How Do you Need to Retire?

3:39 PM ET 6/13/17 | MarketWatch

By Paul A. Merriman


Complete this 11-point exercise and learn when you can retire
And afterward, craft an action plan

One of the most frequent questions I hear is a variation on this: “How will I know when I have enough to retire?”

The answer is different for every person or household.

You start by gathering some facts. Then you make a couple of crucial assumptions, figure out how much risk you are willing to take, and finally you make an action plan based on what you have learned.

To do this, you don’t need an advanced education, and the numbers you need don’t have to be precise. In fact, there are enough important unknown variables that precise planning isn’t really possible.

In this article, I’ll outline an 11-point exercise that will tell you whether you are on track to retire when you want to.

Once you complete these steps, your situation is likely to become much clearer and less mysterious.

Data point one: Your current cost of living. This is the bedrock number on which everything else is built. A quick-and-dirty approach is to identify your current household income, subtract payroll taxes and whatever you are saving for the future. What remains, presumably, is what you’re spending on your life right now.

I suggest you convert the numbers to annual figures.

Data point two: The rate of inflation you assume for the future. This is a wild card, but it’s vital: Inflation will have a big effect on your financial future. When I talk to investors, I often use an assumed inflation rate of 3%. That may not seem like much, but over the years it can do more damage than you might think.

Data point three: How many years until you retire. This isn’t always a simple number, since retirement isn’t an off-or-on switch, and for a variety of reasons you may not be in control of when you stop working.

However, this exercise requires at least a ballpark number of working years you still have ahead. So do your best here.

Data point four: Your cost of living after you retire. Start with your current cost of living and try to anticipate big changes.

After you retire, you probably won’t pay so much for clothing and commuting, and you won’t have to keep saving money for retirement. But there will be other changes you may want or need to make.

Look at your big spending categories and make some assumptions about changes you’ll likely make.

Based on my experience with real-life people, I suggest you add a cushion of 5% to 20% to that number. If you base your retirement on that, I think you and your family will eventually appreciate it.

Next, focus on where the money will come from.

Data point five: Retirement income you can count on. For most people, this category will include Social Security. It might also include a pension, rental income or notes receivable.

You will almost certainly have investment income such as interest, dividends or expected capital gains. But don’t include that here; it will come into play later.

Data point six: Retirement income you’ll need from your portfolio. If you’ve done your homework so far, this data point is nothing more complicated than elementary-school math: You have assumed a future cost of living for when you retire. You know what you can count on. The difference will need to come from your portfolio.

Data point seven: Size of the portfolio you’ll need at retirement. If your investments are properly diversified and properly balanced between stock funds and bond funds, you can get a quick-and-dirty answer by multiplying your answer to data point six by 25.

This assumes you will withdraw 4% of your portfolio’s value the first year you’re retired, then adjust the number every subsequent year to cover inflation.

I want to stress that 4% (25 times your projected cost of living) is only a rough rule of thumb that will tell you whether you are in the ballpark of retirement savings. Many advisers suggest you take less risk by using a higher multiplier.

You might try multiplying your answer to data point six by 30 or even 33. That will mean you need more savings, but it will give you a greater probability of meeting your retirement goals without undue stress.

Data point eight: The current size of your investment portfolio. This number should include only your savings and investments, but not real estate and other non-liquid assets.

In addition to stocks, bonds, mutual funds, IRAs, 401(k) and similar accounts, your portfolio may include cash, certificates of deposit, Treasury bills or notes as well as loans payable to you that you reasonably expect to be paid by the time you retire.

Data point nine: Your current annual retirement savings. Actually, this is a number you should already know from the very first calculation you did when you determined your cost of living.

This will tell you how much you’ll add to your portfolio before you retire, assuming you stay on your current trajectory.

Data point 10: The return you have been making on your investments. Every serious investor should know this number, but in my experience most people don’t. If your investments are scattered among IRAs, retirement accounts and perhaps some taxable accounts, nobody is going to compute this number for you.

A financial professional can help you with this. (More on that momentarily.)

Data point 11: The annual portfolio return you need from now until you retire. To figure this out, you’ll need a financial calculator or a computer spreadsheet.

You know what your portfolio is worth now. You know how much you’ll add every year. You know where you need to wind up, and when. From that information, a financial calculator can, in the blink of an eye, tell you the investment return that will get you there.

(Don’t have a financial calculator? Find one online at feedthepig.org, a site sponsored by the American Institute of Certified Public Accountants. You’ll find calculators for almost every planning need.)

Ideally, the answer will be similar to the return you have been achieving. If it turns out you will need a substantially higher return, this will tell you that you should do one or more of the following:

This is extremely useful information, because it takes information that came directly from you and shows you how to turn it into a call for action that is quantifiable.

I want you to know that I do live in the real world, and I know most people won’t do all the things I’m recommending, even though this exercise is essential if you want to maximize your chances for a financially successful retirement.

That leads me to a final recommendation: Get a professional to help you with these things.

If you do your homework well and choose a good professional to help you (somebody who does not have any products for sale), the time and money it costs will be well worth it. You’ll have the facts that you need, and you’ll have a plan.

If you carry out that plan, your life — and the lives of your family members — will undoubtedly be changed for the better.

Meanwhile, check out my latest podcast: “Invest now or wait for the next correction.” (http://paulmerriman.com/invest-now-wait-next-correction/)

Richard Buck contributed to this article.

-Paul A. Merriman; 415-439-6400; AskNewswires@dowjones.com

> Dow Jones Newswires

June 13, 2017 15:39 ET (19:39 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

 

(Note from Dr. McConnell.   This specific article seems a prudent exercise, but please note that I am NOT IN GENERAL recommending or endorsing this author, his podcasts, or his website.)

 

What Deportation Centers Are Like for Kids

Some 1,000 persons a day are apprehended by the US Border Patrol.

Dr Stein: The AAP thinks that children should absolutely not be held in detention. These children are not criminals, and we think that they can and should be embedded in the community as soon as they arrive because they are children.

I can briefly describe how they are held, which would tell you how inappropriate detention is. I visited a center [in Texas] called Ursula. [The nickname given to the center is “The Kennel” ]

The walls are 25 to 40 feet tall. It is a concrete building akin to a megastore like Costco or Walmart, with a dividing wall created by very thick prison-grade chicken wire.

Children are separated by age and by gender. There is an image I would like to erase from my mind: a child with his name and telephone number written in tar paint on his white T-shirt.

Children get stripped from their clothes and their possessions—their teddy bear, their security blanket. These are put in a plastic bag. Then they are given the uniforms of the center and a Mylar blanket. There were 1000 children in there. If you put 1000 children anywhere else, they are going to be running and laughing and chasing each other. The most compelling vision and experience of that moment was that these children were quiet. There was absolute silence. They were not being ordered to be quiet. They were laying down but not sleeping.

[Children have a mat to sleep on and a Mylar blanket. For safety, the lights are never turned off. In the processing center, the children have no way to know the time of day. They are separated from family members.]

I should say that the guards are not mean to them at all. Many of the guards are immigrants themselves, but they are police officers (or whatever you would call that type of activity) with a job to do. These children are put in detention and often they do not know what is going to happen next.

What Deportation Centers Are Like for Kids: AAP Takes a Look, by Hansa Bhargava, MD; Fernando Stein, MD, in Medscape. May 08, 2017

As Income Inequality Grows, do the Wealthy Become Less Generous?

A study reviewed  by John Tozzi in Bloomberg suggests this might be the case:

”   …That’s the implication of new research that suggests inequality makes wealthy people less generous. The study … … in the Proceedings of the National Academy of Sciences is the first to probe how inequality influences altruism.

Some earlier research in the U.S. has observed that the rich are stingier than people with more modest incomes. But studies in Europe and Japan didn’t find the same effect. “That was a bit of a puzzle for us,” says Stéphane Côté, a professor at the University of Toronto’s Rotman School of Management, who wrote the paper with colleagues from Toronto and Stanford. “That’s why we reasoned maybe a factor that seems to effect the rich is whether they live in a place that is highly unequal in terms of economic inequality.”

The team used existing data from a nationally representative survey of 1,500 Americans called the Measuring Morality study. That gauged generosity through an approach called the “dictator game” that has been shown to correlate with real-life giving. Participants are told they have 10 raffle tickets and are given an opportunity to transfer some of them to another, anonymous participant.

When they sorted the results by states’ levels of inequality 1GINI co-efficient. , the researchers found that rich people in states with the most skewed income scales were significantly less generous than their peers in states where wealth is more evenly distributed.

“Income Inequality Makes Rich People Stingier: A new study found wealthy people in states with skewed income scales were less generous.”   By John Tozzi in Bloomberg,  

Americans Report More Serious Mental Health Issues

Megan Brooks, reporting in MedScape, on April 18, 2017:

“One thing that is important to highlight is the impact of the recession of 2008 on the mentally ill,” she told Medscape Medical News. “They didn’t recover in their ability to utilize healthcare the way that people who were not mentally ill were able to recover. Somehow maybe they were barely holding on before the recession, and then they were wiped out and they still have not recovered.”

A record 8.3 million US adults, or 3.4% of the US population, suffer from serious psychological distress (SPD), yet many go without proper treatment, according to a new analysis of federal data.

SPD involves feelings of sadness, worthlessness, and restlessness severe enough to impair one’s physical well-being. Previous estimates put the number of Americans suffering from SPD at 3% or less.

The investigators analyzed data from the National Health Interview Survey for 2006 to 2014 on a diverse group of more than 207,000 Americans aged 18 to 64 years from more than 35,000 US households.

“Based on our data, we estimate that millions of Americans have a level of emotional functioning that leads to lower quality of life and life expectancy,” lead study investigator Judith Weissman, PhD, JD, a research manager in the Department of Medicine at NYU Langone Medical Center, New York City, said in a news release. “Our study may also help explain why the US suicide rate is up to 43,000 people each year.”

“And there has been an uptick in the last decade of suicide and serious psychological distress in the middle age. The middle age is a newly discovered high-risk group,” she told Medscape Medical News.

They further estimate that 10.5% of people with SPD in 2014 experienced delays in getting professional help due to insufficient mental health coverage; for 2006, 9.5% said they experienced such delays. In addition, 9.9% could not afford to pay for their psychiatric medications in 2014, up from 8.7% in 2006.

The study also found that adults with SPD were more likely to visit a physician 10 or more times in the past year, relative to those without SPD.

“There is this paradox with the mentally ill in that they do actually see a lot of doctors,” Dr Weissman told Medscape Medical News. “They have high utilization, yet at the same time they have very poor health, and they continue to have poor mental health. It’s a pattern that appears to be chaotic health care utilization in the mentally ill.”

The study was published online April 17 in Psychiatric Services.

The “Death Tax” or is it really a “Anti-Nobility Tax”?

“Under federal law, the tax, which is levied at a 40 percent rate, applies only to estates worth more than $5.45 million for individuals and $10.9 million for couples [i.e, the first 5.45 M are not taxed. Only the amount over 5.45M are taxed at 40%]. Estates worth less than that may be passed on to heirs tax-free.

“Last year, just 0.2 percent of estates of people who died were subject to the tax, according to estimates by the Tax Policy Center, a Washington-based research group that’s a joint venture of the Urban Institute and the Brookings Institution.

“In 2013, 120 of the 3,780 estates subject to the tax were farms and businesses, according to the Tax Policy Center. That’s a little more than 3 percent.

“The same year, estates valued above $20 million paid an average tax rate of 18.8 percent — many achieve a lower effective rate through tax-planning strategies, including giving some of their fortune away to charity.

Source: Bloomberg, Dec 9 2016

The Last Election Raised Americans’ Stress to an All-time High

“For 10 years, the APA [American Psychological Association] has been running its “Stress in America” survey, usually finding that stress is caused by three primary factors—money, work, and the economy…

“…In the study, respondents with incomes below $50,000 reported higher stress levels than those with higher incomes.

“…over the course of the decade,  psychologists found that stress in American life, on the whole, has been gradually decreasing.

“…[In the] annual poll, conducted in August, and released the results in October. The findings: At 52 percent, more than half of Americans, both Democrats and Republicans, were anxious about the vote.

“‘The results of the January 2017 poll show a statistically significant increase in stress for the first time since the survey was first conducted in 2007,’ the APA said on Wednesday in a report on the survey of 1,019 adults living in the U.S., conducted from Jan. 5 to Jan. 19 by Harris Poll.  Americans’ stress levels in January were worse than in August, in the middle of the angriest, most personal campaign in recent memory…

“At 57 percent, more than half of respondents said the current political climate was a very or somewhat significant source of stress…. …and while that includes 76 percent of Democrats, it reflects the feelings of 59 percent of Republicans as well.

“…millennials reported more stress than their parents or grandparents.

“…Urban dwellers are doing significantly worse than their suburban and rural counterparts.

“…53 percent of those with more than a high school education report the election outcome as a very or somewhat significant source of stress, compared with 38 percent of those with just high school or less

“…nearly half the respondents reported stress related to police violence against minorities—44 percent, up from August’s 36 percent

Highly significant stress levels were reported by approximately 70% of Blacks, 55% of Asians, 52% of Hispanics, and 45% of Whites.

Quotations from:   Deena Shanker. (February 15, 2017). “Americans Just Broke the Psychologists’ Stress Record,” in Bloomberg on line. 

https://www.bloomberg.com/news/articles/2017-02-15/americans-just-broke-the-psychologists-stress-record

Children do Better at School If Parents Stress KINDNESS over ACHIEVEMENT

HEALTHY VALUES

Affluent teens fare better when their parents emphasize kindness and other prosocial values at least as much as academic achievement, finds a study in the Journal of Youth and Adolescence.

Researchers studied 506 teens at a predominantly white, upper-middle-class middle school, asking them about their perceptions of what their parents value most, as well as about parental criticism, psychological symptoms and self-esteem.

The researchers also gathered data on grade-point averages and teacher-reported classroom behavior.

Children whose parents placed greater or the same level of emphasis on prosocial behavior as on achievement had higher school performance, higher self-esteem and fewer psychological symptoms than children whose parents placed greater emphasis on achievement.

The Monitor,  March 2017, pp 11-12

Independent, Autonomous and UNGRATEFUL, or is that Counter-dependent?

People who value autonomy and independence may be less likely to feel gratitude in response to a gift or favor, which could interfere with their bonds with others, suggests research in Cognition and Emotion.

In a study with more than 500 participants, researchers found that people who self-reported a higher level of autonomy (not wanting to depend on others or be depended on) reported feeling less gratitude after receiving a hypothetical gift from a friend.

In a follow-up study, they found that people higher in autonomy focused more on presenting themselves well and less on supporting others in their relationships, and that the lower value they attached to gratitude was linked to their goals in relationships.

From The Monitor, official publication ion The  American Psychological Association, March 2017, pp 8-9

 

Forgiveness

Can you have empathy and compassion for someone who has hurt you? That is an essential quality of forgiveness. And forgiveness has clear health benefits – by fostering a stronger sense of self, reducing stress, and is an antidote to toxic anger. Psychological research has found a strong connection between accumulated lifetime stress and mental health difficulties – but that connection disappears for people who score high on measures of forgiveness.

Forgiveness isn’t easy. It takes time and practice. It is not about forgetting or ignoring what happened, and its not about turning away from the hurt. Research on over 50 studies of forgiveness in therapy finds that there is a strong dose-response relationship: the more time people spend trying to forgive, the more successful they become at it – and people then experience less anxiety, depression, and PTSD symptoms.

Being Emotional about Presidential Politics Makes for Bad Investing

“Predicting which industries will benefit most from which candidate is a favorite parlor game of market seers…

“It all seems so logical  – but history seldom supports such reasoning.  In 2008, for example, the assumption based on his campaign platform was that President Obama would put gunmakers out of business, turn health care providers into wards of the state, and usher in a golden age for alternative energy.  Tell that to Smith and Wesson, whose stock price is almost nine times what it was five years ago.  Or to the health care sector, which has outpaced the market throughout this administration.  (Or to clean energy stocks, down 49% under Obama).

Excerpts from:

“How To Invest Whoever Wins” in Fortune Magazine,  11.01.2916,p 43.  By Taylor Tepper.