It’s been quite a week. Quite a month, in fact, tying up loose ends at work, enjoying the Holidays, and mentally preparing for what lies ahead. I found myself thinking a lot about the many challenges faced in my career, the grind that it became at times, but also how fortunate I have been.
I benefited in my career from almost every advantage one could have – where and even when I was born, the language spoken in our household, the nation in which I was raised, the education I was provided, the many opportunities given to me over the years to be of value to others, the good health to be able to pursue those opportunities, access to the world’s best tools and resources for my profession, the tolerance and support of family, friends, coworkers and clients, the list is almost endless.
And then, as if that weren’t enough, some of you have seen fit the last few weeks to bless me with some very kind comments, good wishes for my future, and even some accolades. It’s almost like being at my own wake, but I get to hear what everyone is saying. In fact, it’s better than that – I get to hear only the good stuff!
I know that these kind statements reflect your goodness as much as my achievements, but it has been wonderful to hear. There is no greater legacy for me than to have positively influenced the lives of others. Hopefully, I was able to do that for you.
I wish you the very best in the coming year and beyond. I’ll be thinking of you. Take care. Bye-bye.
Larry Halverson: I've Been Thinking
Larry Halverson, CFA, Managing Director of MEMBERS Capital Advisors, Inc., is a veteran of more than 35 years in the financial services industry. Links: SUBSCRIBE TO: I've Been Thinking | 
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Friday, December 28, 2007
Thursday, December 20, 2007
Expectations and remembrances
We’re down to the last two of these weekly communications. I thought I’d share a final thought about me and my retirement this week and some thoughts about you next week.
I have been asked several times in various ways if I’m looking forward to getting out from under the stress and pressure of the workplace. I hadn’t really thought about retirement in those terms. I have learned over the years to coexist quite well with the vagaries of the investment markets and our performance relative thereto. Most of the pressure to “perform” has been self-imposed, and will continue into retirement. But, as I thought about it, I realized there are two other forms of pressure I’ve felt and that are probably unavoidable aspects of almost any career. And, these I am indeed looking forward to escaping.
The first is the pressure to always know what anyone might expect you to know. Or, more accurately, to appear to know whatever anyone might expect. If you do know, but you can’t communicate it and convey confidence, it can be almost the same as not knowing. And, if you don’t know, but can make a reasonable judgment and are willing to admit your ignorance (to yourself and others), that is often almost as good as knowing. But, either way, this pressure to know is probably the primary “early career” type of work pressure most people have to endure.
Later in a career, a solid foundation of knowledge/experience/judgment has largely been acquired (or you aren’t still in that career), but then another pressure develops. It may even be partially a result of all this knowledge/experience/judgment that has been accumulated (along with an at least equal volume of less useful . . . stuff). But, I’m afraid it’s mostly caused by simple age-related mental deterioration. Either way, it’s no longer pressure to know that dominates, it’s pressure to remember.
So, yes, it will be nice to escape the work-related stress I’ve felt over the years – first the pressure to know, and then pressure to merely remember. Although, I assume there already was a period mid-career when I felt neither. Or, maybe both? I don’t know. Or, at least I can’t remember.
And, at my age, you shouldn’t expect me to.
I have been asked several times in various ways if I’m looking forward to getting out from under the stress and pressure of the workplace. I hadn’t really thought about retirement in those terms. I have learned over the years to coexist quite well with the vagaries of the investment markets and our performance relative thereto. Most of the pressure to “perform” has been self-imposed, and will continue into retirement. But, as I thought about it, I realized there are two other forms of pressure I’ve felt and that are probably unavoidable aspects of almost any career. And, these I am indeed looking forward to escaping.
The first is the pressure to always know what anyone might expect you to know. Or, more accurately, to appear to know whatever anyone might expect. If you do know, but you can’t communicate it and convey confidence, it can be almost the same as not knowing. And, if you don’t know, but can make a reasonable judgment and are willing to admit your ignorance (to yourself and others), that is often almost as good as knowing. But, either way, this pressure to know is probably the primary “early career” type of work pressure most people have to endure.
Later in a career, a solid foundation of knowledge/experience/judgment has largely been acquired (or you aren’t still in that career), but then another pressure develops. It may even be partially a result of all this knowledge/experience/judgment that has been accumulated (along with an at least equal volume of less useful . . . stuff). But, I’m afraid it’s mostly caused by simple age-related mental deterioration. Either way, it’s no longer pressure to know that dominates, it’s pressure to remember.
So, yes, it will be nice to escape the work-related stress I’ve felt over the years – first the pressure to know, and then pressure to merely remember. Although, I assume there already was a period mid-career when I felt neither. Or, maybe both? I don’t know. Or, at least I can’t remember.
And, at my age, you shouldn’t expect me to.
Friday, December 14, 2007
How old are you . . . really?
One of the many imponderables involved in planning one’s retirement finances is the time horizon – financial advisor-speak for the length of time remaining before you die. You need to at least make a guess at this to properly plan your retirement finances. Not an easy topic, but as is so often the case anymore, our government is there to help (with the planning part, not the dying . . . yet.)
Go to www.ssa.gov/OACT/STATS/table4c6.html to see a table showing your life expectancy at any age. It says the average newborn male today will live to 74. The average 65 year old male has another 16 years left. Both of these time horizons strike me as way too short. And, outliving your money is one of the greatest risks faced by retirees.
So, you really need a better estimate, one that reflects your particular lifestyle, habits, etc. That’s just what you will find at www.livingto100.com. This site provides lots of advice for extending your life expectancy (a good thing in most non-financial respects), but the primary feature is an extensive questionnaire you can fill out (free, online), after which it will tell you your life expectancy. Cool!
One thing it will ask you, of course is your current age. For those of you who, after years of lying about it, aren’t really sure anymore just what your age actually is, I am providing herewith a simple yet remarkably accurate age calculator. Try it, and let me know how it worked for you.
1. How many times a week do you think about your age or aging (any number 1 through 9)?
2. I don’t believe you. Double it.
3. I still don’t believe you. Add 5.
4. Thinking ahead . . ., multiply it by 50.
5. If you have already had your birthday this year, add 1757. If not, add 1756.
6. Subtract the year you were born.
That leaves a three-digit number. The first digit is how many times weekly you claimed you think about your age. Silly you, huh!?
The remaining two numbers are your age.
Really.
Go to www.ssa.gov/OACT/STATS/table4c6.html to see a table showing your life expectancy at any age. It says the average newborn male today will live to 74. The average 65 year old male has another 16 years left. Both of these time horizons strike me as way too short. And, outliving your money is one of the greatest risks faced by retirees.
So, you really need a better estimate, one that reflects your particular lifestyle, habits, etc. That’s just what you will find at www.livingto100.com. This site provides lots of advice for extending your life expectancy (a good thing in most non-financial respects), but the primary feature is an extensive questionnaire you can fill out (free, online), after which it will tell you your life expectancy. Cool!
One thing it will ask you, of course is your current age. For those of you who, after years of lying about it, aren’t really sure anymore just what your age actually is, I am providing herewith a simple yet remarkably accurate age calculator. Try it, and let me know how it worked for you.
1. How many times a week do you think about your age or aging (any number 1 through 9)?
2. I don’t believe you. Double it.
3. I still don’t believe you. Add 5.
4. Thinking ahead . . ., multiply it by 50.
5. If you have already had your birthday this year, add 1757. If not, add 1756.
6. Subtract the year you were born.
That leaves a three-digit number. The first digit is how many times weekly you claimed you think about your age. Silly you, huh!?
The remaining two numbers are your age.
Really.
Friday, December 7, 2007
Let’s get serious
Wow. Here we are in my last month of writing this blog, and I realize that there are several helpful retirement-related references I’ve run across that I haven’t told you about yet. So, I’ll make this issue all business – a list of what I think are some of the most helpful references for the two most common retirement questions.
1. How do I go about getting financially prepared for retirement; where do I start? Whether you want to do-it-yourself or work with a financial advisor, you will be more comfortable with the process, and are likely to be more successful, if you understand how to approach it and what it’s all about. You can piecemeal this learning process by spending a lifetime reading articles (like mine) and listening to those who are living the process (like me), or you can dedicate several evenings over a few weeks learning about the process front to back, fully, and correctly. If you want to consider the latter, UC-Irvine offers an excellent overview course online. And, it’s free. Go to http://ocw.uci.edu/courses/AR0102092/. It will go fast (some evenings, you won’t want to quit), and you will always be glad you did it.
2. How can I figure out how and when to take my (our) Social Security and other retirement benefits? Here, you may want to check a few different sources. Start at ssa.govto estimate your benefit under various assumptions using any of three calculators – Quick, Online, and Detailed (click “Calculate your benefits”). Also check out the other calculators like “Retirement Age” and “Breakeven” to compare benefits starting at different ages. There is a wealth of information here (that’s part of the challenge, of course), so plan to visit it a few times taking little bites of information each visit. Also look at analyzenow.com; it may be easier to navigate and has a couple of great calculators. After at least scanning these two, check out a paper at pensionresearchcouncil.org, “Working Papers,” “2007,” “Rethinking Social Security Claiming in a 401(k) World.”
Ideally, of course, you would do this well before your retirement so you have time to formulate and execute your ideal game plan. But, if that option is no longer available, don’t give up. Spend every other evening for one full month doing this kind of self-education, and you’ll have a good, basic understanding of the issues and options, and a much better shot at living a financially secure retirement.
I wish you well!
1. How do I go about getting financially prepared for retirement; where do I start? Whether you want to do-it-yourself or work with a financial advisor, you will be more comfortable with the process, and are likely to be more successful, if you understand how to approach it and what it’s all about. You can piecemeal this learning process by spending a lifetime reading articles (like mine) and listening to those who are living the process (like me), or you can dedicate several evenings over a few weeks learning about the process front to back, fully, and correctly. If you want to consider the latter, UC-Irvine offers an excellent overview course online. And, it’s free. Go to http://ocw.uci.edu/courses/AR0102092/. It will go fast (some evenings, you won’t want to quit), and you will always be glad you did it.
2. How can I figure out how and when to take my (our) Social Security and other retirement benefits? Here, you may want to check a few different sources. Start at ssa.gov
Ideally, of course, you would do this well before your retirement so you have time to formulate and execute your ideal game plan. But, if that option is no longer available, don’t give up. Spend every other evening for one full month doing this kind of self-education, and you’ll have a good, basic understanding of the issues and options, and a much better shot at living a financially secure retirement.
I wish you well!
Friday, November 30, 2007
With freedom come responsibilities
On my way to work earlier this week, it dawned on me that my highly structured life –directed initially by parents, then teachers, then work – will soon be coming to an end. After 62 years of externally imposed structure, I’ll finally experience true freedom. No one will care where I am or what I’m doing.
That’s right. No one will care. And this, to many, may be the most challenging difference between being employed and being retired.
A job not only provides a paycheck and something to do, it also surrounds us with people who care what we do –coworkers, customers, vendors, etc. And, that gives us structure, and purpose, and relevance outside of our own skin.
My spouse, kids, and pets, of course, all have significant vested interests in my activities, and me in theirs, but the degree of life structure this imposes on me is quite minimal. This may change somewhat post-retirement (by spousal decree, you know), but for the most part, I’ll be on my own.
This, I believe, is why so many retirees feel adrift. They never before had to make their life happen; they just had to go to work and there it was. Once retired, they find themselves out of the mainstream and with a life devoid of structure. And, unless they do something about it, they soon begin to fade away, much like how objects lose their clarity, vibrancy, and significance as they fade into the distance.
I see this – literally – in my parents, now in their third year in an assisted living facility, and even more in some of the homeless people – the ultimate retirees – who spend their days in the park. The ones new to the “home” or the streets look fresh and are very aware of their surroundings. But, they soon begin to fade. Even their skin takes on a distinctive pallor while their clothes fade to an almost uniform grey-brown, and they no longer seek human interaction. Whether in the care facility or on the streets, they have become irrelevant to the mainstream of life and are slowly fading into the distance.
But, this can be avoided. We just have to assume the responsibility to make our new life happen. It’s up to us to create the structure of our lives – with family activities, volunteer work, hobbies, a part-time job, or whatever. And, we need to do it with purpose. We must at least think about our new “job description,” including objectives. What do we want to accomplish? When? What are the steps involved? And, how will we know when we’ve succeeded?
Without this approach to our new lives, we’re not what I would call retired, we’re just unemployed. And adrift. And soon fading into irrelevance.
That’s certainly not what I want to do with my upcoming freedom.
That’s right. No one will care. And this, to many, may be the most challenging difference between being employed and being retired.
A job not only provides a paycheck and something to do, it also surrounds us with people who care what we do –coworkers, customers, vendors, etc. And, that gives us structure, and purpose, and relevance outside of our own skin.
My spouse, kids, and pets, of course, all have significant vested interests in my activities, and me in theirs, but the degree of life structure this imposes on me is quite minimal. This may change somewhat post-retirement (by spousal decree, you know), but for the most part, I’ll be on my own.
This, I believe, is why so many retirees feel adrift. They never before had to make their life happen; they just had to go to work and there it was. Once retired, they find themselves out of the mainstream and with a life devoid of structure. And, unless they do something about it, they soon begin to fade away, much like how objects lose their clarity, vibrancy, and significance as they fade into the distance.
I see this – literally – in my parents, now in their third year in an assisted living facility, and even more in some of the homeless people – the ultimate retirees – who spend their days in the park. The ones new to the “home” or the streets look fresh and are very aware of their surroundings. But, they soon begin to fade. Even their skin takes on a distinctive pallor while their clothes fade to an almost uniform grey-brown, and they no longer seek human interaction. Whether in the care facility or on the streets, they have become irrelevant to the mainstream of life and are slowly fading into the distance.
But, this can be avoided. We just have to assume the responsibility to make our new life happen. It’s up to us to create the structure of our lives – with family activities, volunteer work, hobbies, a part-time job, or whatever. And, we need to do it with purpose. We must at least think about our new “job description,” including objectives. What do we want to accomplish? When? What are the steps involved? And, how will we know when we’ve succeeded?
Without this approach to our new lives, we’re not what I would call retired, we’re just unemployed. And adrift. And soon fading into irrelevance.
That’s certainly not what I want to do with my upcoming freedom.
Monday, November 26, 2007
Some thoughts before the holiday weekend.
(If you’ve had your fill of bad news about the prevailing economic problems, just read the headings. You’ll get the point.)
More problems on the front-end of the subprime mess – The bulk of rate resets on the most irresponsibly originated mortgage loans are yet to come, and most “option/arm” loans, which give the borrower the option to set his own payment amounts (that’s right!) for the first few years, are yet to start requiring normal payments. And, home prices continue to fall, with more and more now worth less than the amount of the mortgage. So, the flow of mortgage-related problems going into the credit markets has not yet peaked.
More problems on the back-end of the subprime mess – Write-downs of subprime-related debt continue as holders realize that they have more exposure than they thought, and the exposures they have are riskier than they thought. A bond guarantee company (it promises to pay the interest on a bond if the issuer defaults) is the latest casualty, which, of course, turns the supposedly sound bonds it insures (many of which are municipal bonds) into illiquid junk. At the same time, the rating agencies can’t lower bond ratings fast enough to shield them from endless lawsuits, further exacerbating the problems. Soon, the fidelity bond and “errors and omissions” insurers will be announcing ballooning claims.
More problems emanating from the subprime mess – Retail sales, finally, are showing what may be some weakness in consumer spending. Credit card debt is still building, but only slowly, and I expect to soon be reading about spreading defaults in this huge arena, which somewhat like home mortgages, will be felt throughout the nation’s financial system. I would put he chances of avoiding a recession now at no better than 50/50.
In spite of this backdrop, I hope you can enjoy your Turkey Day. And, I have a couple of other thoughts for you as you then begin your Holiday shopping.
a. Instead of all the usual toys, games or whatever you usually buy for the kids or grandkids, put some of your gifting in the form of future financial freedom. Open a mutual fund account for them and put, say, $1,000 in a globally diversified fund or mix of funds. When they are considering retirement 50 years from now, assuming the fund delivers 8% average annual returns, they will have nearly $47,000. Wait 60 years and it will be $101,000. Factoring in the Fed’s inflation target of 1% to 2% to put these future sums in today’s purchasing power will cut them approximately in half to $23,000 after 50 years and $44,000 after 60 years – still very handsome sums. And, that’s with one gift of $1,000 now. Invest another $1,000 in each of the next 19 years, and the ending amounts grow to approximately $257,000 and $482,000 . . . in today’s (inflation-adjusted) dollars.
b. Is it reasonable to expect 8% returns, or about 6 ½% after inflation, over the next few decades from a diversified portfolio? With a world view, I believe these kinds of returns can readily be attained. Here in the U. S., however, it may well be harder to achieve this in the next 50 years than it was in the last 50 years. You’ll have to do less of your buying when things look rosy and more when markets are reacting to pervasive concerns and the expectation of more bad news to come. Like . . . now?
More problems on the front-end of the subprime mess – The bulk of rate resets on the most irresponsibly originated mortgage loans are yet to come, and most “option/arm” loans, which give the borrower the option to set his own payment amounts (that’s right!) for the first few years, are yet to start requiring normal payments. And, home prices continue to fall, with more and more now worth less than the amount of the mortgage. So, the flow of mortgage-related problems going into the credit markets has not yet peaked.
More problems on the back-end of the subprime mess – Write-downs of subprime-related debt continue as holders realize that they have more exposure than they thought, and the exposures they have are riskier than they thought. A bond guarantee company (it promises to pay the interest on a bond if the issuer defaults) is the latest casualty, which, of course, turns the supposedly sound bonds it insures (many of which are municipal bonds) into illiquid junk. At the same time, the rating agencies can’t lower bond ratings fast enough to shield them from endless lawsuits, further exacerbating the problems. Soon, the fidelity bond and “errors and omissions” insurers will be announcing ballooning claims.
More problems emanating from the subprime mess – Retail sales, finally, are showing what may be some weakness in consumer spending. Credit card debt is still building, but only slowly, and I expect to soon be reading about spreading defaults in this huge arena, which somewhat like home mortgages, will be felt throughout the nation’s financial system. I would put he chances of avoiding a recession now at no better than 50/50.
In spite of this backdrop, I hope you can enjoy your Turkey Day. And, I have a couple of other thoughts for you as you then begin your Holiday shopping.
a. Instead of all the usual toys, games or whatever you usually buy for the kids or grandkids, put some of your gifting in the form of future financial freedom. Open a mutual fund account for them and put, say, $1,000 in a globally diversified fund or mix of funds. When they are considering retirement 50 years from now, assuming the fund delivers 8% average annual returns, they will have nearly $47,000. Wait 60 years and it will be $101,000. Factoring in the Fed’s inflation target of 1% to 2% to put these future sums in today’s purchasing power will cut them approximately in half to $23,000 after 50 years and $44,000 after 60 years – still very handsome sums. And, that’s with one gift of $1,000 now. Invest another $1,000 in each of the next 19 years, and the ending amounts grow to approximately $257,000 and $482,000 . . . in today’s (inflation-adjusted) dollars.
b. Is it reasonable to expect 8% returns, or about 6 ½% after inflation, over the next few decades from a diversified portfolio? With a world view, I believe these kinds of returns can readily be attained. Here in the U. S., however, it may well be harder to achieve this in the next 50 years than it was in the last 50 years. You’ll have to do less of your buying when things look rosy and more when markets are reacting to pervasive concerns and the expectation of more bad news to come. Like . . . now?
Friday, November 16, 2007
Ah, yes, I remember it well (Part 3)
This was quite a week of business and investment news, wasn’t it? Bad news. Depressing news. Scary news.
Did following this news make you any money? Did it save you any money? Did it tell you anything about the future? And, can you even remember very much of it, other than that it was bad, depressing and scary?
The fact is, if you acted on news this week by buying or selling an investment, you won’t know whether it was a good move until (a) you reverse the trade, or (b) you cash out to spend the money. If you’re like most of us, “a” will never happen, and you’ll forget what you did, much less why you did it, by the time “b” rolls around. Ah, no, you won’t remember it well.
So, although you (and I, I admit) will continue to follow the daily business news, we must recognize that it is very unlikely to help our long-term investment results. And, besides, our fund managers and financial advisors are already doing this, which they are able to do without getting emotionally involved and with a more seasoned perspective.
My ultimate solution, which allows me to follow the daily news yet not commit financial self mutilation by acting on it, is this. I read the paper each day, but I also glance at yesterday’s, or one from last week. This reminds me that business and investment news may be attention-getting, but it’s not worth getting worked up about. And, it’s certainly not a sound basis for altering a well-designed, long-term investment program.
Did following this news make you any money? Did it save you any money? Did it tell you anything about the future? And, can you even remember very much of it, other than that it was bad, depressing and scary?
The fact is, if you acted on news this week by buying or selling an investment, you won’t know whether it was a good move until (a) you reverse the trade, or (b) you cash out to spend the money. If you’re like most of us, “a” will never happen, and you’ll forget what you did, much less why you did it, by the time “b” rolls around. Ah, no, you won’t remember it well.
So, although you (and I, I admit) will continue to follow the daily business news, we must recognize that it is very unlikely to help our long-term investment results. And, besides, our fund managers and financial advisors are already doing this, which they are able to do without getting emotionally involved and with a more seasoned perspective.
My ultimate solution, which allows me to follow the daily news yet not commit financial self mutilation by acting on it, is this. I read the paper each day, but I also glance at yesterday’s, or one from last week. This reminds me that business and investment news may be attention-getting, but it’s not worth getting worked up about. And, it’s certainly not a sound basis for altering a well-designed, long-term investment program.
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