some lyrics from “Alfie”. While it is a love song, these lyrics can just as easily be applied to many other things.

What’s it all about, Alfie
Is it just for the moment we live
What’s it all about when you sort it out, Alfie
Are we meant to take more than we give…

What’s retirement all about, Alfie?

Ask that question to a dozen people and you will get a variety of answers. Most look at retirement as the time in life when you no longer have to work full time in order to survive.

When you are working, you are trading your time for money. When you retire, you are trading money for free time. Time to do things you enjoy for the remainder of life’s journey.

It sounds so easy, yet today there are armies of people employed as accountants, attorneys, stockbrokers, financial analysts etc. The universities offer hundreds of advanced degrees, and government agencies created testing and licensing requirements for those who want to get paid helping other people manage their money.

The Employee Benefit Research Institute (EBRI) conducts an annual Retirement Confidence Survey. Their most recent results show that 21% of workers are “very confident” and 42% are “somewhat confident” they have enough money to live comfortably for the rest of their life.

The survey also tells us: “Many workers continue to be unaware of how much they need to save for retirement. Less than half (48 percent) of workers report they and/or their spouse have never tried to calculate how much money they will need to have saved so that they can live comfortably in retirement.”

Almost 40% of those surveyed admitted to guessing as opposed to doing a retirement needs calculation. What is their confidence based on?” Maybe Alfie knows….

What’s it all about, Alfie
Is it just for the moment we live

Are we ever really set for life?

“Set for life” is having enough money available to maintain your comfortable lifestyle no matter what unforeseen event comes your way.

I once bragged to my wife Jo about being set for life. We retired in 2005 and for a few years we had lived off the interest and watched our principle grow in our brokerage account. In 2008 the Troubled Asset Relief Program (TARP) bill was passed and, like millions of other Americans, my confidence of being set for life quickly vanished.

In my younger years I knew the brother of a famous US football player. He was one of the first to get a large signing bonus. As we sat around the lunch table, his brother said, “His agent told him to invest his signing bonus and live off his salary. He’s set for life. If he never gets out of bed to go to work again, he will get $50,000 a year for the rest of his life.” In those days it was a fortune; but not anymore. Today it would take $224,013/year to have the same buying power as $50,000/year had in 1975.

In 2011 the AARP issued a report, The Toughest States for Retirees. Illinois ranks on the top of the list. We had a summer home there and, like many of our friends who were tired of outrageous real estate tax increases, we sold and moved away.

Even those with generous Illinois pensions are moving. A recent report indicated, “In 2014, nearly 20 percent of the 200,000 active retirees who received retirement benefits from one of the state’s five pension systems no longer live in Illinois. Collectively, about $1.5 billion was distributed to pensioners residing in other states, U.S. territories and countries.”

TARP, high inflation, pension cuts and confiscatory taxes are just a few potential obstacles. Who knows what the next unforeseen event may be on the horizon that erodes the confidence of baby boomers and retirees?

What are we trying to accomplish?

A guaranteed income for the rest of our life does not guarantee we can always pay our bills without worrying about it.

Our confidence is bolstered believing we can count on a Social Security or a retirement check each month. Many retirees supplement their retirement income with dividends, while others may have an annuity. What if Social Security becomes means tested, or 100% taxable income, or your pension check is cut? What if your dividends are cut? What if inflation eats up the buying power of your annuity check?

I was supremely confident that my interest income would be a constant for the rest of my life. In the blink of an eye, the confidence was gone and a new retirement challenge emerged. Today, there is no sure thing. Maybe there never was.

The ever-elusive goal is to have “income certainty”, with ENOUGH money to pay our bills and maintain our lifestyle for the rest of our life regardless of the circumstances. The concerns are the same whether it is a high net worth individual wanting to pay their country club dues, or a middle class retiree wanting to drive a reliable automobile. Once you have achieved a certain comfortable lifestyle, you do not want to give it up.

What can we do Alfie?

Get an emotional grip on things. For our entire life we have learned that life is full of uncertainties, things over which we have no control. No one wants to spend the last years of his or her life in a constant state of worry. Build your plan and relax, knowing you did the best you could.

Build your moat. While events may be unexpected, look back in history and anticipate some of the potential issues that could derail your financial plan. Here are a few of what could be a long list:

• Cuts in pension or social security
• Inflation
• Increased or confiscatory taxes
• Soaring costs like health care
• World events

We have no control over any of these events occurring. We can however take precautions to minimize the damage from the results. Prudent steps would be to live below your means so an income cut would not be quite so drastic. Enjoy the moment Alfie, but save a little for the future. Invest in a diversified portfolio that will minimize the impact of inflation. Gold provides one good hedge.

Holding money in foreign currencies and offshore is a good hedge against world events. Be prepared to vote with your feet. Florida and Arizona are full of “state refugees” who have escaped the high costs and lousy weather of northern states. Many baby boomers and retirees are headed to other parts of the world where they can live very comfortably for a fraction of what it costs in the US.

Stay in the game. It doesn’t have to be your full time job. Many a truck driver has done well three days a week as a dispatcher. Wal-Mart and McDonalds have created a real haven for seniors who want to earn a little extra money, have a reason to get up every morning and a good circle of friends.

Don’t blow it on family and friends. Nothing can derail a retirement plan faster than adding family and friends to your lifeboat.

We have a friend who has invested in enough freeze-dried food to feed himself and his wife for a year. He sums it up candidly: “We have enough to feed ourselves every day for a year, or enough to feed 365 couples for a day. We raised our children to be independent, and we don’t want to become dependent on them. At the end, what we have left will be theirs.”

What’s it all about when you sort it out, Alfie
Are we meant to take more than we give…

While we want to produce more than we take, and give some back to our family, it’s WHEN that is important. While many will justify some exceptions, never lose sight of the goal: The ever-elusive goal is to have “income certainty”, with ENOUGH money to pay our bills and maintain our lifestyle for the rest of our life regardless of the circumstances. The next generation can wait their turn.

Today, 88-year-old Burt Bacharach is on a World Tour. He’s sure giving a lot more than he is taking. When I saw him the first time I was afraid and hid. Today I say “thank you Burt!”

On the Lighter Side

Mercifully the political conventions are now behind us. It’s no wonder both candidates have a high un-favorability rating. So much of what was said the public knows is just not true.

When that happens, I believe our subconscious mind takes over and says, “They must think I am really stupid to believe that!” That sure burns the trust and credibility bridge.

“Vote for me because my opponent is a crook, bum, incompetent or whatever”, has never set well with me. Just once I wish they would present an easily understood and workable plan for the future. I mean things that will get done if they are elected. Now we have to sort through “campaign promises” (a code name for lies) and guess which ones they are serious about.

And finally…

A friend sent me a picture of a clever billboard. It’s a fitting way to close the subject and week.

Until next time…