Providing financial and physical shelter
Taking care of your financial resources
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Money may not buy happiness, but it is also hard for most people to be happy without any. Having money lets us take care of ourselves and, just as important, provide for others. Most of what we want to do is easier if we have enough money, and harder or even impossible without it. Money is not everything, but it counts for a lot.
Yet most of us don’t know that much about money. Even things that used to be simple about money, like bank accounts and credit cards, have gotten complicated and seem to generate reams of mail. And things that used to be complicated, like paying taxes and buying a house, have become almost incomprehensible. Meanwhile, very clever and well-paid people continue to invent new ways to make finance even more complex. It’s not surprising that most of us tend to just do the minimum, not pay attention and, consequently, miss opportunities – or worse, make serious blunders.
You actually don’t have to be an expert to make prudent financial decisions, though. The trick is to find the middle path between being too complacent and too ambitious, between taking what comes easy and shooting for the moon. And to get professional assistance when you need it.
On this page we mix some usable observations and advice with references to additional resources that should help you avoid decisions you’ll regret some day.
Managing Money relates to other areas of Security:
- Managing risk, because many of the risks we face are financial in nature, and because prudent money management will help assure that you have something extra to fall back on if luck runs against you.
- Your home, because where you live, and with what kind of style, depends on your financial resources. And because the equity in your home (if you happen to be a homeowner) can be an important resource for you.
Managing Money relates to other areas besides Security:
- Spirit, because our attitudes toward money – toward acquiring it, saving it, spending it, investing it, giving it away – are in part expressions of our broader beliefs, values and principles.
- Purpose, because it matters whether we need to earn more money in retirement, or whether we can afford to focus on volunteer, community, or self-defined projects that produce no income. And because some purposeful activities – starting a business, creating a not-for-profit, supporting civic causes – are likely to cost us money.
- Love, because our ability to provide for the financial well-being of those we care about, or for them to do so for us, is a key element in our closest relationships. And because financial security gives us more ways to express our love for others, and to care for those who need help.
- Avocation, because many avocations are expensive to pursue, and most have at least modest ongoing costs.
- Health, because a healthy diet, health-supporting living conditions and lifestyles, medicines, and healthcare itself all cost money. And because stress about money issues can affect our mental outlook and even our physical health.
Managing Money Sub-Topics and Resources
- Understanding money: What you know about money and what you feel about money.
- Savings and investment: Being smart (but not overly clever) about your investments.
- Other assets: What assets other than ordinary savings and investments do you own, or want to own?
- Debt management: Borrowing can still make sense in retirement, if you don't pay too much for it, and if you don’t overdo it.
- Expense management: Where your money goes, and how to control that.
- Finding advice: What to look for, and what to watch out for.
Just in the last decade or two, professional advisers and counselors have noticed that many of us have very strong attitudes – and sometimes extreme emotions – connected with money. These can go back to how much or little money we had (or our families had) growing up, attitudes that our parents tried to instill in us (or instilled in us by their example), our own self-image or sense of self-worth, and our religious or other beliefs about ourselves, other people, society, and, of course, money itself.
Since few of us really stop to think about these things, these attitudes and beliefs about money (and therefore about our own worth vs. other people’s worth, whether money is a good or evil thing, the independence money gives us and the power it can give us over others, the value of things money can buy, the importance of saving and of financial responsibility, etc.) often lie somewhere under the surface. And if we never bring them to the surface, it is hard to be sensible about money because, in effect, we end up letting money control us, instead of the other way around.
These issues are worthy of book-length treatment, and many such books have started to appear. But there are also some other, briefer, and free resources available on the internet. If you feel that you have problems that need professional attention, “financial therapy” is a young but growing field, and you might be able to find someone with this specialty in your area.
- Free resources:
- The “Financial Health Scale,” from Drs. Brad and Ted Klontz, is a quiz that asks 20 questions about your “Mental Wealth” – i.e., your basic attitudes and approaches concerning your personal finances. Better for the questions it asks than for the quality of the analysis (rating = A-).
- “Money Scripts Affect People's Behavior” by Lemuel Cacho for NewsBlaze.com, provides a basic introduction to “Money Scripts,” and illustrates how your thoughts and feelings about money affect your decisions (rating = A-).
- “Financial Stress - How It Affects You and What You Can Do,” by Elizabeth Scott, at About.com, provides a brief discussion of this topic and some links to further information (rating = A-).
- The “Financial Therapy Association” provides basic information about this form of counseling, and can refer you to practitioners in a little more than one-third of the U.S. states (rating = A-).
- Other resources:
- Two of the foundational books in this field, still well worth reading, are Money and the Meaning of Life, by Jacob Needleman (rating = A) and The Seven Stages of Money Maturity: Understanding the Spirit and Value of Money in Your Life, by George Kinder (rating = A).
- The Emotion Behind Money: Building Wealth from the Inside Out, by money manager Julie Murphy Casserly, is excellent in discussing and illustrating (through real life examples) the kinds of problems that arise and the ways they can be dealt with, and she also offers a variety of self-tests and exercises you can use to evaluate your own issues (rating = A+).
- Mind over Money: Overcoming the Money Disorders That Threaten Our Financial Health, by psychologists Brad and Ted Klontz, is another excellent resource, with perhaps a more organized conceptual approach, also supported by tests and exercises you can use yourself (rating = A+). You might want to check out the authors' videos at “YourMentalWealth.com”.
- First Comes Love, Then Comes Money: A Couple's Guide to Financial Communication, by Bethany and Scott Palmer, deals with the extra complications that arise when each member of a couple has different needs, issues, and attitudes relating to money (rating = A).
- See also:
Money is right up there with Love as a subject on which everyone seems to have an opinion, and an awful lot of people have expressed themselves – and continue to do so, on websites, in books, magazines, newspapers, and newsletters, on TV and radio, and over the dinner table. We cannot begin to provide a useful guide to this mass of material.
Instead, we emphasize first that there are two kinds of savers/investors: those who like to do it themselves and those who don’t. The do-it-yourselfers either enjoy money management as a hobby, or just think they are smarter than the next guy, or both. Those who prefer not to do it themselves are sometimes not well informed about finances and know it, or sometimes they are very well informed but just prefer to spend their time doing other things. Almost all of the published information is for the do-it-yourselfers, though we will direct you to some exceptions.
Second, the fundamental issue that everyone must address, whether you manage everything yourself, or whether you leave that to others, is what your attitude toward financial risk should be. This is both a theoretical question, and a very practical one. A well known Wall Street saying explains that the strategy for success is to “buy low and sell high.” In reality, however, a lot of people do the opposite – they buy high, because they get excited (or start feeling foolish or left out) when the markets are doing well, and they sell low, because they get stressed or panicky when markets drop too much.
So the main order of business is to understand in a general way what your attitude toward risk should be, and then how to reflect that in the management of your savings and investment portfolio, whether you manage it yourself or someone else is doing it for you.
- Concepts and resources:
- Can you afford to lose money? This is the first question you need to ask yourself. Are you wealthy, or at least sufficiently affluent so that you are unlikely ever to run out of money, even if you experience relatively bad luck in the markets, bad health, or other financial reverses? If so, you don’t need to worry much about investment risk, as long as it is not extreme, and in fact, it may be prudent for you to take on some additional risk – if it won’t keep you awake at night – because taking some risk is the best way to expand your wealth even more. You should feel free to follow whatever investment strategy suits your personality and your interests, in that case.
But if you are not this well off, and either you clearly are in financial straits or you could end up that way if you got a few bad breaks, then the concepts and resources in the remainder of this section are for you.
Remember, it's not about “risk tolerance,” that is, how much risk you can tolerate emotionally. It's about how much risk you can afford. Investment professionals who lean heavily on supposed measures of your risk tolerance are gambling with your future. People's risk tolerance changes over time, and as market condiitions change. Beware of investing more aggressively than you can afford because you scored high on a risk tolerance questionnaire.
- How much investment risk should you take? An increasingly common message coming out of the financial industry these days is that even retirees should be taking significant investment risk, because they need strong growth in their investments in order to counteract the realities that they may live longer than they think, and that they will see a lot of inflation during that time. These reasons are correct, but the conclusion is not. Once you retire, your options are limited. You are unlikely to be able to get your old job back later, or to get another one that pays as well. If it takes a number of years to discover that your financial situation is not working out as you hoped, your job skills will be that much more out of date, and your own health (and perhaps that of a spouse or partner who needs your assistance) may prevent you from working as much or as hard. In short, your options are limited, so you need to reduce your exposure to risk, not increase it by taking on more financial risk.
Taking on investment risk seems to offer a free lunch, because if it works out, you get more money without having to work harder for it. But it is called “risk” because there is a significant chance that you will do worse rather than better, and that you will not only receive lower investment earnings, you might actually lose a substantial portion of what you started with. So there is no free lunch after all, and since you are going to have to pay for lunch, you should do it in ways that you can be sure will reduce your risk. Sometimes there are easy ways to do this – such as restructuring debt, or eliminating expenses that you don’t even get much reward out of – and sometimes you need to make sacrifices that hurt a little more. But retirement means the time for taking risk is over unless, as noted above, you really can afford to lose money.
The same holds true if you are not retired, but are within a few years of retirement. If you have been investing aggressively, it’s best to look for opportunities to reallocate to more conservative positions. If you are about ten years from retirement, or more than that, you can probably afford to be somewhat more aggressive in your investment strategies, and if it suits your personal style, you should consider yourself free to do so.
Unfortunately, many investment funds and investment strategies and even magazine and newspaper articles that are currently labeled “conservative” are not – they still involve investing a significant percentage of your money in stocks that will plummet in value during a bad market, and that are far from sure bets not to fail even in good times. In support of truly conservative savings and investment strategies for retirees, see two papers from RetirementWORKS, Inc., “Can You Afford to Take Investment Risks?” and, for information about specific kinds of conservative investment instruments, “Conservative Investment Strategies and Financial Instruments” (ratings = A). And if in fact a conservative approach will not bring you adequate income, then your best bet is to look for opportunities to make wise financial choices in other areas of your life, and in particular to consider taking on some level of paid employment in retirement, reducing your expenses, moving to a smaller home, or renting out part of your home. It's too late to gamble your way out of it in the financial markets.
- Why you may have had bad investment experience. To some extent, bad experience in the markets is dumb luck. But there are actually sound reasons why a lot of us do badly in the financial markets. Most of us certainly start off with the disadvantage of relative ignorance – like it or not, we are competing against professionals who live and breathe finance, who have extensive education and training in the field, and who have access to exotic mathematical models. We also tend to act on hunches and instincts, or on emotions like pride or shame or fear, rather than on rational analysis. Investments also have costs – some explicit, some hidden – that detract from our profits even when we have made a smart (or lucky) investment. All of this helps explain why investment firms and stockbrokers tend to be rich, while you, most likely, are not.
But even if you can’t beat them at their own game, if you have funds that need to earn income for you, you still have to play. What do you need to know to do so without failing badly? Taking a conservative approach helps. Beyond that, you should understand a little bit about how the markets work, and perhaps more than you do about how you work. What are the hidden drives that tend to push people into unwise investment decisions, and how do we overcome those? Our favorite book on that subject is How Much Is Enough? Making Financial Decisions That Create Wealth and Well-being, by Arun Abey and Andrew Ford (rating = A). A much shorter article covering the essential points (“How Much Is Enough?” by Arun Abey) is available as the lead article in the June 2009 online issue of The Integrative Adviser (rating = A-).
- Using savings and investment “buckets”. One strategy that has merit, but often is carried too far, is setting up different “buckets” of investments for different time periods during your retirement. What you should do is to make sure you have at least six months’ worth of ready money that you could get hold of in an emergency.
You should also have at least another two years worth of funds in a place where you might not be able to liquidate it immediately, but where you could get at it gradually if you needed to. “Laddering” investments in certificates of deposit or in bonds that mature at different times is a way of making sure that you have a flow of capital if you need it. All you have to do is stagger such savings instruments so that you have one maturing, say, every six months – so if you need to take the cash, you can do so without any penalty, and if you don’t need the cash just then, you can reinvest it. “Laddering” bonds and CDs in this way can cover all manner of emergencies, but it is especially helpful to you if you do have other money invested in markets that fluctuate in value – because you need an alternative to being forced to liquidate assets whose prices have dropped, when you would be better off holding onto them until the markets recover.
Putting your money into different “buckets” in this way helps diversify your portfolio, as well as to provide you with financial liquidity that, sooner or later, you are likely to need during retirement.
But beware of strategies that establish “buckets” that are intended to be spent, say, every five years into the future, and that use increasingly aggressive investment strategies the longer it is until each “bucket” gets liquidated and spent. Long time-frames do not guarantee favorable results, and if you can’t afford to lose money, don’t take risks with it. In addition, markets may happen to be depressed when it comes time to dip into one or more of those buckets, and you could end up being forced to take losses.
As a mechanical method, “bucket” schemes are dangerous. As a general concept they do have merit, but they still require careful, even expert, ongoing management, and you should not allow them to be used as an excuse for someone to sell you riskier investments. Since these schemes do, in fact, generally embody these dangers, we are not linking you to further details about them.
- “Target Date” or “Lifestyle” mutual funds have become increasingly popular ways of gradually reducing risk as one transitions into retirement, but they are a generic solution that is unlikely to match your particular needs. They also tend to be invested more aggressively than you probably expect and than is probably good for you. Like all mutual funds, Target Date funds compete on performance, and this induces fund managers to take more risk, which can improve their rankings but can also undermine your financial security. If you want to put your money into mutual funds, you should choose the funds that suit your capacity for risk, and not leave this to a fund manager whose objectives may not match your own, and whose decisions you are unlikely to even know about.
- See also:
- Other assets: What assets other than ordinary savings and investments do you own, or do you want to own, and how can you manage them in a smart fashion?
- Free resources:
- Investment real estate. “REIClub,” short for Real Estate Investment Club, is a website that is packed with general information, news, and links to outside resources. They can connect you with hundreds of local clubs across the country, and they also have an online store where you can purchase books, tapes, etc., and also sign up for seminars and other programs (rating = A). Or query Investopedia.com about “Real Estate” and find links to dozens and dozens of articles relating to real estate investing and to other aspects of owning or managing real estate (rating = A).
- 401(k), 403(b) and other employer-sponsored retirement accounts. Your options for most accounts of this kind are essentially the same – though you should check with your plan administrator to see what specific rules apply in your case (the IRS has rules, but each plan can have additional rules of its own). For general information about managing your funds within such accounts, see the preceding section on this page concerning savings and investment. In addition, employer-sponsored plans often have hidden fees that detract from investment performance; see “Uncovering Hidden 401k Fees” from 401kHelpCenter.com (rating = A; and this applies to many 403(b), 457, and other such plans as well). “What to Do With Your 401(k) After Retirement,” from U.S. News & World Report does a basic job laying out your options when you get to that stage (rating = A-). If you need to withdraw funds early from your account, you may be able to avoid the normal tax penalty for doing so by using the 72(t) rule – for an explanation, see “What is the 72(t) Rule?” from ObliviousInvestor.com (rating = A).
- IRAs and Roth IRAs. The “Appleby Retirement Dictionary” by Denise Appleby is an excellent consumer-oriented site dealing with all kinds of IRA plans, and the sponsor (Appleby Retirement Consulting) will answer questions you post on the site (rating = A+). An "IRA Rollover," which moves your employer-sponsored account to an individual account, which you can do when you retire or at certain other times, is often a good idea, because you have a lot more investment choices in an IRA and you can greatly reduce both the explicit and hidden costs of investing if you try; however, see also "6 Reasons Not to Roll Over your 401(k)," at BankRate.com (rating = A-). Conversions from traditional IRAs to Roth IRAs are hard to evaluate, unless you actually know what your future income tax rates will be (which, of course, most people can only guess). So keep in mind, if you get advice on this topic, that making the change is always something of a gamble, and that partly for that reason, and partly because in any given year you can best optimize your tax situation by having both traditional and Roth accounts to withdraw from, you usually do well to keep at least some of your money in a traditional plan. See “Roth Conversions: The Gamble of a Lifetime” by Andrew D. Rice, on the Investment News website (rating = A- because it is particularly geared to 2010 transactions, though his overall remarks continue to be applicable; also, free registration is required). Also note that traditional IRAs (though not Roth IRAs, generally) are subject to the 10% penalty on early withdrawals, though you can use the same 72(t) rule to avoid it in many cases, as described in the preceding paragraph.
- Art, jewelry, collectibles, and other valuable personal property. If you are looking to buy or sell collectibles, or just want to check current prices, most online auction sites handle them, but “atOncer.com” specializes in popular collectibles (rating = A). For mostly higher-end items (art, jewelry, rare books or coins, etc.), “GoAntiques.com” represents over 1000 dealers in over 30 countries (rating = A). Keep in mind that homeowner’s or renter’s insurance generally provides, at best, limited coverage for personal valuables, and you will need an appraisal to add specific items or collections to your coverage. See “Insurance for Collectibles,” by Bonnie S. Salzman, for more information on insurance (rating = A).
- Other resources:
- Investing in Real Estate, by Gary W. Eldred, was in its 7th edition already, last we checked, and has become a standard on the subject (rating =A).
- The Smartest 401k Book You'll Ever Read: Maximize Your Retirement Savings...the Smart Way! by Daniel R. Solin also covers 403(b) and 457 plans, and explains as much as (or even more than) you need to know – just keep in mind that, as we explain in the Savings and Investment section above, vigorous stock market investing is for younger people and affluent people, not for most retirees (rating = A).
- IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out, by Twila Slesnick and John Suttle, is a relatively technical but very helpful book on tax-deferred retirement accounts, and especially how to get your money out in the most tax-effective ways (rating = A).
- Retire Rich with Your Self-Directed IRA: What Your Broker & Banker Don't Want You to Know About Managing Your Own Retirement Investments, by Nora Peterson, deals with the much greater options you have for managing your money inside an IRA if you establish a self-directed account rather than one that a financial company manages – an excellent source if you are a do-it-yourself investor (rating = A).
- Go to Amazon.com and type in “collectibles,” and over 100,000 books will be listed. There appears to be a price guide or identification guide for any specialty you might have, from kitsch to high art. Libraries usually have some of these materials, but you’ll need to buy your own copy if you want the latest and most specific guides.
- See also:
- Debt management: Borrowing can still make sense in retirement, if you don't pay too much for it, and if you don’t overdo it.
- Concepts and resources:
- Refinancing your home. There are good and bad reasons to refinance your mortgage. Good reasons include: (1) getting a lower interest rate that will save you a significant amount on your monthly payments, and a lot of money over the long run; (2) shortening the term of your loan, so you will be out from under your mortgage sooner; (3) converting from an unpredictable adjustable rate mortgage to a fixed rate mortgage; (4) paying for improvements that will increase the utility and value of your home; or (5) getting the money to pay off high-interest debts by consolidating them into a lower-interest mortgage or home equity line of credit. Bad reasons for refinancing (though there are occasional exceptions – see the paragraphs a little below on “Tapping home equity”): (1) getting cash out of your house so you can spend it, or (2) getting cash out of your house so you can make a killing in the markets (see the comments on “Savings and investment,” above).
Start with “A Consumer's Guide to Mortgage Refinancing,” from the Federal Reserve. Also read “When to Refinance” by Justin Pritchard at About.com (ratings = A-). If you currently have an adjustable rate mortgage, also take a look at the “60-Second Guide to Smart Refinancing” at Motley Fool (rating = A-). “BankRate.com” is the best general source for finding out what current mortgage rates are, including refinance rates, and they also provide additional information and calculators related to refinancing (rating = A). Mortgages: The Insider's Guide, by Richard Redmond, can provide a lot more detail, and reflects changes that have occurred since the 2008-2009 crash (rating = A).
- Paying off and consolidating debt. Paying off high-interest credit card balances and other high-interest debt is the single best financial investment you can make. You are best off if you can do this by exercising some frugality, and paying down your balances over time with money you save from your current income. You may also want to “consolidate” the debt under a new loan – that is, borrow new money at a lower interest rate to pay off existing debt that has a higher interest rate. Depending on your overall credit worthiness, a local bank might be delighted to make this kind of a new loan to you. If you are a homeowner with more than 20% equity, you may also have the option of a home equity loan or line of credit – and because your house is collateral for the loan, you may qualify more easily, and/or you may get a lower rate of interest than you would with an unsecured debt consolidation loan. Just make sure you really do use the money to pay off your old debts, that you cancel most or all of the credit accounts you are paying off, and that you don’t start building up new credit card balances or other debts.
“BankRate.com” is the best general source for finding out what loan interest rates are, and they also provide additional information and calculators relating to debt management (rating = A). But if you have a truly serious problem with debt you may need more. In the severest cases, personal bankruptcy may be the best way out (more about that, in the following paragraph). But short of that, a rigorous debt management program might do the trick. The Federal Trade Commission's “Dealing with Debt” and BankRate’s “Debt Management Basics” web pages are very good places to start (rating = A+). In addition to knowing what to do, you also need to know what to avoid: in particular high-fee, ineffectual, or disreputable credit management counseling and debt settlement firms. See the FTC’s advice before committing to any such service, at “Credit Repair: How to Help Yourself” (rating = A). Also see The Complete Idiot's Guide to Getting Out of Debt, by Ken Clark, which is well worth its modest cost (rating = A).
If you're looking for a better credit card, “Credit Card Insider” can help (rating = A).
- Bankruptcy. Personal bankruptcy should be a last resort, because – apart from any moral qualms you might have about it – it will greatly impair your ability to borrow money, at least for a while. Congress tightened up federal bankruptcy laws several years back and you so will not be able to wipe clean all kinds of debts. It will also cost you something to go through with it (usually only a couple of hundred dollars in filing fees, but most people end up with lawyers’ fees as well). Go to the “Personal Bankruptcy Information” website for helpful overall information, plus links to state-by-state forms, statistics, legal, and court information. There are a lot of helpful books out there as well – When You Have to File for Bankruptcy: Step-by-Step Instructions to Take Control of Your Financial Future, by Matt Pelc, is one of the better ones (rating = A).
- Tapping home equity. For most homeowners, home equity is something of a safety net. It can be especially appropriate as a way to pay for possible long-term care or other end-of-life care, because the bills will be costly, and by the time you need to pay them, you probably won’t need to keep your house any longer (though a spouse or other living companion might, so be careful!). In other cases, people live longer than they expect, and they run out of other savings and investments, so they might face the choice of tapping their home equity for living expenses, or else cutting back their standard of living to the bare bones. Such situations are justifiable reasons to use home equity – and in fact, these may even be a deliberate part of your long-term financial plan. But it is important to resist the temptation to use home equity to pay for random luxuries or to invest in the stock market or other risky ventures. The lure of supposed higher returns in the market might pay off, or it might cost you much of what you already have.
There are several possible ways to get at your home equity, each of them discussed in “Options for Obtaining Cash from Your Home’s Equity,” from RetirementWORKS, Inc. (rating = A); you might also want to check out the National Council on Aging's “Home Equity Advisor” (rating= A). For additional information about selling your home, see SECURITY / Your Home / Where should you live? For information about refinancing, and home equity lines of credit, see the earlier paragraphs in this section, above. For information about renting out or sharing living space, see SECURITY / Your Home / What should your financial arrangements be? For information about reverse mortgages, which are designed to provide you with income for life (as long as you live in your home), see “Should You Use a ‘Reverse Mortgage’ to Raise Cash from the Value of Your Home?” from RetirementWORKS, Inc., which will also lead you to additional sources of information on that fairly technical subject (rating = A).
- See also:
- Concepts and resources:
- Family budgets. Simply understanding what money comes in and what money goes out every week or month is half the battle in managing your expenses. So having a family budget is a good idea for everybody. But it is especially important in retirement, because your savings will disappear if you let your expenses creep up without realizing it, or if you allow too many “special” expenses to occur. For a helpful budget worksheet you can use on-line, try “BudgetWorksheets.org” (rating = A-), or for an Excel-based family budget spreadsheet you can download, go to the “Microsoft Office Family Monthly Budget Planner” (rating = A). For a nifty online tool that will help you target specific reductions in your expenses, try “EconomicCheckUp,” sponsored by the National Council on Aging (rating = A). For a review of online budgeting tools and services, see “Which Budgeting Site Is Best for You?,” a web-based slideshow from Kiplinger (rating = A). If you want something detailed but not online, try The Budget Kit: The Common Cents Money Management Workbook, by Judy Lawrence, which also provides advice and encouragement if you do have a tendency to overspend, or if you have accumulated a lot of credit card debt (rating = A).
- Future expenses, and inflation. In retirement, especially when you become more elderly, you are unlikely to find new sources of income. This means that you need to make sure you are prepared to meet your future expenses, as well as your current ones, if you want to remain solvent.
There are three kinds of future expenses that may be higher than your current expenses: (1) current items (especially medical ones) that you are likely to need more of as you age; (2) normal expenses that will rise because of inflation, and (3) special new expenses (maybe you want to help fund a grandchild’s college education, or maybe you will need to go into assisted living or a nursing home). None of these can be known for sure, but if you live a long time, increased medical expenses are almost certain to occur, and the risk of needing long-term care is significant. The good news is that inflation fears during retirement are often exaggerated. As people become elderly, many of their expenses actually go down rather than up, because people become unable to do things they used to spend money on (travel, entertainment, eating rich foods, keeping a car or boat, etc.) or they maybe are not interested in certain things any more (spending on clothes, home improvements, furnishings, and the latest new “stuff”). Although some expenses (property taxes, rent, and utilities, in addition to medical costs) do continue to rise, the fact that others tend to fall or even disappear, means that inflation is not usually a major problem for people well into their eighties, or older, and the annual inflation increases in Social Security often give them all the boost they need.
This mix of scary and reassuring information means that it can be difficult to do more than guess what will happen to your expenses in the future, unless you have pretty potent software at your disposal. This is why we recommend “RetirementWorks II” (available at the discounted price of $109 for people who find it via these Retirement Readiness pages – just remember to use Discount Code RRR109. Annual renewals are $44.50 – rating = A+). This same software will also help you with many other financial aspects of your retirement.
- Strategies for cutting expenses. If you need to cut expenses – or just want to stop wasting money, on principle – you probably can do so without a lot of difficulty or pain. Most of us have a lot more “fat” in our household and personal expenditures than we realize. And if you want to put some serious time into cutting your expenses, especially when you are retired, you can often get a good payback by clipping coupons, and by shopping at bargain outlets, second-hand stores, bazaars and flea markets, online auction and personal ad sites, and the like. You can think of the time you put into this as a hobby, if you enjoy it, or as your retirement job, if that makes it more palatable. And it’s a great kind of job to have, because all of the “pay” goes right into your pocket, with no cut for Uncle Sam or anyone else.
For some starter ideas, take a look at “Top 8 Ways to Save on Household Expenses” at About.com, which then links you to related articles with more details (rating = A-), or “How to Cut Household Expenses” at Mahalo.com, for a list of dozens of ideas (rating = A-). For more ideas and more links, try “The Dollar Stretcher” website (rating = A). If you want to put more effort into it, there are some good books on the subject, such as Frugillionaire: 500 Fabulous Ways to Live Richly and Save a Fortune, by Francine Jay, or one of Jeff Yeager's books: The Ultimate Cheapskate's Road Map to True Riches: A Practical (and Fun) Guide to Enjoying Life More by Spending Less or How to Retire the Cheapskate Way (ratings = A).
If you are actually running out of money, read “What If You Run Out of Money?” from RetirementWORKS, Inc. This paper offers lots of helpful ideas, and dozens of links to other sites that will help you save money or track down financial assets you might not know about (ratings = A).
- Help for shopaholics and hoarders. We all have times when we spend too much or spend on the wrong things. But for some of us, this is more than a lapse in judgment, or mere carelessness, but a form of compulsive behavior that means we need help. If any of this applies to you, you can check out the following websites and books, as needed (and you should also consider seeing a psychologist; “NetworkTherapy.com” can find people near you specializing in OCD – obsessive-compulsive disorders).
- “Shopaholics Anonymous” (rating = A-). Also, To Buy or Not to Buy: Why We Overshop and How to Stop, by April Lane Benson (rating = A).
- “The Hoarding Center” from the International OCD Foundation (rating = A), or “Hoarders Anonymous” (rating = A-). Also, Stuff: Compulsive Hoarding and the Meaning of Things by Randy O. Frost and Gail Steketee (rating = A-), or Overcoming Compulsive Hoarding: Why You Save & How You Can Stop by Fugen Neziroglu et al, which tells you more about how to overcome this problem (rating = A).
- Help regarding financial fraud and identity theft. The older we get, the more we are targeted by scammers of all sorts. Con artists target us by telephone, computer, and sometimes even in person. For help, refer to:
- “Dealing with Financial Fraud,” from RetirementWORKS, Inc., which will give you a helpful overview, and refer you to other sources for informtion, verification, and enforcement (rating = A).
- See also:
- Concepts and resources:
Generic advice – the kind you get from websites, magazines, newspapers, and other published sources – is often bad advice, and even when it's good advice for a lot of people, it might not be good for you. If money management interests you, you can do your own research, and if you have the temperament to fight the herd impulse that tends to drive the financial markets, you can certainly save money on fees and might make better decisions even than many professionals (though then again, you might not!).
However, most people who have a significant amount of savings, or who need help with specific financial products (especially insurance or annuities), prefer to, and ought to, consult with a specialist. But how do you find the right kind of financial advisor? Unfortunately, most of the advice about how to find an advisor is also bad advice – or, at least, incomplete. What you should look for depends on what you need.
There is a lot of rhetoric about avoiding advisors who make money from commissions on product sales, for instance, but the fact is that all professional advisors get paid in some fashion, usually through commissions, through investment management fees, or from fees you pay directly out of pocket. Any of these methods can create a conflict of interest for the advisor. The commissioned salesperson’s bias is the most obvious, and therefore the easiest to compensate for. The money manager who takes a percentage off the top every year is motivated to keep your assets under his or her control, which is not always in your interest (you might be well served putting a significant portion of your funds into bank certificates of deposit or paying down your mortgage, which you can easily do yourself for free, or into an annuity that will pay you income for life, no matter how long you live). The adviser who charges you a flat fee may be motivated to cut corners, and the one who charges an hourly fee may work inefficiently, or spend time on trivial complications or fancy presentations that cost a lot but don’t add to your financial wellbeing.
An advisor offering “free” services is probably a commission-only advisor, most likely an insurance specialist (though some of them are highly knowledgeable about financial services more broadly). If an advisor is labeled “fee-only,” this often means that a percentage (typically about 1%) will be taken as a fee out of your investment portfolio every year – this is on top of any mutual fund fees or other fees that are intrinsic to the investments themselves. Relatively few planners charge only hourly or flat rates, with no other compensation to themselves, and these charges are usually an eye-opening experience for first-time customers.
So the main thing to understand is what kind of advice you need (planning, investment management, insurance, accounting), and to ask around for recommendations, to interview two or three candidates, to understand their credentials and how they get paid (and what it will cost you), and then to make a choice. Don’t hesitate to use more than one advisor, if you have more than one kind of need, and don’t hesitate to get a second opinion on a major change that is being proposed for you. For further information and details, see “Finding a Financial Advisor” by Jeremy Vohwinkle at About.com (rating = A-) or, for a little more depth, “Money 101 Lesson 15: Hiring Financial Help,” at CNNMoney (rating = A).
For objective overall financial advice, we also recommend “RetirementWorks II” software (available at the discounted price of $109 for people who find it via these Retirement Readiness pages – just remember to use Discount Code RRR109 – rating = A). The price is far less than most advisors charge, and the advice from the software is usually better. But this software will not provide investment management, and while it may recommend that you purchase insurance or annuities, it will not tell you what specific policies or features you should buy – so you will still need expert help in implementing certain of its recommendations.
©2016 Still River Retirement Planning Software, Inc. / RetirementWORKS, Inc.