The experts might be right when they say retirees who have predictable income are happier.
it was that we lived far below our means.
have slowly learned to embrace ambiguity—the grayness of life.
Almost all of us suffer one or two big financial hits during our life. I count myself lucky: This particular storm was bruising, but it didn’t threaten my financial future.
Pat, I learned the benefit of simplifying your finances as you age, and making sure that all your estate documents are in place.
When we bought the house, we made sure we could qualify for the mortgage with just one of our incomes.
learned that dollar-cost averaging and rebalancing help take the emotion out of investing.
But there’s no substitute for living through multiple up and down markets, and learning from your successes and failures.
years, I realized that making money didn’t matter if you were miserable. I decided to shift to a lower-paying and less demanding role that allowed me to decaffeinate and enjoy life more.
I love my new job and the lifestyle it brings. While we save less now, we’ll be fine thanks to the savings—and the hustle—of the past several decades. I’m not sure that dollar-cost averaging made us rich, as I’m not precisely sure how to define that term.
My mother learned early that life—and even Western civilization—is shockingly fragile, and can be destroyed in an instant.
I’m not miserly but I am frugal. What’s the difference? I get pleasure from spending on things I value, which includes travel, antique furniture, Mark Twain first editions and large old houses. To afford them, I can do without new cars, wine pairings and flight upgrades.*:: I love this altitude!!
I was 49 years old and nowhere close to where I needed to be financially at that point in my life. I was effectively starting over—and I was terrified.
I have set trigger points for rebalancing and buying market dips.
We first considered Costa Rica. It had great expat reviews, a relatively low cost of living and was only a two-hour flight from the U.S. Soon, however, we were looking farther afield. We discovered that for about the same cost as Costa Rica—$30,000 per year—we could live in southern Spain. That would give us easy access to the rest of Europe.
We’re still secure in our savings and enjoying what is the essential power of money, which is the power to choose.
I ended up in surprisingly good financial shape, in large part because my needs and wants have almost always been modest. This is an underappreciated source of financial freedom—one available to almost everyone.
while charging high trading commissions.
The self-serving hype of many financial providers motivated me to become a more educated investor.
Nobel Prize-winner Harry Markowitz explained the value of portfolio diversification. John Bogle, the founder of shareholder-owned Vanguard, stressed the value of low-cost index investing. Eugene Fama, the renowned portfolio theorist, demonstrated how small-cap and value stocks could enhance performance.
Advising families and other individuals about their personal finances seemed like a career possibility. I enrolled in Boston University’s financial planning evening program, while continuing to consult during the day. I had concerns about business models that depended on commission-based brokerage fees and insurance sales. That led me to embrace a fee-only financial advisory model that followed the fiduciary rule—clients’ interests come first.
The silver lining: It helped plant the seed for my later career as a financial planner. It motivated me to want to help others in all the ways that my stockbroker had not. In fact, in my work today, I mostly just do the opposite of what I experienced as a client back then. I work to understand a client’s needs in detail before designing a portfolio. Instead of picking stocks and building a concentrated portfolio, I diversify with funds. Instead of using high-cost funds with sales charges, I stick with low-cost index funds. Instead of betting too heavily on a rising stock market, I’m always preparing for a rainy day. And I’m wary of leverage.
If you want to pick stocks, do it in a separate account, with a fixed—and small—percentage of your portfolio.
Harry Markowitz, father of Modern Portfolio Theory, once described diversification as the only free lunch in the world of investing.
true. It was no different from my days in fast food: Summer was the busiest time. By contrast, my buddies who worked for grocery stores said winter and holidays were their biggest sales periods.
younger faculty taught modern portfolio theory and efficient markets.
Most of us get so caught up in Mr. Market’s short-term antics that we fail to recognize the great importance of Mr. Economy’s long-term powers. Result: We end up paying high fees and high taxes, and changing investments far too often.
Extraordinary Popular Delusions and the Madness of Crowds,
“I don’t need to tap my stocks for decades. In fact, if I manage my portfolio well enough, in the long run that money will be going to my heirs and charities.” If you can do that, you’ll sleep soundly, your stocks will eventually recover and, when they do, you just might sell some and fatten your safe portfolio a bit.
pig. My first foray was to purchase a whole-life insurance policy, which gave me a promised death benefit twinned with a tax-favored investment account. I wanted to create a pool of money that would pass tax-free to my heirs upon my death.
My second experiment: purchasing qualified longevity annuity contracts, or QLACs. These deferred-income annuities were appealing to me. I could use money from my traditional IRA to hedge against the risk of outliving my money. For a comparatively small investment, these annuities provide guaranteed lifetime income, with the payouts beginning relatively late in life—potentially as late as age 85. I already had a life insurance policy to benefit my heirs, so I opted for annuities that simply paid income for as long as I lived. These annuities potentially kicked off the highest monthly benefit but left no residual value for my heirs and there’s a risk that even I won’t receive anything, should I die before the payment period starts.
girlfriend. The “retirement smile,” made famous by retirement researcher David Blanchett, posits that spending through retirement steadily declines until—late in life—steep medical costs kick in and retirement expenses climb again. Now, I feel prepared for that possibility.
it was an investment in human capital, and a sizable one at that. It cost my parents hundreds of thousands of dollars in medical school tuition, room and board, and it cost me ten years of my life. But ultimately, the investment would pay handsome dividends, both financially and vocationally.
