Afford Anything - Ask Paula - I'm Retiring at 53. How Will Early Retirement Impact My Social Security?

Episode Date: March 12, 2018

#120: Roger Whitney, age 51, calls himself The Retirement Answer Man. As a financial planner, investment analyst and podcast host, he focuses on helping Baby Boomers craft a traditional (past-age-60) retirement. Today, he joins me to answer two questions that come in from our community. Our first question is from Emily, who says: “I’m trying to help my mom decide if she should retire.” “My dad was a CPA and then a CFO, making great money, until 16 years ago when he was diagnosed with early-onset Alzheimers. My mom never took care of their finances before, or knew anything them … she took a few years to get everything in order, but during that time, they burnt through their retirement savings.” Their house sold in fall 2009, for just enough money to cover their mortgage balance and keep another $75,000 to invest. Today, Emily’s mom is 64 and wants to retire. She’d like to use her small investment balance to buy a home outright, in cash, so she won’t have to worry about rent or mortgage in retirement. Emily’s recommendation is that her mom waits until she’s 65 so she gets Medicare. But what if market correction happens? Will they regret not cashing out the investment at the peak? Our second question is from Yvonne, who asks: I’m 52, and I’m going to retire at age 53-and-a-half. (Hooray!!) I’ve been getting notices from Social Security, telling me that “if I keep working” until age 62, or 65, my payment will be such-and-such amount. The key words, of course, are “if I keep working.” How will an early retirement affect my Social Security benefits? ___ After taking these two calls, Roger and I chat about his new book, Rock Retirement. We’re also GIVING AWAY 10 FREE COPIES of Rock Retirement. To enter the contest, go to http://Instagram.com/paulapant, follow the account, find the photo of the book cover, and like and comment on that photo. We’ll pick 10 lucky winners who will receive a free copy of the book in the mail. The contest entry deadline is Sunday, March 18th, 2018 at 5 pm Pacific. Winners will be notified by direct message (DM) on Instagram. Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every decision that you make is a trade-off against something else. And that's true not just of your money, but also your time, focus, energy, attention, anything in your life that's a scarce or limited resource. And so the questions are twofold. What's most important to you? And how do you behave accordingly? My name is Paula Pant. I am the host of the Afford-anything podcast and the founder of Afford-anithing.com.

Today's episode is a bit of a hybrid between an Ask Paula episode and an interview episode. Joining me is Roger Whitney, the retirement answer man. Roger and I are going to answer two questions that came in from the audience. And after that, we'll convert this into more of an interview style episode. So you'll get a little bit of both. Hi, Roger. Hey, Paula. How are you?

I'm excellent. How are you doing? Good. I'm excited to be here. Last time I was here, we had a very lively conversation. We did. That was episode 71. We'll link to that one in the show notes.

So maybe it would be just as lively today. We'll see. We will find out. Roger, can you introduce yourself really quickly? Who are you? And how did you become the retirement answer man? I'm Roger Whitney. I am a financial planner for about 27 years and have had the retirement answer man podcast for just over four years.

You sort of self-enoint yourself, which is a little weird, but it makes you live up to the standard, which is sort of how I've approached it. And we answer questions on how do you create a great, really it's a great life, not so much a great retirement, but that's the word people use anyway. You mean a great life after you leave the workforce? Yeah, yeah. So I primarily work with people over 50 years old that are thinking about how do you transition to having more time freedom? And there's so much more than just simply the money that's involved in that. There's purpose, there's social networks, there's that stage in between. I call it pre-tirement where you're working, but more on your own terms.

It's a lot more to it than people think. Roger, I'm glad you're here today because I want us together to answer a couple of questions that have come in from our audience that relate to retirement. Let's go ahead and get started. This first question comes from Emily. Hey, Paula. My name is Emily. First off, I love your blog and podcast.

I wanted to thank you for helping inspire my blog, Firebird.com. I'm having a lot of fun with it and learning a lot from the experience. So thank you for that. However, my question is actually about my parents. There's a long backstory, but here's the gist. I'm trying to help my mom decide if she should retire. My dad was a CPA, then a CFO making great money until 16 years ago when he was diagnosed with early onset Alzheimer's.

My mom never took care of their finances before or knew anything about them because my dad was a CPA, so she left it to him. She took a few years to get everything in order, but during that time, they burnt through their retirement savings. Meanwhile, their house had sat in the market for several years and was sold in the fall of 2009, with just enough to cover what they owed and have 75,000 left to invest. Now my mom is 64 and wants to retire using the money she has to buy a place outright so that she won't have to worry about a rent or mortgage. Whatever she has left, plus Social Security

for both of them, is just enough to cover the remaining expenses. My recommendation for her was to wait until she turned 65 so that she could be on Medicare and not worry so much about paying her own health care on top of my dad's medical expenses that Medicaid doesn't cover. However, I'm worried about the current long-running bull market. What if the expected market correction happens in the next year, and she won't have enough to be mortgage-free and cover her expenses because I recommended she wait. I'd love to hear what you recommend if you were in my situation. Thanks.

Wow. Emily, that's a rough situation. You're dealing with a lot of things, Emily, and as the daughter, you're in the position that a lot of people are finding themselves in is helping counsel. their parents. So here are a couple of thoughts on that situation and how you guide her. One, I think you're smart in having her weight to retire until 65, so she can qualify for Medicare. So it sounds like she's still working even though her husband has Alzheimer's. So one thing you might consider is what can she do work-wise, outside of full-time work once she quote-unquote retires from, I'm assuming a full-time

employment. And that might help in a couple ways. One is it's going to help obviously financially, because I'm sure that the financial bills can really stack up like you've talked about. But two, it's going to be important for her to have a social outlet outside of caring for her husband and also to have a sense of purpose outside of caring for her husband. So even some kind of pre-tirement work where she can have more time freedom to dedicate to her family, but have that outside exposure to people and purpose that might help her a lot from just a life standpoint, and obviously the financial end of it. Now, you talked about the money and you're worried about having her work another year because of the markets. Well, I'm not going to try to predict the markets,

but I would say that she can continue working. She can change, I don't know where the money is, but if you think it's going to be needed in the next 12 to 18 months, it's probably a good idea to not have that invested, just so you don't have any market risk. I think that's really an independent decision from when she actually retires. So those are my thoughts based on the information you gave us anyway. Yeah, I had exactly the same thought,

which is that if your goal is to access the money within the next one year, year, which your mom is 64, she wants to buy a house when she's 65. If the goal is to be able to access that money in a year, then it shouldn't be in the markets. And that's not just true. In your case, that's true for anybody who's listening, who is saving up for some type of a goal, whether it's to make a down payment on a house or to take a big trip around the world or to buy a car in cash. Whatever your goal is, remember that the stock market is not a high yield savings account. Exactly. We hear so often that the stock market over a long-term aggregate average has a compounding return of 7, 8, 9 percent. Absolutely, that's true. But we're talking about very long time horizons. If we're talking about money that you need to access within 12 months or 24 months, in that short of a time period, the stock market could go up down sideways. Who knows? It could loop to loop. You know, like if you've got $75,000, or I guess you're, you're your mom put that $75,000 into the market in 2009. So by now, I imagine that it's grown to maybe 150,000, maybe 200,000. That's a significant amount of money. And certainly it could, depending on what part of the country you live in, that's enough to purchase a house in cash, one that she could be happy living in. So since you have that, what's the expression, the ace in the hole? Since you have that card in your back pocket, whatever that expression is, since you already have that.

win, there's no reason to subject that win to additional risk. And if it helps, think about two different phases, two different goals when it comes to your money. There's wealth accumulation and then there's wealth preservation. So from 2009 through now, your mom with that $75,000 investment that she had was in the wealth accumulation phase. She needed to grow her money so that she would be ready by the time she was 64, 65 years old. But now she's out of the accumulation phase that she's about to enter retirement. So she's going to go into the wealth reservation phase, which means that the objective is not to maximize returns, but rather maintain the money that you need so that you can achieve your goals with the least amount

of risk possible. Definitely. And maximizing life is what we're focused on now. And time, like you said, is that's one of the biggest determinants of whether you invest or not. So very good points, Paula. Thank you. It's going to be a hard road. But you're blessed.

She's blessed that you can be there to help her. I think that's the important thing. And now is the time not to be risky. It's about just making sure all the numbers work and not take risk. Well, thank you so much, Emily, for asking that question. Our next question comes from Yvonne. Hello, Paula. My name is Yvonne, and I have a question about social security benefits.

How are they affected by someone who is retiring early? For instance, I just received a new social security statement, and it says that if I continue working and until I am 67, my payment will be about X. If I continue working until 70, it will be Y. If I continue working until 62, it will be Z. The key words here are if you continue working. The plan is that I will be retiring at 53.5.

And that is one year and about 11 months from now. What will be the hit on my benefit from Social Security since I will essentially not be working for about eight and a half years before I can begin collecting the lowest amount, Z, from Social Security. How much in monthly benefit should I expect to lose? I have searched your blog and podcast to see if you've touched on this and I can't find anything. So if you have one that I've overlooked, please let me know. Thanks in advance. Ivan, happy 52nd birthday and Congratulations on retiring when you're 53 and a half. That is pretty cool.

That is pretty cool. So, Roger, I will, by the way, Yvonne, also thank you so much for searching the blog and podcast for the answer before you called in because I really appreciate that. I often get questions that are repetitive. A person will call in and ask something that has been answered time and time again. So thank you. Thank you so much. That is a fantastic question, by the way.

You're absolutely correct. I have never touched on this. so I'm excited to do it now. Roger, I'll let you begin and then I'll jump in afterwards. Okay, you know, when we talk about Social Security, we sort of have to get our geek hat out. So let me put my hat on real quick. All right.

Avon, it is a great question because when we see those statements from the Social Security Administration, we assume that's the number. And you obviously actually read it rather than looked at the number. So kudos to you. So let's step back and, you know,

talk about Social Security. So to qualify for Social Security, you need 40 credits to be eligible for the benefit. And the way you get a credit is you get one credit for, as of today anyway, $1,130 that you earn. So every $1130 you get a credit, but you can only earn four credits per year. So you basically have to have a 10-year work history. So that's number one. Now, how they calculate the benefit, you know, when we leave it to the government to make it really,

easy, right? They use something called AIME, which is the average indexed monthly earnings. Okay. So what they do is they look at your, they look at your past 35, they look at the highest 35 years, and they determine that by looking after each year, and they index for inflation, and then they take that number, and that gets you the AIME, and that's what they actually base your benefit on. So in your case, Yvonne, because you're retiring at 53 and a half, they're going to go back and look at the 35 years of work history, which would be, you know, I think 35 years if you're 52 is, what, 18 or 17 or 18? So pretty much your whole earnings years. And then that's what's going to determine your benefit. And then going forward, you're going to have zeros, right, because you're not going to be working or it's going to be lower income.

So there is a nifty calculator that is on the Social Security administrative site. And I think, Paula, I sent you the link so you could link to it. Yeah, we will link to that calculator in the show notes. Awesome. At afford anything.com slash episode 120. That's afford anything.com slash episode 120. So what I did was, Paula, as I went to that calculator, and then I made the assumption that Yvonne started at age 15. and earn $10,000 a year up until age 21.

And then from age 21 up until age, I'm doing how age 52, which she is now, I said she started at $25,000 a year and then had a 3% increase every year. So I went in and manually put all these numbers in because you got to put in every year of earnings that you've had. So in 2017, assuming, you know, she's 52 years old, her income theoretically, in this example would have been like $62,502. So when I put that into the calculator, it says, well, if you stop work from there, your benefit would be just over $2,000 a month. So that calculator will do that for you.

But the big impact, which she hit on really well, is that when you retire early like that, usually you're retiring just as you're entering your peak earning years in your 50s, which are your peak earning years. And I didn't get a chance to go in and recalculate it if she had worked to 65, but that's basically what's on her statement. But you get to 65, assuming she kept working, her income would have been about 90,000. So between age 52 and 64, her income, in theory, would have kept going up, which means that 35 years, it would increase the benefit. So, yeah, there's a big impact, but you can find out what your benefit will be based on when you leave. by going to that calculator and you just have to enter every year of your earnings, which you have on your statement.

And then you can get a better clue as to what you're going to get. Oh, and for anybody listening who wants to go through this exercise, when you log into the social security administration website, ssa.gov, you can actually see the entire history of your earnings. By the way, this is actually like a Friday night nerd fun. If you want to calculate your lifetime earnings and then view that as a ratio. to your net worth. It's fascinating. It's a fascinating exercise. At any rate, TLDR, you can log into the Social Security website. We'll put a link in the show notes. And you can see your lifetime earnings. And then you can take that and use this calculator to figure out what your payout

will actually be. It's easy to make fun of, you know, the government and sites and everything. But it's a really great website. I mean, it's not, it's got a lot of good information on it. Oh, yeah. It's a fantastic website. Very, very informative. And it's like a centralized database for your earnings. And so, you know, when you're trying to, the book The Millionaire Next Door, they have this whole formula as to whether you're an underaccumulator of wealth or a prodigious accumulator of wealth. And the way that they run that formula is by looking at your lifetime earnings relative to

your net worth. And so when I saw that, oh, no, no, actually in the millionaire next door, they don't. They look at your in, well, I don't know. It doesn't matter. Anyway, point is, if you want that information so that you can self-evaluate, and The Social Security Administration website is a great source for that. It's a great way to be able to get that data and then have a yardstick to measure how you're doing. To clarify, taking those additional years off of work won't quote-unquote penalize you in the sense that you won't have a bunch of zeros that weigh down your average.

No, it's going to look at the highest 35. Exactly. Exactly. And so that I think is reassuring for anybody who's listening who's in a similar situation. You know, for people who are listening who maybe took a few years out of the workforce in order to raise kids, for example, who are worried, like, oh, is that going to give me a whole bunch of zeros that then bring my average down? The answer is no, it's not, because they'll only look at your highest earning years. Yeah, well, in her case, though, Paula, she's 52, so 35 years takes her back to what, 17? So in the example of, well, if she didn't work in high school and if she didn't work in college, she might not quite be to 35 years. So it would have some zero. So you got to be careful about that so you can at least check that out. Well, she'll retire at 53 and a half. And so 53 minus 35 is 18. So assuming that she started working by at least the age of 18, I'd say there should be something. Yeah, and they'll still be low numbers, and that's where you'll get hurt, is just because you're probably not ruining that much money in those early years, and those will be counted. And they fall off as you go. But you know what? At 53 and a half, if you can make it work, why would you not? Because this is the only life you have anyway. Right, right, exactly. And I'm assuming that if you are retiring at the age of 53 and a half, that Social Security is maybe one leg of the stool or it's icing on the cake, but, you know, that you have significant enough. balance of assets to fund your retirement that a modest change in what you think that you'll get in

Social Security won't make or break the deal. Exactly, exactly. Man, I love how you gave me these hard and technical ones right out of the gate. We'll return to the show in just a moment. If you've been listening to this podcast for a while, you've probably heard me talk about my weight changes. So I've lost 25 pounds, which was great. And then I gained back 10 of them, which is not so great.

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You'll wear it all. And when you're done, return the rest in the mail. And they'll start preparing your next toad immediately. So again, that's litote, L-E-T-O-T-E dot com, and intercode Paula, P-A-U-L-A at checkout to get 50% off of your first month. So Roger, I also wanted to chat with you about you have a new book out called Rock Retirement. And I have read this book cover to cover. In fact, I've got a whole bunch of stickers in it.

Oh, boy. Hopefully they're not spelling errors because we've worked hard on that. Don't worry. I did not find a single spelling error. Tell us in a nutshell, give us your elevator pitch. What is this book about? Well, retirement planning is broken. You know, the way that traditional financial planners guide people in designing what

their life is going to look like, really just give them a lot of really bad choices. You know, they don't do much more than what you could probably do on an online calculator. They boil someone's life down to a math problem. You know, that's where we get, what's your number? You know, what number do you need to save until you get to retirement? There's a lot of reasons why that's done. Mainly it has to do with business reasons and, you know, that's how you serve. You have to leverage and make it simple.

So making someone's life a math problem is a good way to do it. The problem is, you know, it worked for our parents' generation because when they retired, they sat on the park bench of life, but even baby boomers, and they're finding this, is retirement in their mind is their chance to live. So they're living longer, they're spending more money, and they're more active, which means 99 times out of 100, just simple math doesn't work. You know, that's why I think we have a retirement crisis is because people are thinking about it all wrong. Yeah, you noted in the book five major ways in which baby boomers and Generation X are very different than their parents. They're living longer. Their lives

are healthier, which means that they can be more active. They are more connected. They travel more. They're more focused on experiences. So in all of those ways, it's a much more active and therefore are oftentimes a much spendier retirement. Exactly. The thing I hear most from the people that my listeners to my show and my clients is, you know, especially, especially baby boomers because they sort of hits their wagon early on to this traditional retirement concept. You know, the corporate grind. And once they get to retirement, they're viewing retirement as their chance to actually

finally live on their own terms. That's very different than past generations when they were just worn out. So yeah, all those things happen. So they end up spending more and doing more, which just exasperates the old style planning in terms of the options that they end up getting. people like you who are living a balanced life now, not sacrificing for later on. I'm assuming, Paula, because I know you a little well, a little bit, is you're living a pretty cool life right now.

And I think that is a much healthier way to do it than how a lot of baby boomers were told to do it. Yeah. Well, I think today it's because of technology, it's much easier. I mean, I, like most millennials, I have no idea how the world functioned before the internet. But literally, when I think about it, I'm like, how did you buy airline tickets? How did you, how did you Snapchat? But to your point, when I was a kid, you know, I'm 51 now, but when I was coming out of college, it was you get the corporate job, you move up the corporate ladder, and you invest in save, and everything will be fine. And the game's all changed for generations, but, you know, especially with baby boomers, they're not as familiar with all the multi-level things that you can do to create a great life outside of that model.

And this book really challenges a lot of those assumptions that especially baby boomers haven't really revisited in a long time. Right. At the beginning of the book, you talk about how most retirement planning tailored to baby boomers is done by a paint by numbers. approach. You take the green paint and color in the fours and you take the yellow paint and you color in anything that's labeled as number two. And you end up with a paint by numbers painting, but it's not art. It's totally not art. Yeah. I thought that was a fantastic analogy. And you also have a quote in here where you said, you were talking about predicting the market. You said, forecasting isn't about predicting the market. It's about marketing the prediction. Well, if you think of the financial services industry, which I have lived my entire adult life in, the fundamental

value proposition of financial advice, and it's had an evolution, but it's basically that we are super smart. We have these amazing teams of analysts and strategists and everything else, and we can do due diligence and tell you where the markets are going to go and tell you the managers that are going to outperform. That is still basically the model. And a financial advisor is trained in two things. And I know this because I've gone through it and I used to be a branch manager at a firm. And that is product knowledge in sales presentation. So the funnel that everything is driven through is investment as the solution, the save invest solution. That worked for our parents.

And it's that paint by numbers approach that is still being applied. But because of how people change living later in life, the numbers don't work. So the solutions that come back are basically, hey, you're either going to have to save more money now, which means you've got to sacrifice your life right now, or you're going to have to work longer, or you're going to have to expect to live on less later in life, or likely or possibly all three of those. Well, if those are the choices that the traditional retirement planning model presents everybody, well, no wonder nobody wants to do retirement planning because it all sucks. And that one-dimensional paint-by-number approach ignores all the other things that we actually have control over in our lives to create an amazing life.

And we have a lot more control over things than we realize that are outside of that paradigm. Okay, I'll put the soapbox away. Yeah. So then what is the alternative? Well, I think the alternative is much like a business. stop trying to figure out the future, first of all, in terms of the market, obviously. You have to make some reasonable assumptions and you have to test in a certain way, but stop spending all your time trying to figure out what's going to happen next in the markets and

just make a reasonable assumption. The same thing with your life, you know, stop spending so much time trying to analyze what you're going to spend when you're 65. Because you're not the same person you're going to be. I'm 51. And if you're asking me, me what my life will look like 10 years from now I can maybe give you a you know a projection but it's not going to be very much in focus what you want to do is create reasonable assumptions but really focus on the next one to three years and focus on having the right little conversations to take the baby steps because that's the place where you can start taking action we'll come back to the show in just a second but first I want to give a shout out to anybody out there who's listening

who's interested in becoming a blogger or setting up a website but you're not sure exactly how to do it. Like what are the technical aspects of it? But, you know, what do you do? Head to our tutorial at afford anything.com slash start a blog where we give exact step-by-step instructions, including tons of photos that show you precisely how to set up a blog in less than five minutes. And if you don't believe the five-minute claim, there's a YouTube video at the bottom of it where you can watch us set up a blog in less than five minutes, including registering a domain,

setting up the hosting, all of that. So we recommend Bluehost as our host. They're affordable. They're very easy to use. You can learn all about them and get your step-by-step free tutorial at afford-anything.com slash start a blog. Again, that's afford-anything.com slash start a blog. Freelancers and small business owners, I feel for you.

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And when they ask how you heard about them, mention afford anything. And so what type of baby steps would a person take within the next one to three years? A person who's listening who wants to take baby step upon baby step as they approach retirement? So what you want to do is always get back to actionable things. So the conversations you should have, those little conversations are, okay, where do we project ourselves in 10 years, but then where do we want to be one to three years from now? And define that as best you can. Always start there. Usually when we start financial conversations, we start from the tactical.

I have this bonus. I need to know what to do with it. Or I'm worried about this cash or I have this debt. I got to deal with it. That's usually the motivation. but we don't want to stay in the tactical. So we want to know where we want to be three years from now. And then we want to look at our cash flow.

We want to look at what income we have coming in and what spending we have coming in. And where are the risks and the opportunities in our cash flow, right? And there's this amazing lady that had this quote that has stuck with me forever that said, there is only so much frugling you can do. Yep, I believe she is quoted in your book. She is. That was you, wasn't it? That certainly was. That stuck with me. I forget how long ago it was you said that. So when we're thinking about cash flow, you know, and I think your point was budgeting is important to a point. But when you think of the levers you have to pull in your life, the income side of the equation is really where the power is. And that is the same even if you're 60 years old and looking at retirement. Because that income that you can generate, because in retirement, can change the whole dynamics of the situation.

So I always say, like, you know, most people think of retirement like a late switch. You're either working or you're not, because that's how it's typically defined. Well, I think of retirement, and I've seen it and I've worked with clients to achieve it. It's more like a dimmer switch. When you ask people, at least baby boomers, when I ask them, it's not that they don't want to work. They just want to have more time freedom. So one of the conversations you have is looking at what are the opportunities to work towards having more time freedom and dialing down the full-time work and dialing up the

time freedom and still earning income, which means you can work a lot longer because there's more life balance. And then the next conversation you want to have, because the cash flow conversation is all about, at least when you're in the accumulation stage, creating free cash flow, right? Having excess money over what you spend, just like a business. You want to create free cash flow. That's how wealth is actually created. And then the next conversation is your balance or your net worth statement, which is basically a list of on one page, all your assets on the left side of the page and all your debts on the right side of the page and then you subtract your debts from your assets and that gives you your net worth, what you were talking about

earlier. I love the net worth statement because that's like the dashboard. And you were talking about, you know, the ratios you can look at. I think of a net worth statement as it cuts through all the BS because we all have good intentions about saving or not liking debt or whatever it is. But, you know, the net worth statement will cut through all that. If you say that you're not a materialistic person and you like to save and everything else, well, over time, your net worth statement will show it or it won't.

It will show you whether you're living incongruent with what you tell, congruence with what you tell yourself. So I love the net worth statement. So in the book, we go through what conversation should you have about your net worth statement? because that's where you're going to take this free cash flow and decide how to deploy it to work towards that three or so your goal that you've outlined. Right. I'm also a big fan of tracking net worth. I track mine. I manually track mine twice a year. And I also link my accounts to net worth tracking software as well. But I actually, every January and every July-ish, or we'll say more accurately, around winter and around summer, I will go through and I will manage. manually log into every account and find the balance and manually enter that into a spreadsheet. And it takes forever. But the whole thing is like a moving meditation because it, by virtue of doing that physically,

it slows down the exercise and gives me time to process and think about every account. Yeah, I do exactly the same thing. And you're right. And your point, it slows you down because so many things. things can be generated for us that we don't, we glance at it and we don't actually absorb it as much as we could in this. And I found the same thing. There's a term for it. It's cognitive disfluency. You're fancy. You've seen a few fancy words today.

The. And. Oh, it's low down, girl. And with the net worth statement, and I've tracked mine for years as well, similar to how you've talked about. And it becomes, what I like about it, is it becomes your own benchmark. Because so many times when people are talking about, you know, finances, they're talking about the real estate market and how it's doing or the stock market or whatever. And I like the net worth because that, you don't have control over the markets, whatever market it is.

You have control over how you allocate your assets to actually work for you. And that's not done in some big, grand decision. It's done by lots of little decisions in that you can. can use your net worth statement. So I've had, you know, clients where whatever's going on in the world and they're worried or they feel bad about themselves because lately they haven't been saving near as much. And a lot of it still, like, you know, Roger, I need to do more. And then I go back and review and I'm like, no, you know, John, look at what you've done. We started negative and now you're at, you know, multiple millions or whatever. Don't, just because you're feeling bad right now,

it helps give you, I think of it like when you go backpacking, it gives you perspective. when you look at the history of where you've come from. So it's a really powerful thing. And in the book, when we talk about goal setting, cash flow, or net worth, we outline each one of those and talk about what you should, what conversation you should have and what you should cover in each one of those so you can take lots of baby steps to creating the life that you want. Right. And so your approach to retirement is very largely around building the life that you want. That's one thing that I like about your definition of retirement is that it's not a zero-sum game. You talk about the go-go, slow-go, and then no-go years.

Yeah, and you're exactly right. It's not. And I use the word retirement mainly because I work with people over 50, and that's the word they use. I don't know what the real word should be. But that's a big mistake a lot of people make when they're actually doing the math of retirement, which is they assume, okay, I need $100,000 a year. lifestyle live and then we pop an inflation rate on it and then we assume we're living in 93 and then that's what they try to solve for.

Well, in my experience in walking this journey many times, that is going to give you a suboptimal solution because it's going to demand so much money that you're going to need from a cash flow perspective and asset perspective when you're not really going to live that way. You're not going to live on $100,000 a year, inflation adjusted until you're you die. Right. Exactly. And compound interest on $100,000 over, say, 30 years is, let me calculate that. A lot. What I have experienced with the journeys I've been on with clients is they have these go-go years where they just retired, they're hopping in the RV or they're traveling across the world, they're doing

vacations with their kids or grandkids, they're going because, you know, mentally, they're like, I don't know if I'm ever going to be this healthy again. And then what happens is usually in their 70s, although they can go older, they've been everywhere, the grandkids are grown, they're too busy, the kids are off doing their own things. They got all the t-shirts from all the cool stuff. Now they're slowing down. And they're just, you know, they've settled in after that great adventure. And then you have later in life where you're, more like a traditional retired person. You're on the park bench, right? And you're happy to read a book and not get up. And so there's different spending patterns. And if you plan that way, it could potentially

buy you more go-go in the go-go years, which means you get to have more life and create more experiences. So I think that's a much more nuanced way to plan that I don't really see anybody doing. Nice. Awesome. Well, thank you, Roger, for answering those two questions and chatting about the new model of retirement. You bet. I think it's time that we stop worrying about it and stop thinking we just got to survive it and let's figure out how to thrive in it. Excellent. Well, I will link to the Social Security websites that we chatted about as well as to your book. Awesome. Great to be here. Thank you, Roger, for answering those questions and for coming on the air to chat with us.

What are some of the key takeaways that we got from today's episode? Number one, retirement is not going to be the same. as it has traditionally been. In the past, retirement was something that happened at the end of a person's life, often when they were so old that they physically could not work any longer. It was very short and typically not very active. These days, retirement happens when a person is young, healthy, energetic, and is typically characterized by a lot of activity, travel, maybe starting a side business or a part-time business

or actively pursuing passions and hobbies. So when you are thinking about retirement, throw out any baggage or connotations that you may have held about these outdated models of retirement being that time in your life when you sit on the couch and watch daytime TV because it is, in fact, a much richer practice and a much richer lifestyle than that. So that was takeaway number one. Takeaway number two is that as you are thinking about financial planning for retirement, pay particular attention to three. topics. Topic one are your goals and aspirations. So think about what you'd like your life to be like within the coming one to two to three years, even if those are not years in which you are quote-unquote retired. And when you do think about this, make sure that you don't get trapped by previous plans. Just because something was important to you in the past doesn't mean it's still

important to you now. So review your past priorities, make sure that there's still your current priorities. And then think about what your goals and aspirations are in the immediate future, not just for some deferred retirement date that exists sometime in the ether. So that's one of three topics to think about. The second topic to think about is your cash flow. So take a look at what income you had in the past month, what you expect in the coming months, what are the risks to your income? How could it get lost? And conversely, what are the opportunities within your income, how could you make more or perhaps make the same but with less work? Think about what your ongoing lifestyle expenses are, any unexpected or annual or irregular costs

that might be approaching. Those are all factors that you want to understand as you are taking a look at your cash flow. And then the third topic that you want to look into is your net worth. So once every six months, update your net worth statement. And also, on an ongoing basis, use software or tools that are constantly reading your net worth so that it's towards the front of your mind. In the show notes, which are available at afford anything.com slash episode 120, that's episode 120. I will link to some tools that you can use in order to track your net worth. But in addition to using these tools, also do so manually as well, so that it gives you time to really sit with the numbers that you're working with.

So that was takeaway number two from the conversation. which is when you are analyzing your current financial position, look at your net worth, your cash flow, and your goals and aspirations, because those are the three pieces of the puzzle that you'll have to fit together. And takeaway number three from the episode, and this harkens back to the answer that we gave Emily at the beginning of the show, if you expect to need money within the next one to three years, don't put it in the market because the market is not a high-yield savings account.

And while the market does produce returns over a long-term aggregate asset, average, it is not a good place to put money that you will need within the next one to three years. That's the reason that people don't put their emergency fund in the market because you never know when you're going to need the money. So yes, you may lose a little bit to inflation, but that is the price that you pay for having the liquidity and the lack of risk, the lack of volatility that comes from keeping your money either in cash or if you want to really optimize, you can use laddered CDs, which is the practice of buying several CDs, like a three-month increment, a six-month increment, a 12-month increment.

So you have multiple CDs that are laddered. When one expires, you use the money from the expired one to buy the longest-term one. That way, you preserve some liquidity while also getting the high interest rate benefit of the longest-term one. So that's one option that you could take. You could also ladder bonds in that same way. You could put your money in treasury inflation-protected securities. but really at the end of the day, take a look at how much money you're going to make by getting laddered CDs or laddered bonds or going into tips. Take a look at the actual interest rate that you will

make from doing that. See if it's worth your time. Is that actually worth two or three hours of your life to set all of that up? If it is, great. You've got plans for your Friday night. That's awesome. But if it's not, then it's perfectly fine to keep your money in a high-yield savings account and just leave good enough alone. I have no objection to having a lot. I have no objection to having a large cash allocation in a savings account, particularly if that is money that you're going to be using for the down payment on a house or to buy a car in cash or any other big ticket purchase that's coming up in the next couple of years. The stock market is a place to keep money that is on a 10-year time horizon, not a two-year time horizon. So those are three takeaways from today's

episode. Now, as a thank you for all of the listeners who have made it to the end of this show, guess what? We are giving away 10 copies of Roger Whitney's book for free. So Roger has this new book out. It's called Rock Retirement. And if you want to win a copy for free, here's what you do. Go to Instagram and follow my account. I'm at Paula P-A-P-A-P-A-N-T on Instagram. Now, when you're on my Instagram feed, you will see a photo of the cover of Roger's book. It's a photo of a book that says Rock Retirement. And I've staged it with some. some flowers. It's a pretty nice photo if I do say so myself, taken on an iPhone 6. Like that photo and leave a comment about anything you want. You can talk about this episode. You can talk about retirement in general. You can talk about net worth, cash flow. Heck, you can tell me your favorite color, favorite food and whether you prefer cats or dogs. So feel free to express whatever is on your mind, but leave a comment on that post and we will pick 10 commenters as our big winners. And the 10 commenters that we pick, we will send you a direct message through Instagram,

letting you know that you've won and asking for your address. And we will send you a free copy of the book. The deadline to enter is Sunday, March 18th at 5 p.m. Pacific. So head on over to Instagram, leave a comment and you might win one of 10 free books that we're giving away. Again, that deadline is Sunday, March 18th, 2018 at 5 p.m. Pacific. And winners must be located in the United States. or at least the book must be mailed to some address in the United States. So again, that is Instagram at Paula Pant for your chance to win one of 10 free copies of Rock Retirement by Roger Whitney. That is our show for today. Thank you so much for tuning in.

Coming up on future episodes, we have an interview with Liz from Frugal Woods. So Liz and her husband retired when they were in their early 30s. And in our interview, she talks about exactly how they did it. After that, we have another Ask Paula episode specifically about real estate, so that's what's coming up on future episodes of the Afford Anything podcast. Thank you so much for tuning in. If you enjoyed the show, please tell a friend. I'll catch you next week.