Consider the Lilies

After swearing off reading any more about the 4% rule and its many variations, I fell off the wagon and read another article on the subject. For new readers, in 1994 Bill Bengen published a seminal study of safe rates of withdrawal in retirement in the Journal of Financial Planning that demonstrated a retiree who withdrew 4% of their nest egg in the first year of retirement, then increased that amount to cover inflation in subsequent years had better than a 90% chance of not outliving their money. His work has spawned an industry for statisticians, who by varying assumptions postulate a range of safe withdrawal rates between 3% and 5%. Some even vary the rate according to annual market return so that in good years a retiree can only withdrawal 3% and in down years a retiree can draw up to 5.5%.

All this is based on the assumption that you will not be hit with brutal stock market crash in the first few years of your retirement. If this happens, granny will be a greeter at Walmart or living with her children. Ultimately, we all live by faith of one kind or another.

We can’t predict the future.

For the past 12 years, I have focused intently on reaching THE GOAL, retirement. I am almost there. In less than 7 months I will be retired. I have been saving and investing. Accumulating wealth was my objective. Now that will change, or will it?

I will definitely be spending down my nest egg that is why I have it. As I grow older I know capital preservation will become more important than growth, but I would still like it if my money would continue to grow rather than drift down towards zero. How much to spend? If I spend too much, will I be reduced to eating Alpo? If I spend too little will I deny myself the good things of life that I have earned and that I can afford? I wish to bless both the future and the present. How much can I spend on myself and still do both?

In the end it is all about hearing from God.

The wise and the foolish, the righteous and the wicked, the pious and the impious, will all pass from this world. The Italians have a saying, “When the game is over, the king and the pawn are both placed in the same box.” I hope that the decisions I make in my remaining years are a blessing to both myself and to others.

Luke 12

[15] And he said unto them, Take heed, and beware of covetousness: for a man's life consisteth not in the abundance of the things which he possesseth.
[16] And he spake a parable unto them, saying, The ground of a certain rich man brought forth plentifully:
[17] And he thought within himself, saying, What shall I do, because I have no room where to bestow my fruits?
[18] And he said, This will I do: I will pull down my barns, and build greater; and there will I bestow all my fruits and my goods.
[19] And I will say to my soul, Soul, thou hast much goods laid up for many years; take thine ease, eat, drink, and be merry.
[20] But God said unto him, Thou fool, this night thy soul shall be required of thee: then whose shall those things be, which thou hast provided?
[21] So is he that layeth up treasure for himself, and is not rich toward God.
[22] And he said unto his disciples, Therefore I say unto you, Take no thought for your life, what ye shall eat; neither for the body, what ye shall put on.
[23] The life is more than meat, and the body is more than raiment.
[24] Consider the ravens: for they neither sow nor reap; which neither have storehouse nor barn; and God feedeth them: how much more are ye better than the fowls?
[25] And which of you with taking thought can add to his stature one cubit?
[26] If ye then be not able to do that thing which is least, why take ye thought for the rest?
[27] Consider the lilies how they grow: they toil not, they spin not; and yet I say unto you, that Solomon in all his glory was not arrayed like one of these.
[28] If then God so clothe the grass, which is to day in the field, and to morrow is cast into the oven; how much more will he clothe you, O ye of little faith?
[29] And seek not ye what ye shall eat, or what ye shall drink, neither be ye of doubtful mind.
[30] For all these things do the nations of the world seek after: and your Father knoweth that ye have need of these things.
[31] But rather seek ye the kingdom of God; and all these things shall be added unto you.

Timelines

Keith Cameron Smith discovered one of the significant differences between the rich and the poor is their sense of time. We all plan, but our timescales are different. Smith makes the following observations concerning different groups.

“The very poor think day to day.” At the extreme end of the scale drug addicts have a time horizon limited to the distance to the next fix, but many of the world’s poor are forced by circumstance to think on a day to day basis. If they are unable to obtain food today, they will die. Making it to sundown is an accomplishment in this world.

“Poor people think week to week.” I have seen this in the factories of South Carolina during the 1970s, people literally living paycheck to paycheck. If they had money they spent it, sometimes irresponsibly and extravagantly. The idea of deferred gratification only appeared when Christmas was drawing near. Starting sometime around November 1 everyone, especially the moms, wanted overtime. Their time horizon jumped from a week to a couple of months.

“The middle class thinks month to month.” Smith believes the middle class focus is on comfort. What can they buy today to make their life comfortable? If they think they can make the monthly payments, “It’s all good, bruda.”

“The rich think year to year.” Smith believes one of the key strengths of the rich is an ability to defer gratification in order to achieve freedom. This long term thinking gives them an edge over time.

“The very rich think decade to decade.” If you want to be rich starting thinking in terms of decades.

Ask questions and begin planning:

If I go to night school for five years then I can get a MSRN that will allow me to get a job in geriatric nursing. Given the aging Baby Boomers, I will have job security for the rest of working life.

If I pay off my mortgage in 10 years rather than 30 years, I can save $250,000 that I can then invest in dividend paying stocks and investment grade bonds. (do the math you will be shocked)

As you grow older, building wealth will lead to other questions such as:

How can I best shelter my investments from taxes and structure my estate so that my grandchildren and their children can be blessed long after I have passed from this world to the next?

It all has to start somewhere. If you are living the kind of life described in the song, Same Old Same Old by Doctor John, “Gotta’ make enough bread to buy the bread to have enough strength to come back and work another day.” Don’t despair. Look up. Think about tomorrow, and then about the next week, and some day you will discover that your mind will be focused on blessing the next generation.

Proverbs 13:22

A good man leaveth an inheritance to his children's children: and the wealth of the sinner is laid up for the just.

Just an Hour a Day Can Change Your Life

There are three issues that tempt me to throw a screaming purple fit. This is one of them. My generation, the baby boom has done a very poor job preparing for their retirement. We were taught to believe in the three legged stool, Social Security, a company pension, and savings. The defined benefit pension is essentially a thing of the past. Outside of the government, union jobs, and a very few high quality, wealthy companies, they no longer exist. The Social Security Trust Fund has been looted by a succession of governments. Both parties are to blame. Social Security is really not in all that much trouble. It can be fixed. It remains to be seen if our leaders have the political will to make it happen. Our savings? Well, when our home values went up we took out second mortgages and squandered the proceeds on vacations and SUVs. Our 401-Ks and 403-Bs were severely damaged in the crash of ’08.

We are in denial, big time! The following information is hot off the press from an article entitled, Baby Boomer Reality Check by Rande Spiegelman. “According to the US Bureau of the Census, 75,858,000 births were registered from 1946 through 1964. That means that between now and 2029, baby boomers will continue reaching the traditional retirement age of 65 at the rate of about one every eight seconds (even assuming some boomers are no longer with us).”

In the 2012 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI),1 workers aged 55 and older who responded to a question about their retirement savings said the following:

60% have less than $100,000 in retirement savings
40% have saved less than $25,000
31% have saved less than $10,000

As a point of reference, of all workers surveyed:

80% have less than $100,000 saved
60% have less than $25,000 saved
48% have less than $10,000 saved

“Despite the apparent lack of adequate savings, 64% of all workers surveyed also say they believe they are "doing a good job of preparing for retirement"—even though only 42% of all workers surveyed have ever taken the time to create a retirement plan!” What we smoking, folks? 64% thing they are doing a good job answering a question only 42% of us have even bothered asking?

For those who are under 40, preparing for retirement is not yet a serious problem. Gen-X and Gen-Y still have plenty of time to build up their retirement savings. They simply have to make savings and investment a priority. Then the magic of time and compound interest will take care of the problem without a lot of work. For us boomers, the problem is acute, but it can still be solved.

I cribbed the following from a free 7 day email course developed by Marelisa Fabrega, a self help/life change author. It is worth your time, look it up. While what she proposes is not overtly Christian, it is certainly in keeping with the spirit of the Silver Eagle Experiment. She contends that you can totally change your life by dedicating one hour a day to an important life changing goal. She recommends that whatever you set for a goal, do it first, before you check the email, before you check facebook, before you plan your day, with that first cup of coffee work on your goal.

Marelisa Fabrega states, “Treat your appointment with yourself as your sacred hour. Make sure that you let others know that you are not to be disturbed during this time. When you make an appointment with your boss or with some other important person in your life, you keep that appointment. You have to treat your hour with yourself with the same respect.”

You can learn how to manage your finances, get out of debt, build an emergency fund, and invest your surplus. It isn’t rocket science. It took me 10 years to pay off a 30 year mortgage. I did that without a lot of money. It took me about 12 years of focused effort to prepare for retirement. My salary was much better during those years. How much you have is less important than how you use it. Don’t tell me what you can’t do. Tell me what you can do and then do it.

I have problems just like you. It isn’t easy to break out of years of bad habits. I want to whine and tell you I can’t run because I have arthritis in my knees. I can’t ride a bicycle like I once did because of an injury to my lower back. Can I walk? Yes. I don’t do it enough. Can I swim? Yes, but only on vacations to somewhere warm.

I took the following story straight from The One Hour a Day Formula. I found it inspiring. Thank you Marelisa Fabrega.

JOHN GRISHAM – FROM LAWYER TO BESTSELLING AUTHOR

John Grisham is on Forbes’ 2010 list of the world's 10 top-earning authors. However, at one time he was a young lawyer with a wife and a growing family, who worked long hours for little money, since his clients couldn’t pay. And he discovered that he didn’t enjoy the legal profession.

How did Grisham go from being stuck in a job he disliked–and which provided little remuneration in return for his hard work–to getting paid millions to do what he loves? He made the sacrifice of getting up each day at the crack of dawn, heading down to his office, making a pot of strong coffee, and sitting at his desk to work on his writing before his official workday began.

Grisham explains that “A Time to Kill” and “The Firm” were written over a five-year period, back-to-back, from about 1984 to about 1989. The bulk was written at five o’clock in the morning. He would write for an hour or two in the morning, get ready for court, and then go to court to stand in front of a judge and plead his clients’ cases.

Grisham says the following: “The alarm clock would go off at 5, and I’d jump in the shower. My office was 5 minutes away. And I had to be at my desk, at my office, with the first cup of coffee, a legal pad and write the first word at 5:30, five days a week.” His goal was to write a page every day. Sometimes that would take 10 minutes, and sometimes an hour or two.

That’s how Grisham got from where he was then, to where he is now: he has written 22 books that have sold over 250 million copies; ten of these books have been turned into movies, with an eleventh in development.

Practice Random Acts of Kindness

One morning I was out for a walk. Passing through a convenience store parking lot, I looked down on the pavement and saw a scratch off lottery ticket that had already been scratched off. For no particular reason I picked it up. It appeared to be a $1.00 winner, so I took inside and gave it to the attendant. He informed me it was in fact a $3.00 winner. After putting it into his machine, he gave me my winnings. I told him, “I always said I would be just about as likely to find a winning lottery ticket blowing around a parking lot as I would buying a winning ticket.” We both had a good laugh and I went on my way.

That is what most people mean when they use the word, luck. We have little or no control over that kind of luck. However, it is one of life’s ironies we can control that kind of luck in others. Just think, today you could be the luckiest thing that happens to someone else. Around the area where I live, I frequently see bumper stickers that state, “Practice Random Acts of Kindness.” What I wonderful idea. I can choose to go through live being a blessing instead of a curse. I can choose to use words of blessings rather than curses, even when discussing my enemies. Hmmm. I can do that? I can choose to give a coworker more credit than he deserves when discussing a test with management or I can hog it all for myself. I can use words of understanding and acceptance when I listen to the young or lecture them about what they are doing that is wrong. Blessings cost you nothing but they can make a positive difference in another’s life.

You can even practice random acts of kindness. Once I was walking down the street on my way to a meeting with some relatively unpleasant people. I wasn’t in a good mood. I noticed a parking meter was just about ready to run out and that there was a meter maid just up the street writing tickets. For no particular reason, I fished a coin out of my pocket and stuck it into the parking meter. It made me feel good on a bad day. I was probably the luckiest thing that happened to the owner of that car on that particular day, as I expect he was stuck in his own unpleasant meeting.

A variation on the bumper sticker reads practice random acts of kindness and senseless acts of beauty. Could you buy your secretary a small arrangement of flowers for no particular reason? She doesn’t need to know where they came from, just that someone cared.

“Reflect on the benefits of a loving heart. Buddhist texts say: Your dreams become sweeter, you waken more easily, men and women will love you, angels and devils will love you. If you lose things they will be returned. People will welcome you everywhere when you are forgiving and loving. Your thoughts become pleasant. Animals will sense this and love you. Elephants will bow as you go by—try it at the zoo!” (Jack Kornfield)

Maybe if you do these kinds of little things often enough it will change your heart into something more. You might become one of those people described in the Indian proverb.

Great rivers, shady trees, medicinal plants, and virtuous people are not born for themselves, but for the good of mankind in general.

Making and Not Making Your Own Luck

On July 4 in the year of 1934, "Joe Louis won his first professional boxing match by knocking out Jack Kracken from Chicago. The 20 year old black heavyweight had just been lifted from the amateur ranks through the skillful training of the veteran black fighter turned manager Jack Blackburn. Among the first things he passed on to the young poker faced fighter was the reality of decision making in the arena. There is no use on the part of a black boxer to complain about unfair judgment by white judges and referees when the fight goes the distance. No argument arises about who has won, however, in the case of knockout. Louis learned quickly and knocked out 10 of his first 12 opponents during the ensuing year." (From the Master Manager by R.G.H. Siu)

In the ring the great Joe Louis made his own luck through skill and hard work. He became the first black athlete to become a hero of both white and black America, particularly in his two famous fights against Max Schmeling, the champion of Hitler's Germany. Joe Louis honorably served his country in the Army during World War II. He eventually was promoted to the rank of Sergeant and was awarded the Legion of Merit medal for "incalculable contribution to the general morale."(Wikipedia)

However, there is a Swedish saying, "Luck never gives. It only loans."

Joe Louis, like so many athletes and entertainers before and since, ended up bankrupt and impoverished at the hands of crooked management, ex-wives, and the IRS. He made unwise decisions in his relationships both financial and personal that destroyed what should have me a great multi-generational fortune for his family and his community. Joe Louis never forgot where he came from. He gave generously, even paying back the city of Detroit for any welfare money his family had received.

This unfortunate story of being both a creator and a victim plays throughout every life to a greater or lesser extent. Some people are successful in their professions, but the children hate and curse them. Other people live in poverty, but dwell in a house filled with love. We seek good advice from the wise and bad advice from our friends who join us in blaming our problems on bad people and powers beyond our control.

On some level, for example, it is obvious I don’t want to hear wise counsel on the subjects of exercise and diet. In my mind I haven’t given up, but it is always something I put off until tomorrow.

Ecclesiastes 8:14-17(NIV)

14 There is something else meaningless that occurs on earth: the righteous who get what the wicked deserve, and the wicked who get what the righteous deserve. This too, I say, is meaningless.

15 So I commend the enjoyment of life, because there is nothing better for a person under the sun than to eat and drink and be glad. Then joy will accompany them in their toil all the days of the life God has given them under the sun.

16 When I applied my mind to know wisdom and to observe the labor that is done on earth -people getting no sleep day or night-

17 then I saw all that God has done. No one can comprehend what goes on under the sun. Despite all their efforts to search it out, no one can discover its meaning. Even if the wise claim they know, they cannot really comprehend it.

Good Luck? (Part I)

An old Chinese story tells us of a hard working thrifty famer. He saved his money, hoping someday he would be able to buy a horse.

In time he reached his goal. He bought a good sturdy work horse for his farm. He thought, “What wonderful good fortune.”

“With this horse,” he reasoned, “I won’t have to work so hard. I will even be able to cultivate more land and become rich.”

Then the horse ran away. “What horrible luck,” the farmer wept, “I worked so hard for so long, doing without the good things of life. Now I have lost everything.”

Then the horse returned to his farm followed by another wild horse, with no owner. “Wonderful fortune!” thought the farmer. “Now I can train this wild horse, then buy more land and hire a servant to help me with my two horses or perhaps rent the second horse out to my neighbors.”

Then his son fell off the wild horse, breaking his leg. “What terrible luck,” thought the farmer, “My boy will always walk with a limp. Why did I ever want to get involved with horses?”

Then the army marched through the village. The generals took all the able bodied young men they could find to fight in their war with the barbarians from the North. “Son walks with a limp, what wonderful fortune,” the farmer cried in relief. “Now I will live to become a grandfather.”

Wonderful fortune or terrible bad luck?

Who can say? Who can say? I want to think about luck, blessings from our Lord, hard work, good decision making, and how they all interact in our lives.

Form Madness

From a long aggravating IRA application.

Client Investment Objective (See investment objectives on back of form.):

Long–Term Growth
Income
Safety of Principal

Client Risk Profile:

High Risk
Aggressive
Moderately Aggressive
Moderate
Moderately Conservative
Conservative
Cautious

Client will need these funds (Principal Amount):

Within 1 year
1-5 years
5-10 years
10+ years

My answer is YES! to all of the above. I want my money to grow, be safe, and provide an income. I willing to take all sorts of different kinds of risks with different percentages of my money to make this happen, except for high risk. I don’t do high risk. It is a weakness in my investment style. I will need access to substantial amounts of money within a year to get my house ready for sale. I will need quite a bit in the next 1-5 years because I am going to retire at 62 and most likely defer Social Security until I am 66. For the rest of my life I am going to need access to money, quite possibly a lot of money in the last year of my life whenever that might be.

I don’t think you are any different. The key here is identifying how much money needs to be safe, how much can be put at what kind of risk. One dollar a year for a lottery ticket when the prize is $160 Million isn’t bad, $50 a week in lottery tickets purchased by someone on disability is pathetic. 5% of your stash (excluding your primary residence) in gold is probably a good idea. 50% of you stash in gold is dangerous for anyone.

Measuring risk, particularly low probability risks, is something we humans don’t always do very well. The following list is taken from Dave Ramsey on making major purchases. It works just as well when making major investments.

1. Waiting overnight before making an investment. If you are making an extremely time sensitive investment it better be small.

2. Carefully considering your buying motives. Write down why you are making this decision.

3. Never buying anything you do not understand. Cell phone contracts come to mind.

4. Considering the "Opportunity Cost" of your money. (If you buy this then you cannot buy that)

5. Seek the counsel of your spouse and other wise and knowledgeable people.

Now let’s be careful out there.