Monday, May 29, 2017

How to Make Your Money Last in Retirement

I just finished reading Jane Bryant Quinn’s book "How to Make Your Money Last: The Indispensable Retirement Guide”. Ms. Quinn wrote this book last year and is now 78 years old, so her concepts are not theoretical or abstract. She shares clear, concrete, and very detailed information on how to make your retirement money last which made this book useful and enjoyable to read.


The most basic thing she recommends to do to make your money last is to earn income as long as you can (as old as possible) and not start taking your social security until you are 70 years old. The social security payout increases 8% a year for every year after age 62.

The second way to make your money last is to control spending. The happy place to be in retirement is where your expenses are equal to or less than your income.

For most retirees, their biggest reduction comes from downsizing the cost of their housing. 

Another major expense for many are high stock trade fees and hidden commissions in mutual funds, annuities, and life insurance products. These high costs and hidden fees can eat away as much as 50% or more of the long term value of a retirement portfolio. The best way to avoid this is to use a discount broker and manage investments yourself.

An area of great savings and great risk is Medicare. You can start taking Medicare at 65 and it may be much cheaper than your employers health coverage plan, however, there are big risks to doing this. If you start Medicare, the government will automatically start your social security payments. You have to have the payments stopped or you could lose your 8% lifetime increase. If you miss a payment to Medicare, they cover it with social security and that could impact your start date. You may not even be notified and only find out about it at age 70 when you file for social security. Not a small risk.

Although I have  considered Annuities and Reverse Mortgages foolish things to do, the author pointed out some circumstances where they can be very profitable. The book does a great job of explaining the difference between an IRA, a 401K and a Roth IRA and the tax implications of each. She describes the rules for taxes and inheritances and what income is and is not taxable.

One thing I found surprising is that you can open a Roth IRA at anytime and put in any amount. The earnings are not taxed and, unlike an IRAs, there is no minimum that must be withdrawn each year or maximum that can be withdrawn each year. Even better, the earnings are not taxed when taken out. It actually seems too good to be true, so I recently bought a book on the details of Roth IRAs to see what the downside might be.

The author recommends that you pay off all credit card debt before retiring; apparently people 50 and older have a lot of credit card debt - far more than younger people. She also thinks it is best to avoid buying rentals as a source of income because they are hard to manage.

The book’s detail and depth makes it a slow read but I found the information so useful that I used a highlighter to mark the critical details and consider it an important reference.

I highly recommend this book, five stars.

Sunday, April 23, 2017

The Stock Market Index Revolution

The Index Revolution: Why Investors Should Join It Now by Dr. Charles Ellis explained a lot of the changes that I have witnessed in the stock market over the last 40 years. Dr. Ellis has a great deal of experience managing large pension funds and wealth funds. He explained the reasons why investing by amateurs like me no longer works and why it makes sense to invest in indexes.

In the 1960’s 99% of stock market trades were by amateur investors who traded just a few times a year. Today, less than 1% of stock trades are by amateur investors. Now, over 1.5 million professional traders, mutual funds, pension funds, and automated trading systems make 99% of the world-wide stock trades.

Full time professional and institutional traders take advantage of underpriced stocks by finding them faster than amateur investors. They do it by getting instant and detailed information about companies unavailable to amateurs.  Stock information sources can cost over $20,000 a year, impossibly expensive for an amateur like me managing my IRA and small portfolio of individual stocks.

Over the past 40 years, the trend toward professional and institutional stock trading led to the creation and spectacular growth of professionally managed mutual funds. Although the “famously successful mutual fund managers” paid huge salaries touted that their mutual funds performed better than the overall market, academic researchers found that over the past decade only one or two of their mutual funds out-performed the S&P 500 stock index. And, after the cost of trades and the high management fees, none of the mutual funds out performed the S&P 500 index.

The stock market generally goes up about 8% per year, averaged over 10 years. The expense of trades and staff, which is commonly 4% of the gain, can cut the long term appreciation of an investment portfolio by 50% of even the best performing mutual funds. Most of the mutual funds do not come close to matching the performance of the overall stock market index, but even if they did the net result would be less because of their costs.

These findings published by academia have led to a mass exodus from mutual funds to exchange traded index funds (ETFs).

The author’s career included managing foundation portfolios as well as researching stock fund results at Yale, Harvard, and Princeton. His unique experience makes the book an especially enjoyable read. I was so impressed with the data and view he presented that I immediately started moving out of individual stocks into ETFs. It has been about 90 days since I started and I am already very happy with the greater stability of the ETFs; no more disturbing daily volatility of individual stocks.

I highly recommend the book. Five stars. 

Thursday, March 23, 2017

Mini Habits

The book Mini Habits: Smaller Habits, Bigger Results by Stephen Guise is based on the story of how the author discovered that mini habits work better than traditional big habits. For ten years the author tried many different personal development systems, to build significant daily habits that would help him achieve his fitness and writing goals, and had no success. One night in desperation he decided upon a mini habits - just one push-up a day. To his surprise this mini habit empowered him to do more and more push-ups and to ultimately develop fitness habits that helped him achieve his goals.

His surprising results with mini habits inspired him to research why they worked so well in achieving major results. The author’s personal experiences with a motivational approach to achievement was that to be motivated to work on a goal, it had to be big enough to be exciting, like running five miles a day or writing 2000 words a day.  The daily tasks required to achieve the goals took so much willpower to start that he never had the energy to get started, much less start a new habit.  Without “motivation” he could not get anything done.

Researchers have discovered that to be motivated to achieve a goal, which requires habit formation, the goal has to be big enough to get people excited. For many people just coming up with a big “exciting” goal was enough of an accomplishment. Having the goal was a reward enough and they no longer felt the need to actually accomplish it. Those who tried to accomplish a big goal which required developing new habits that took a lot of energy and willpower had a very negative experience and feeling of failure when the goal was not achieved.  The result was a huge resistance to developing new habits and a negative experience every time forming new habits was attempted yet not accomplished.

Establishing a mini-habit, on the other hand, does not require a lot willpower to start and since it is easy to do, it creates a regular positive experience by doing it each day. Even though the mini-habit is ridiculously small, it provides a positive sense of accomplishment and encouragement. It is important not to increase the mini-habit goal so that it remains easy to do. The mini-habit doesn’t require much energy to start so there is more energy to do the work.

The author suggests taking at least a month to see if mini-habits will work for you. I tried the mini-goal the author had, to write 50 words a day on a book I have been working for a year about what I have learned about cancer that I think everyone should know. The first few weeks the mini-goal seemed to help a little, but now that I have been doing it for 6 weeks it seems to be helping a lot. It not only helped with writing the book, but it contributed to me focusing the content and scope of the book. Instead of trying to explain the historical models of cancer and how recent discoveries are finding them to be wrong, I am focusing on the stunning new discoveries and the success of non-toxic cancer  treatments. Last week I wrote more in a day than I have since high school.

I feel using mini-goals is helping me achieve my goals. If you want to try a new way to accomplish things try out mini-goals. I highly recommend this book - Five Stars.