Paychecks and Playchecks (Day 11)

Most people seem to have forgotten that the 401(k) plan has mostly replaced the pension plan.  In the not so distant past, people worked for the same company for 20 or 30 or more years, with the reward for loyalty to the company was that at some point they would be able to continue to get a regular paycheck without continuing to work.  That was supposed to what happened with 401(k) plans, but with the employee rather than the employer having control.  But that hasn't been what happened, for various reasons like I wrote about recently (Follow the Money and Don't Die With This).


This is not advice on what insurance product to use, or even whether or not an insurance product is the right tool for the job (I usually think it is, but I'm biased.  Think for yourself too).  All I'm saying is that you need to have a plan so that, unlike a large percentage of people in retirement, you know that you have enough cash flow and liquid money to cover everything.  Even if something goes wrong.  Because it will.  Which means that if you're counting on dividends, rent being paid on time, or other non-guaranteed investments for your paychecks, you need to either change your plan or have a good back up plan


When I say, "enough cash flow and liquid money to cover everything", I don't mean just enough to cover the bills.  I mean enough to cover buying a different car if you need it, to buy someone special a really cool wedding present, to take a trip with friends, etc.  When you were in your 20's (or even if you're there or haven't reached that age yet), did you sit around with your friends and say, "All I want is enough of a paycheck that I can eat  two or three times a day and keep the electricity turned on?"  Of course not.  So why plan your retirement on having just enough to pay the bills.  Don't sell yourself short.  Plan to have enough in your regular checks to both "pay" and "play".

I Don't Know Why They Call It "Common Sense"

For day two of 100 days of writing for publication I am publishing this list of common mistakes I see people make regarding retirement.  I have been thinking about doing this for years, but have never decided if I want to make it a series of blog posts, a brochure, a speech, a magazine article, a book, or all or none of those things.  I still haven't decided, but I know I won't get any of them done without getting started, so I'm going to make it a chunk of this 100 days, for a start.


I often tell new customers, "I like to think I'm smarter than everyone else, but my wife and kids will tell you otherwise.  It's not that I'm smarter, it's that I work with this stuff every day, while you are dealing with it for the first time".  One huge advantage I have right now is that I have been working with another agent for several years who is in his 80's.  Supposedly I'll take over his customers when/if he ever retires.  He has customers he has worked with for 30+ years, so I often tap in to their 20/20 hindsight.




I don't want to make it a "Top Ten" type of list because sometimes on those the focus turns to whether #3 should really be # 5 instead of how to solve both #3 and #5, regardless of where they are in the hierarchy.  However, there is a clear #1, so this post will focus on it, and it will be the theme I consistently refer back to when discussing the others.  Speaking of the others, here are the main others, in no particular order.  (I keep thinking of more, but I need to sleep some time.)

• All or almost all of savings tax-deferred
• Unrealistic picture of what will/won't happen when one spouse outlives the other
• Basing decisions on averages
• Lack of communication with children and others
• Lumping everything together instead of separating out "paychecks" and "playchecks"
• Basing decisions on how long they think they will live
•  Basing decisions on how good or poor they think their health will be in retirement
• Spending too much or too little (much more common with people I see) early in retirement
• Doing the same thing that their friends, relatives and/or parents do or did, ignoring how those people's situations vary from their own
• Having only a saving plan, not a spending plan
• No plan for how to take Social Security and/or pension
•  Having way too much or way too little insurance
• Focus on how much money they have (or don't have) rather than how much they can or can't spend after the bills are paid
• Worrying too much about how long they will live instead of how well they will live

The biggest problem by far, however (which could be argued to be the main cause of all the other mistakes), is not having a basic understanding of general principles of finances.  I am constantly amazed how little most people know and understand regarding taxes, interest, dividends, cash flow, insurance, and general accounting.  You don't have to be a genius or an expert, but you do need to at least have a rudimentary grasp of the language so you can converse with the experts you hire.    Without that, you can't even ask the most basic questions to make sure you are doing the right things.  You'll be like the people I often work with who say things like, "I don't really understand this, but I trust you, so I'll just do what you think is best".  Lucky for them, I am honest and do what is best for them, but it is just luck on their part.  Make your own luck.  Educate yourself.


Here are a couple of places to start.  I don't agree with everything these guys say (could be a whole other series of blogs there), but they are fairly easy to read, and you can join groups to learn that way if you aren't a reader.  The nice thing about them is that they've both sold enough books that you can find them at Goodwill for a buck or less.


http://www.daveramsey.com/home/


http://www.amazon.com/Ed-Slott/e/B001IGOQNC


 http://www.amazon.com/Rich-Dad-Poor-Teach-Middle/dp/1612680011