When I was 35, It Was a Very Good Year

When young (less than thirty something) the main concern is controlling debt. First student debt, then “household formation” debt generated by filling that starter home with stuff and the carport with minivans and SUVs. Start saving for retirement at 22 (just like the books all teach). Don’t really worry all that much about your first investments. Keep it simple. Buy low cost stock index funds. Keep 10% or 15% in bonds. You’ll be OK. Even at this young age, estate planning is a consideration. If there are minor children in the picture you will need a lot of term life insurance. Numbers like $250,000 per child or 10 times annual salary have been suggested.

Don’t forget you need a will, if only to determine custody of your children in the case of death.

During your middle years (say 35 to 55) the stakes get higher and your time to retirement begins to loom closer. Hopefully, at least 15% or more of your income is going into tax favored investments (401-K or Roth IRA). Hopefully, something over that 15% is going into your taxable investment account. It is time to begin to schedule numerical milestones for your long term goals. Sometime during your forties, you might want to consider disability insurance. If you work in a dangerous occupation, like logging, you might want to consider disability insurance at an earlier age. Studies indicate that we reach our decision making peak around age 55, a time when the product of mental acuity and experience maxes out. If you are going to take a few calculated risks, this is the time. You have the money. You still have your earning power to recover from mistakes. If you have been doing the right things you will have the judgment and experience.

As you pass into your sixties, it is time to decide when to pull the plug and retire. When people ask me, “Should I retire?”

I answer, “Are you still having fun?” If the answer is yes, keep working. If no, then ask, “Are you able to retire?”

Usually, the answer is, “No.” Excessive debt and kids still in college are the usual reasons. Then we develop the start of a simple outline that will get my friend or coworker from point A to point B.

As you pass from 55 to 65 the stakes get really big. These are your peak earning years. It is time to start considering tax planning as an integral part of every significant financial decision. How you choose to structure your income sources, when you begin taking Social Security will have significant tax implications. During these years, assume that you will grow old. Both your body and mind are likely to decline to a point that you can no longer make decisions or care for yourself. Therefore, it is time to investigate trusts to manage and protect your money if you are no longer up to the task. It is time to bring your adult children into your decision making process. It isn’t yet time to let them make your decisions for you, but it is time that they understand what you have, where it is located, and why you are doing what you are doing. The day might come when they will need that information at their fingertips.

At 60 look into long term care insurance. A current rule of thumb suggests that if your net worth is under $500,000 you can’t afford it. If your net worth is over $1,000,000 you don’t need it. Self insure. If your net worth is somewhere between those two numbers, long term care insurance might be a good idea.

Let’s assume you retire at 65, the year Medicare kicks in. The first few years of retirement are the most dangerous years from an investment point of view. Be careful. Be more careful than most of the literature recommends. A stock market crash in those early years of retirement could have disastrous consequence that could haunt you for the rest of your life as well as destroy your plans for your children and grandchildren. You no longer have a job. Even if you can get your old job back, an unlikely scenario, you don’t have the years necessary to recover. If you have planned well, you can begin to take greater (not great) risks as it becomes apparent that it is not likely that you will need some of that money during what remains of your lifetime.

A very good option is gifting children and grandchildren while you are still alive. You can give up to $14,000 per person per year to anybody without any tax consequences for you or for them. Think of the good you could do while you were still alive? Every year, you could fully fund a Roth IRA for a child and her spouse. Where could you put your money that would be better protected from the taxman than in a child’s Roth IRA? You could fund 529 college savings plans for your grandchildren.

A good man leaves an inheritance to his children’s children.

Have a very good year. Enjoy every season of life in its turn. My prayer is that you use your money wisely and well; that you are blessed with good health, long life, and beautiful happy children who will make you proud.

Then with old blue eyes, you can sing:

But now the days are short,
I'm in the autumn of my years
And I think of my life as vintage wine
From fine old kegs
From the brim to the dregs
It poured sweet and clear
It was a very good year