Mind the Gap

How many people do you know who want to retire early, or leave their job for one reason or another? At first glance it seems like it would be awesome – plenty of free time, nobody telling you what to do, it’s like moving out of your parent’s house all over again! And I’m all for this, although I’ll be the first to admit early retirement just isn’t for me – at least not in the traditional sense. But I’m not discussing the pros/cons of early retirement – in the next few paragraphs I’d like to identify some things I think many of us overlook in our race to the finish.

First, and this is a biggie, health insurance. You are eligible for Medicare three months before your 65th birthday to 3 months after. There are some additional opportunities for those with disabilities, but let’s stick to this. If you retire before age 65, and you had been relying on your employer’s healthcare plan take a look to see what you’ll do when you leave. Does your spouse have a plan? Will it affect any of your children who may still be on your plan (under age 26 or disabled)?

I encourage everyone to make sure they (1) have identified what they’ll do and (2) are sure they can afford the option(s) chosen. It would be horrible to work off the premise you’ll use COBRA and then find out you can’t afford the premiums, or that it doesn’t cover you until you’re Medicare eligible. If leaving the work force before 65 is on your radar, healthcare should be one of the first things you consider.

Next – what are you going to do with all that time? For most of us work accounts for at least (8) hours, 5 days each week. Not counting travel time or other jobs (side-hustles) you may have. This time is occupied, even if only with “busy work”, not requiring much on your part to entertain yourself. What would 52 weeks of vacation be like for you? Could you afford it?

I urge you to consider this seriously, because I’ve heard several “rules” of thumb when it comes to retirement and I’m not fond of any of them. For example – the rule you only need 80% of what you’re currently making. This is a great rule IF, and only IF, you are in the minority of the population who is saving at least 20% of their income. If you’re not, why would you spend less when you have more free time? Sure, you may fill some of this time volunteering and with hobbies, but rather than just jumping right in try taking mini-retirements first – vacations without trips planned, because in most cases it’s not realistic in most cases you’ll be able to take trips each week – while spending what you’re spending now. 

Last, and not in any way least, understand your why. Are you doing this because it’s the “thing” to do, because you have a bigger vision you need time for, or because you want to relax and enjoy your later years? There’s no right or wrong reason, but the more connected to your why you are the more likely you’ll do whatever it takes to make it happen.

And that’s the point I want to stress – no matter what you want to do, or why; if it’s important to you treat it that way. If you want 40+ years to yourself in retirement, make sure you have enough money to fund it – even if it means making sacrifices now. Only, if it’s what you really want they won’t be sacrifices; they’ll be steps on your journey to your ideal state.

If you’re retiring before Medicare eligibility, consider investing into a side account, at least equal to your current insurance premiums, to be drawn from later. If you want to live on a beach or in the middle of the woods, would it help to pay off your current mortgage to maximize the money available to purchase these cottages? Just food for thought, and don’t feel bad if you don’t have all the answers. Talk to your advisor(s), friends and family – use them as sounding boards (but not final decision makers). Look for those with similar goals and see what they did to accomplish their goal; or have done to put themselves on track. And learn from their mistakes – not reinventing the wheel goes for the bad as well as the good.

 

Side Hustle, What?!

When I was younger if you had a second job, it was just that – a job. It wasn’t anything to celebrate, because often you were working to help pay your bills. I’m not sure what’s changed, and I fully admit I’m not 100% in touch with current lingo – but as I understand what I’ve been hearing, a “side hustle” is something people SHOULD have.

I can think of many instances when this is a good idea; for example if you have a hobby  you’re trying to become better at, in the hopes you can make it into a career (i.e. wood carver). After all, assuming the following:

1) Malcolm Gladwell’s theory it takes 10,000 hours to master a skill is accurate

2) We work and sleep on average (8) hours per day

3) We can spend (4) hours of each day (Monday – Sunday) working on our skill

It would still take us almost (7) years to become a “master” (6.85 years). That’s a long time to work on something for no reward (other than the satisfaction of becoming better). So getting paid to practice could be a great way to both stay motivated to learning and put a little extra cash in your pocket.

However, I question if this is why most people have a side hustle – I think for many it’s a way to increase their income. Nothing wrong with this, if you’re honest with yourself and you know what you want the money for. If it’s being used to cover monthly expenses, then I encourage you to revisit your spending habits. On the other hand, if you’re using it to save for a specific goal; just to have some extra cash; or as I postulated above, to get better at a skill more power to you!

Here’s where I become an old fuddy duddy (as proven by using the words “fuddy duddy”). When you consider a side hustle, and are determining how much money you’re going to make – please consider the associated expenses. This means if you’re driving for one of the ride share apps consider the increased frequency of required maintenance (oil changes, detailing, brakes, etc); the same goes if you’re renting a room or your house – typically there are additional expenses, including insurance, that often go overlooked.

If you’re “earning” $500 per month, but spending an extra $300/mth doing so evaluate if it’s really worth it. Many of the side hustles I’ve seen people do have the potential to be very lucrative; but like anything if you don’t know what it’s costing you you cannot be sure you’re really making a profit.

If you’re not sure how much you’re really making, track your cash flow. This is nothing more than the money coming in vs the money going out. You can set up a tracker in basic tracker in excel or talk to a financial advisor.  I like to see my clients saving at least 20% of money coming in for goals (not just retirement, things like trips to Disney & new cars as well). If you can’t, even with the side hustle, I would encourage you to evaluate where your money is going – and not just take on something else. And remember, although I’ve only talked about money; there’s another cost to be considered – time. Use it wisely, I don’t know of anyone who died wishing they’d spent more time working.

The Catch-22 of Taxes and Social Security

I don’t think anybody likes taxes – in fact I think it’s safe to say we would all prefer not to pay them. To that end, we do whatever we can to reduce what Uncle Sam sees as our taxable income; and why not – after all we work hard for what we earn! Unfortunately, not very many companies offer pensions, so it’s up to the individual to save for his or her retirement. Add a child with a disability, and you’re saving for at least two generations; and this is where the catch-22 comes into play.

If you reduce your taxable income your reducing the amount you pay into social security. Social Security considers the average of 35 years of wage history, with any years not reported counted as $0 income. This average is used to determine what they will pay you, the worker, in the event you become disabled or retire. The lower the amount you pay in, the lower the amount you receive. This will be even further reduced by taking social security before your full retirement age (FRA).

So what,  you may be saying. Well, remember what I said in the first paragraph about most of us not receiving a pension. Without Social Security, 2 in 5 elderly Americans would have incomes below the poverty line – that’s 40% of people aged 65 and up (source Center of Budget and Policy Priorities). If you decrease the amount you “earn”, without saving for your retirement, you’re also reducing your retirement income; not to mention what you’ll leave behind for your spouse or disabled child.

Disabled adult children become eligible to receive SSDI, provided they were disabled before the age of 22, paid on their parent’s Social Security earnings record. There are additional requirements (found here); but the point I want to make is YOU control what your child will receive. In 2017 the maximum earnings subject to Social Security payroll tax is $127,200. This means if you’re married or head of household you’d be in the 25% federal tax bracket.

In my opinion it’s worth it (to me) for my son to receive the highest amount of SSDI possible. I’m not a fan of paying taxes, but I do want to ensure my son’s quality of life doesn’t drop when I’m gone. I’m not counting just on social security, I have life insurance and I’m fortunate to transfer some of my military pension to him as well. Each of us needs to make our own decisions, there is no right or wrong answer. However ensure you are making an informed decision. Weigh the pros/cons of taxes, and consider what you’re doing to help yourself, and if applicable, your disabled child.

This, like many financial decisions, doesn’t have to be made in a vacuum. Talk to your advisor and/or accountant; get their input. The solution is not necessarily always reducing your taxable income, especially if you’re a self-employed business owner and you’re reinvesting everything you make back into the business (not saving for retirement).

Think Bigger

I think it’s safe to say all of us have something we want, but don’t yet have – be it something personal, professional, spiritual or financial (and any other category I may have omitted). When was the last time you took a step back, asked yourself what you were waiting for, and were sincerely satisfied with the answer?

I like to think I’m a pretty motivated guy, but a recent health scare led to me evaluating some choices I’ve made and asking myself if I made them for the right reasons. For choices I’ve acted on, I was 100% satisfied – however there were plenty of things I “haven’t gotten around to, because I’m too busy” that I had to call myself on. There were also some choices I’d executed where I think I held myself back, didn’t let myself stretch for fear of failure and/or rejection.

How do we get around this? Well, if you listen to enough “experts” you’ll hear  you just need to push through it. The problem I’ve always had is there is nothing to leverage yourself against to help with this “push”. So I recommend finding someone you trust, who believes in not just what you are currently doing; but also sees the potential you have. Share your vision with them, and ask if they’d be willing to help.

The argument I hear for this is “what’s in it for them”? “Why would they help me?” And a few others, but I think you get the idea. The simplest answer – by helping you realize your goals, and watching you stretch; you’ll expose them to bigger thinking and help them find the courage to attempt their own “stretch” goal(s). During your journey you may have to shift who you work with, either because they may not know how to help you grow, maybe they haven’t gotten far enough themselves or you find your dynamic together is much better as friends.

This is all okay, and to be expected. We all grow at a different pace, the key is to never stop. Thinking bigger doesn’t mean running for public office or starting your own company, it could be as simple as committing to save an extra $5 or $10 each week, or sticking to your grocery list. If you set small goals, increase them as you achieve them. I think starting small makes the most sense, because it creates positive momentum. Setting small, easily achievable goals outside of what you are currently doing will show you can do it!

You don’t have to start tomorrow, but definitely commit to a day and start. Get a wall calendar, or make notes in whichever digital calendar you use, to track how you’re progressing towards your new commitment. Setbacks are only failures if you give up, expect to have them and commit to not letting them get in your way. And it’s not a failure if you attempt something and find it’s not your “thing”, as long as an honest effort was made.

Much of this may sound like stuff you tell your kids, or teams you coach; no surprise – it’s how we help them become successful. It begs to question why we are not doing the same for ourselves. Take a chance, set a commitment for something huge – and then set smaller incremental commitments that will get you there. Find an accountability partner, a trusted advisor and/or friend. Track your progress, and be prepared to blow your socks off!

 

How “High-Functioning” Are You?!

Full disclosure – this is a rant. I’m not a fan of being asked “is your son high-functioning”, or words to that effect; regardless of how well meaning someone is. In the research I’ve done the best definition of “high-functioning” I’ve been able to find is from Autism-Help.org, and it states: “High-functioning autism (HFA) is an informal term applied to individuals with autism, an IQ of 80 or above, and the ability to speak, read, and write.”

Given this definition, why does it matter in “normal” conversation? I don’t think I’ve ever asked the parent of a neuro-typical child if their son/daughter was an honor student, or if they had an IQ over 80, within the first ten minutes of meeting them. Sure, I can hear people replying “well what are we supposed to say?” Or, “we’re not trying to be rude, we just don’t know what to say”.

Why do you feel you need to say anything? If you’re not familiar with the diagnosis, be it autism or other disability, why not just admit that and let the person you’re having the conversation with decide how to proceed?

Here’s the reality. There are going to be circumstances in all of our lives where we will be at a loss for words or feel extremely uncomfortable. In my opinion, the best thing you can do is lean into it. Either choose silence, or explain why you’re uncomfortable – I think you’ll find most people will be very accommodating and will really value your honesty.

Speaking as a parent, I don’t expect you to understand if you aren’t familiar with it. And frankly, most of the time I don’t want to talk about it; especially in casual conversation. Make no mistake, I’m very proud of everything my son has accomplished, but I’m a very private person. Other parents may choose to be more open, and perhaps the high-functioning question doesn’t strike a nerve with them as it does with me. All I ask is think before you speak. If you are going to ask a question like this, where are you hoping the conversation goes?

How to Transition to a Monthly Paycheck

For most of our working years I think it’s safe to say just about all of us receive our checks weekly or every other week; and plan to pay our bills accordingly. Speaking for myself, while on Active Duty my wife and I designated the 1st’s paycheck to the mortgage and the 15th’s to our living expenses. Simple and easy to repeat; and I’d wager many others do something very similar.

I never considered what would happen if I was only paid once per month – and although I “knew” it’s what would happen when I retired from the Navy I wasn’t ready for it. It’s a different dynamic, even if you’re being paid the same or making more; because if it’s something you’re not used to it’s easy to spend like you have another check coming at the halfway point – and if you’re used to weekly paychecks it can be even worse.

To add insult to injury, it’s likely there is going to be a gap of at least (1) month between your last regular paycheck and your monthly check when transitioning to a military pension or social security. It could be even longer if you’ve filed a VA claim, I believe the current wait for fully developed claims is (6) months – a fully developed claim is one in which all supporting documentation has been provided and the VA forms have been completed correctly.

So what can you do to help yourself?

At least six months, a year would be ideal, start gradually transitioning to paying your bills within the first week of the month.

First, figure out your living expenses. Start with tracking all your spending, Mint.com is a useful tool; but many banks will include a similar tool. This will tell you how much you need to earn, and if you’re not interested in transitioning to another job/career; it will help you determine if, and where, you need to cut back. For those who are Active Duty and are being paid BAH cut your expected earnings by almost 2/3 – because you will receive ~50% of your base pay only (whatever percentage you’re entitled to, it’s calculated off your base pay). If your expenses are more than your new income you have two choices – find another income source (not credit cards or other debt instruments) or dial back your expenses.

After you’ve calculated your living expenses and your monthly income, train yourself to live off one pay period.  For most of us this is going to take some coordination, because we don’t have sufficient savings to serve as a buffer. Start small, with a bill or two that are fairly consistent – like phone and/or cable. You know how much you need to set aside, and can plan for it by dialing back accordingly.

When you’re ready to start, set aside 1.5x’s the amount of the bill(s) you’re adding to the first of the month; and I recommend putting this somewhere other than your everyday savings/checking. You’re saving more than you “need” to build the habit and get you used to having less money available from your other checks. This also gives you the extra money you’re going to need to have available on the first of the month. If you cannot afford to save the full amount, then start by setting aside at least an extra $25. The less you can afford to set aside the more time you will need to give yourself for the transition, because we want the habit firmly anchored before the transition occurs.

The goal is a complete transition to paying all your bills on the first of the month before you leave the work force. This isn’t the only way to do this, and if it doesn’t appeal to you my hope is it has at least got you thinking about when you’re only going to have a monthly check. Don’t hesitate to get help if you need it, in this particular case I would recommend a fee only (hourly) planner – Garrett Planning Network, NAPFA, and the CFP Board all have “Find an Advisor” tool; to name a few organizations.

 

 

Expense or Investment?

When I used to think about hiring someone my immediate thought was “how much is this going to cost”; and in this article I’m going to share why – at least for me – this was the wrong question to ask. When I was younger I was convinced I could, and should, master anything I wanted. While to some degree it’s probably accurate to say if I put enough time and energy into learning something I may be able to perform adequately, it’s not realistic – if for no other reason there is only so much time in the day. Not to mention all the things I just don’t like doing – like cleaning the house, yard work, etc.

But what alternatives do I have? It’s unlikely I’m ever going to find someone everything I dislike for me out of the kindness of their heart; and with regards to the skills I don’t have, when I need them it’s too late to try to learn them. The most recent example for me is replacing the brakes on my car. I don’t have a driveway (on street parking), I’m not a fan of working on cars, and frankly I have very little mechanical aptitude – so I’m taking the car to the shop.

Now yes, I understand how “easy” it is, and I could very likely YouTube it; but to me the time I would need to (1) watch the videos and (2) do the work takes away from things I’d rather be doing – like hiking or even Netflix. In my opinion, I work hard Monday – Friday as a Financial Planner so on evenings and weekends I am unwilling to add any additional work, especially if it’s something I’m not a fan of. Say what you will about my philosophy, but it’s mine and I own it! : )

This is where I ask myself is something an investment or an expense. To me, an investment (unrelated to the markets) is anything that brings me value when weighed against the cost in time, money or both. An expense is anything where the cost outweighs any value I receive. I value my free time very highly, so giving it up for things I don’t enjoy has an equally high cost. I provided an example of an investment to me – getting my brakes done by professionals. An example of a cost is using a grocery delivery service (at least right now); because although I do not like grocery shopping, I can usually be done with it very early (I go between 6 and 7 am). This is more valuable to me than waiting for the delivery service to show up, even factoring in the convenience of not needing to go to the store.

We all make choices like this almost everyday, admittedly I would wager many don’t think of it quite like I do – but in my opinion everyone has a system of checks and balances they use when making decisions. Unfortunately I think often we are “penny wise and pound (dollar) foolish”; making choices based purely on the dollar value assigned as something’s cost.

Insurance is the most obvious (in my opinion) market, and companies don’t help by advertising to provide the lowest possible premiums. There are other things to consider, the most important to me being will the company pay a claim with a minimum of fuss, or are they going to look for reasons not to.

Durable goods, like furniture; and services, like accounting and estate planning; are another area where I think people try to go cheap – either doing it themselves or shopping for the lowest bidder. In my experience you get what you pay for – although I’m not advocating to pay the highest price all the time; because price is not a guarantee of quality. What I am proposing is consumers take the time to determine what they want, and how important it is to them.

If something is truly important, invest more time before buying; and don’t let the price be the only factor. Weigh the other benefits – tangible and intangible. Is it going to free up your time? If the answer is yes, what is the value of your time? How long will it last? Quality craftsmanship may last generations, meaning you will only spend this money once. Finally, don’t underestimate the value of peace of mind; not having the nagging concern in the back of your mind of “did I do it right?”.

I work with my clients to understand their true expenses, so they can afford to make investments in the things they value the most. You can, and should, do the same. It may not be easy at first, because it’s almost counter to what advertisers want you doing; but once the habit has been developed I believe you’ll wonder how you ever got by without it. Here’s my last example, in favor of cable TV. If you enjoy sports, it’s something you’re passionate about and rely on it to unwind; then having cable or a sports package is an investment for you. But to afford this you may need to cut back on other expenses, like buying store brand groceries or shopping for clothes at a thrift store.