Four Things Retirement Savings and Going to the Olympics Have in Common

I love the Olympics. Amazing people from all over the world converge to do amazing things. Things that most of us haven’t even dreamed of. But those athletes did. And that is the main reason they are in Pyeongchang.

Their dreams were so important that they set aside hours a day to train. They gave up everyday comforts. In an interview, Adam Rippon, from the men’s figure skating team, talked about living on apples he snuck from the gym, because he didn’t have enough money for groceries. Yet their dreams were so important the sacrifice was worth it.

You may not have your eyes on an Olympic medal, but some of your goals can be just as daunting. Having the financial security to one day leave your job and not worry about money is likely one of them. That goal requires many of the same disciplines as an Olympic dream.

First you must define your goal. Olympic athletes don’t get to there by wanting to be Olympians. They get there by wanting to be the best at short track speed skating, or half pipe snowboarding or cross country skiing. You must define your retirement goal in terms of how you want to live when you stop working for pay.

That can be a tall order. Who knows how you’ll want to live decades in the future. Some may have a vision of it, but if you don’t, how you live today may be a good starting place. From that you can get an estimate of how much money you need to fund your lifestyle. Fortunately there are many free resources on-line to help you do the math. The following are a few you can try.

Bankrate Retirement Calculator

Nerdwallet Retirement Calculator

CalcXML Retirement Calculator

Next you need a strategy. Athletes have training and diet regimens. Similarly, you need to decide what you will do so you can save for the future. Where is the money for savings going to come from?

For some, simply taking the money out of the picture, through an automated savings program like your company retirement savings plan, is all that’s needed. Others may have to figure out how to free up some money first so it can be saved. Creating a spending plan, otherwise known as a budget, will help you sort out what you value and what you don’t in your current spending. Goals have a way of shining a light on your trade offs.

Then you need to practice and monitor your progress. Olympic athletes only get where they are through practicing their skills. They enter competitions to see how they are progressing toward their goals. They compare their performance to other athletes in the same field to learn what they need to improve to be better than them.

You also need to practice and measure your progress. Decisions you make every day will help you stay on your spending plan. Checking your actual spending relative to your plan and regularly reviewing your balance against shorter term savings goals will allow you to make adjustments so you can improve your progress.

You don’t have to do it alone. Olympic athletes usually have a family that supports their dreams and a good coach. Get help with achieving your goal. Make sure your family is on board with saving for your future, and enlist the help of a financial planner if you are not making the progress you want. To find a Certified Financial Planner in your area search

Big goals are daunting. Your future financial security is no less of an endeavor than pursuing an Olympic medal, and the path to success is the same. You have to know what you want, develop a strategy for achieving it, practice your skills, monitor your progress and get help when you need it. It takes a long time, so the earlier you begin the better off you are. Decide today to begin pursuing your own dream.

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The 12 Days of Financial Security for Christmas


Forget the birds and performing artists. These are the 12 gifts of financial security!

On the first day of Christmas my true love gave to me a fund for emergencies

On the second day of Christmas my true love gave to me a budget for expenses and a fund for emergencies

On the third day of Christmas my true love gave to me a maxed out retirement, a budget for expenses and a fund for emergencies

On the fourth day of Christmas my true love gave to me a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the fifth day of Christmas my true love gave to me a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the sixth day of Christmas my true love gave to me full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the seventh day of Christmas my true love gave to me insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the eighth day of Christmas my true love gave to me a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the ninth day of Christmas my true love gave to me a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the tenth day of Christmas my true love gave to me a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

On the eleventh day of Christmas my true love gave to me a long-term care policy, a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

On the twelfth day of Christmas my true love gave to me, a pledge to be mortgage free, a long-term care policy, a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

Merry Christmas everyone!

4 Things To Review on Your Retirement Plan During Open Enrollment

Every year after Halloween, time begins to accelerate as the year hurtles through the holidays and to its eventual end. But before you brace yourself for the feasts and family, you have some business of your own to take care of. For most employers, November 1st marks the beginning of open enrollment for company benefits.

While the centerpiece of open enrollment is healthcare benefits, its also a good time to pay some attention to your retirement account. You should revisit your contributions and your investments, consider switching your contributions to a Roth option and update your beneficiaries.


Your minimum contribution should be enough to get your company’s match. Most employers require you to contribute 6.0 percent to get the full company match. If you are contributing the minimum, you aren’t saving enough for retirement. Make an effort to increase your contributions this year, and each year from here on out, until you hit the maximum.

The 2018 contribution limits for employer sponsored retirement accounts, such as 401(k)s, has gone up. It is now $18,500 and if you are over 50, you can contribute up to $24,500. If your goal is to contribute the maximum to your account, you may need to adjust your contributions.


With the stock market up, you may find that you have more money in mutual funds investing in stocks than you intend. Now is a good time to sell some of your stock market investments and buy more conservative investments to rebalance your account to its target allocation. If your company’s plan offers an auto rebalancing feature, where your account could be automatically rebalanced to its target allocation, now would be a good time to turn it on.

Not sure what your allocation should be? Most plans offer help with figuring this out, whether its through planning tools available on the web site or some form of professionally managed investment option.

In the professionally managed category, target date retirement funds are now widely available. You can tell which ones these are, because they have a year in the name of the fund, such as target retirement 2045.

Target date funds are fully diversified investment options. The fund’s manager gradually reduces the fund’s allocation to risky stock market investments as the target date approaches. All you have to do is select this investment option, and your retirement account will be managed in a reasonable way for your age and the time remaining before you stop working.

If your company’s plan doesn’t offer target date retirement funds, they may offer a managed account option. With a managed account option, your investments will be managed for you by an investment adviser based on information you provide, usually through an on-line questionnaire.

If none of these are available to you, one easy rule of thumb is to subtract your age from 120 and invest that percentage in stock mutual funds. Then invest the rest in bond funds.Asset Allocation

Roth Accounts

Now is also a good time to check whether your company offers a Roth retirement account option. Both accounts allow your investments to grow tax free while you are saving for retirement, but they differ in the tax treatment on both the front and back ends.

With a Roth option, your contributions are after tax, whereas with a traditional account, your contributions are before tax. While the before tax contributions make the traditional accounts appealing on the front end, Roth accounts have more advantages on the back end, when you are withdrawing your money.

When you want to spend your money in retirement, withdrawals from a traditional account will be fully taxable, while withdrawals from a Roth account will be fully tax-exempt. The following table shows the advantage of the Roth account over a traditional account with a single year’s contribution.

roth example

Because the growth in your investments will be far greater than your contributions, your tax bill on withdrawal from a traditional account will be higher than the tax advantage you gained on deposit. That makes the Roth option, with no tax obligations on withdrawal, more attractive.

Roth accounts have other advantages. You can withdraw your contributions, though not your earnings, at any time without paying taxes. This comes in handy if you plan to retire before you are 59 ½. You also won’t be required to take a minimum distribution when you turn 70. Finally, withdrawals from a Roth account are not included in your income calculation for determining whether your social security benefits are taxable.

Anyone can contribute to a Roth retirement account through work. There are no income limitations as there are with Roth IRAs. If your employer matches your contribution, they will match your Roth contribution by making a contribution to a traditional account. So you will wind up with two retirement accounts through work.

If you move your balance in your traditional account to the Roth account you will be taxed on the amount transferred, so don’t do that unless you’ve checked with a tax professional and know what you’re in for. However, your future contributions can go toward a Roth account.


Review your beneficiaries. Regardless of any other documents you may have, such as a will, financial institutions rely solely on your beneficiary designations to distribute your account in the event of your untimely demise.

If your spouse has changed, make sure your prior partner is not still your beneficiary. Do not make minor children beneficiaries, because financial institutions cannot distribute money directly to them until they turn 18. Consider establishing a family trust, and making it your beneficiary, to allow your children’s guardians easier access to the money needed to raise your kids.

There is no time like open enrollment to focus your attention on financial matters. Before things get hectic with the holidays, take advantage of this annual checkpoint to make sure you are on the right track with your retirement benefits. Your work related retirement plan may well make up the bulk of your retirement savings, so take advantage of what is available to you.

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The Stock Market is at Record Highs. Should You Get Out?

Both the Dow Jones Industrial Average and the S&P 500, the venerable U.S. stock market indices, closed near record highs on Friday, October 13th. Both indices have been steadily climbing all year. The Dow, including dividends, is up 17.92 percent and the S&P, also including dividends, is up 15.86 percent just this year.

The run up has investors waiting for the other shoe to drop. Surely the next move can only be down. Every week there are articles discussing whether we are on the verge of another stock market bubble bursting. You’ve worked hard for your savings, and nothing is worse than seeing a big hole in the value of your nest egg. So should you sell your stock market investments to avoid that?

To see how it might turn out, look at what happened following the last stock market peak, in September of 2007, just before the financial crisis. If you had perfect foresight you would have sold then, and avoided the following drop in value of 51 percent. Then you would have bought back your investment at the low in February of 2009. By now your investment would have more than tripled.

But let’s be realistic. We only have perfect hindsight. We know nothing about the future. We can’t tell whether we are at a peak or just a nice view point along the way. And we certainly won’t be able to tell when the market has hit bottom.

To get a sense of what most investors did following the stock market peak in 2007, we can look at investor net buys or sales of mutual funds and exchange traded funds investing in the stock market during the time period. In the following chart, fund net buys (actually sales because they are negative) are in blue and the S&P 500 Total Return Index is in orange.

Funds flows and performance

Yes, investors began taking money out of the stock market as it began to decline from it’s highs. But they continued to take money out even as it rebounded. As the market surpassed it’s previous peak investors were still withdrawing money. It wasn’t until the end of 2012 that stock funds began to see steady net buys.

The biggest monthly net sale was in October of 2008 and the biggest monthly net buy following that was January of 2013. If you had sold and bought back in those months your return from September of 2007 through October 13, 2017 would have been just 11.89 percent, or about 1.3 percent per year.

Even being off by a few months would have cost your returns. If you didn’t sell until December 2007 and didn’t buy until May 2009, your money would have only doubled instead of tripled. If you had waited another six months on both ends, your money would be only 1.5 times more than at the 2007 peak.

What if you had done nothing? If you had not touched your stock market investments, by now your money would have more than doubled. Doing nothing is certainly easier than picking both the top and bottom of the stock market. Steadily adding to your investments, as you would in your retirement account, would have been even better.

Where stock market declines become devastating is when you have to withdraw your money during the decline to meet expenses.  To avoid that, don’t invest any money you will need to spend in the next ten years there. Anything that you won’t need for more than ten years can stay invested in the stock market. Historically, the S&P 500 has finished higher than it started in 26 out of every 27 ten-year periods.

Of course there will be another market down-turn. But no one knows when or how severe it will be. In the mean time you need your savings to grow for your long term goals, like retirement. So no, don’t get out of your stock market investments now and in fact keep adding to them. If you have more than ten years before you need to spend your money, you have plenty of time for your savings to recover from the next down-turn, whenever that is.

Sources: Yahoo Finance S&P 500 Total Return Index and Data Hub US Investor Flow of Funds

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Ten Ideas to Change Your Thinking About Saving Money

This is my 100th post. I sincerely thank everyone who has read them either directly on my blog, or on Linked In, Facebook or Twitter. These posts have had over 3,000 visits, and there are now around 500 fabulous followers.

To mark the occasion, I considered giving 100 tips for saving, or 100 ways to reduce debt or something of that nature. But I realized even if I could come up with that many, no one would make it past the first ten anyway. So you get ten.

Of all of the things I’ve written about personal finance, the topic of changing your mindset toward saving may be the most powerful. So, here are ten different ways of thinking that will help you achieve your financial goals.

  1. Saving money isn’t natural. People have all sorts of natural tendencies, but saving money isn’t one of them. If you are not a natural saver, there isn’t anything wrong with you, nor should you allow that to be your excuse. Saving is a learned behavior, and anyone can learn it.
  2. Financial security has more to do with what you have than what you make. While having a good income certainly makes life easier, building savings is the only way to make life financially secure. Having savings gives you the flexibility you need to meet life’s opportunities and challenges.
  3. Saving is more important than how you invest. The best investment strategy will not allow you to achieve your financial goals unless you are saving enough to begin with.
  4. Life is about trade offs. You can do anything you want, but you can’t do everything you want. If you spend money on one thing, you can’t spend it on another. If you spend more than you make today, you can’t spend as much tomorrow, and if you don’t save money now, you will have to save much more in the future. Conversely, saving money today is worth multiples of what you save down the road.
  5. Spend with intention. Money is only as good as what you do with it. By all means, spend money on what is important to you. That includes both today, and making sure you have enough to do the same in the future. Maximize what you have to spend on the important things by minimizing what you spend on the unimportant ones.
  6. Goals are the first step toward success. The only way to get what you want is to decide what that is. While big goals are important, don’t discount the value of the small goals that lead up to the big ones. Achieving your retirement savings goals starts by achieving your monthly savings goals.
  7. Be prepared to reach your goals. You can’t get where you’re going without a road map. Know what is required to achieve your goals. Lay out the specific things that you will do as well as the things that you won’t. Track your progress frequently and adjust your plan as needed.
  8. Commitment is half the battle. Commit to your goals and your process. Simply calendaring an action or telling someone else about your intentions will greatly increase your chance of getting it done. Write down and/or discuss with someone close to you both your plans and how you expect to achieve them.
  9. A budget is a plan for how you spend, not a diet for your money. A budget is more about planning to achieve your goals than giving things up. It is a way to document the steps that you will take. Every month you stay on budget is a month you are closer to your ultimate goal, and that is an achievement in and of itself.
  10. Be grateful. As the interfaith scholar David Steindl-Rast once said, “it is not joy that makes us grateful; it is gratitude that makes us joyful”. Gratitude helps you appreciate your life as it is, and it helps you avoid the temptation to compare what you have to what others have.

It can be hard to move forward without changing how we think about our lives. I hope these 100 posts have informed and inspired you to think differently about how you can reach your financial goals. Please keep coming back, because I’ll keep writing.

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Who Robbed Social Security?

The Social Security Trust Funds are estimated to be depleted by 2034. Were they robbed? I’ve heard a variety of versions of this story. Essentially many believe the Trust Funds were diverted/robbed to pay for other government programs leaving future retirees high and dry.

The fact is the Social Security Trust Funds have received every dollar they were entitled to receive under the laws that govern the program, and no money from the Funds was ever used for anything but the payment of benefits. So why will they run out of money in just seventeen years?

Over the decades since Social Security was created, we, the American people fought tooth and nail against tax increases that would have kept the Trust Funds afloat and were happy to see benefits extended beyond those in the original design. As a result Social Security has been severely underfunded. If anyone robbed Social Security it was us.

The two funds, the Social Security Disability Income Fund and the Social Security Old Age and Survivor Insurance Fund together help support 60 million people; 43 million retired people and their dependents, 6 million survivors of deceased people and 11 million disabled people.

In 2023 when the Disability Income Fund is depleted, the tax revenue supporting the program will only be able to pay 89 percent of the benefits, and in 2035 when the Old Age and Survivor Insurance Fund is depleted, the tax revenue will only support 77 percent of projected benefits. Most analysts implicitly assume the Old Age and Survivor Trust will be tapped to fund disability payments, bringing the projected life of the two together to 2034, 100 years after Social Security’s conception.

When Franklin D. Roosevelt first considered creating a social insurance program in 1934, he envisioned a self supporting system, similar to an insurance contract, where contributions for a worker would be collected over his or her lifetime and invested. The contributions and investment interest combined would provide the funding to pay out the worker’s benefit at the end of their work life.

Of course this wasn’t possible in the early years of the program, because it would be decades before a worker would have contributed enough for a fully funded benefit. Therefore the early payments had to be funded from the contributions of those still working.

The new law included a schedule of tax increases to be implemented over time to make the program self-funding. Without the tax increases, the system was projected to require government subsidization by 1980.

When Social Security was implemented the benefit payments were cheap relative to the tax revenues that were being collected.  In 1940, there were more than 159 workers for every beneficiary. As a result, congress didn’t see any harm in pushing the tax increases back as well as expanding the program.

By 1955, we were down to nine workers for every beneficiary, and the ratio of workers to beneficiaries steadily declined from there. Sure enough, just as predicted, the system was in dire straights by 1977.

After two rounds of tax increases and increases in the full retirement age in the 1980s, congress secured some breathing room. But with the baby boomers retiring in droves and after a decade of low interest rates, that breathing room turned out to be shorter than anticipated.

In order to solve the problem, an immediate tax increase of 2.6 percent or an immediate reduction in benefits for all current and future beneficiaries of 16 percent (or some combination of the two) is necessary. Yet fixing Social Security is blatantly off the current administration’s agenda.

Social Security is once again in dire need of a fix, and few who are still working have confidence that the program will be there for them. Yet we continue to demand that our politicians avoid tax increases and changes in benefits for the worse. As the time when we have no choice but to severely curtail benefits draws nearer, keep in mind that we are only getting what we asked of our politicians. The only thieves in the Social Security heist are us.

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Save Early, Save Often

The fact that it is better to start saving for your eventual retirement when you are young is common knowledge. It doesn’t take a financial wizard to understand that if you start saving early you have more years to save, and therefore you will wind up with more money. Yet, this doesn’t capture the true power of saving early. The real power comes in having your money work for you longer, though this is hard to imagine without a demonstration.

Suppose you graduate from college and are offered a job paying $45,000 per year. Your mom is like me, and advises you to save ten percent of your earnings in your company’s 401(k) plan. You set up your account to have ten percent automatically contributed. Your plan offers a target date retirement fund, so you pick the one with a date 45 years in the future and never think about it again.

Target date retirement funds are fully diversified investment funds designed to be appropriate for the time you have until you retire. They generally have fund names that include the approximate date you will stop working. In this case the name might be Target Retirement 2060. They start out nearly fully invested in the stock market but gradually become more conservative as the time remaining until you retire gets shorter. Target retirement funds are one stop funds, so you don’t need other types of investments.

With a modest inflation rate of two percent per year, your salary and contributions increase over time, but never exceed $11,000 per year. Because you have chosen a target retirement fund, you are largely invested in the stock markets for most of your working career, giving you the best opportunity for growth. Assume your investments have an average annual return of 7.0 percent until you are 57. As the fund gets more conservative, your returns drop down to 5.0 percent for the rest of your career. Given all this, you will wind up with about $1,475,000 which is just about what you will need added to your social security benefits to maintain your lifestyle.

Your contribution to your nearly one and a half million dollars? $335,000. You only had to contribute less than a quarter of your balance. The remaining three quarters plus came from your money working for you. The amount of time it works for you is key to how much you have to save.

Let’s say instead, because of student loans or whatever, you don’t start contributing to your 401(k) until you are 32. After all, you still have 35 years to save. That should be good enough.

You can accumulate the same amount of money, but your contributions have to be much bigger. In every year you contribute, you need to contribute nearly three quarters more than you would have if you started saving at 22. That’s money you could use to save for your kids college education, or to take family vacations. Your total contributions to your balance is $494,000, $159,000 more than had you started saving ten years earlier. Still it’s not bad. You only have to contribute a third of your total balance.

OK, after you paid off your student loans your kids were in day care. Then they had sports and clubs you had to pay for. The dust finally doesn’t settle until you are 42. At last you have a little extra money to save in your 401(k). Unfortunately you need to contribute a lot of extra money to your account to save up the same amount. Your annual savings need to be more than three times your contributions had you started saving at 22. You have to contribute almost half of the $1,475,000. The following graphs compare the three situations.

retirement savings

Nobody’s life goes like these examples, but they demonstrate the point. Saving early on is very powerful. The more time your money has to work for you, the less you have to save. That is why other financial goals need to take a back seat to saving for retirement. If you wait, you may get around to doing what you need to eventually, but you will have to give up much more of your income to do it.

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