Real Retirement Planning
Having as much pride as any other writer and not wishing to be thought a copy cat I almost never comment at length on what anyone else has written. I am supposing that most of you at W&G also read Reality Check and Taipan Daily, and read Gary North’s exhortation to check your retirement plan Memorial Day weekend. In this rare instance I’m going to add my innocent, childlike wisdom to what a real expert said.
Retirement plans are…helpless flounder! I hardly know where to begin, so I’ll start with what I know best. I, too, was taught a few basic formulae back in ’58, and two superb ones are virtually impossible now and have been for some twenty years, minimum.
The first was that one should allocate no more than 25%, preferably less, to housing. In our early married years I always tried to make that twenty-five per cent. cover not only rent but utilities (power, water, telephone, etc.) as well. Usually that involved quite a bit of searching to come up with a house we were willing to live in, but I always managed. We never lived in less than comfort, but we were never “house poor.” A good rule is never to be any kind of “poor,” including spending too much on cars, clothing, entertainment, or whatever your personal passion is.
I can imagine the stunned looks and hysterical laughter of today’s young workers when adjured to go and do likewise, because housing and accoutrements eat up half of their after-tax income. They consider cable TV, Internet service, and cell ‘phones to be absolutely indispensable. My brilliant son lives in what he describes frankly as “a tiny hovel,” and has a room mate to share expenses, but he lives in Washington state, one of the five most expensive areas in the US. When I compare relative income by my quick and not all that dirty method (divide by ten; a decade or so ago it was “divide by five!”) Andrew is making $500/month in 1966 dollars, when his father made $325 and got shot at frequently.
In theory, ‘Drew is making half again as much as John did. He drives a WRX-STI (whatever that may be, other than fast and sporty) four years old that was paid for completely when he entered the world of commerce full time two years ago after finishing his MBA. He is a fast-rising star (Mothers can be so impartial!) at the corporation which values him very highly, and the kid is pulling down about 60K, which sounds pretty good at twenty-six. I’m not bragging on my son (I will be glad to, of course), I’m pointing out that the increases in taxation and the costs of over-regulation make it virtually impossible for most people to live decently on what is left after the depredations of the Nanny State, and we haven’t gotten to massive inflation and the depths of Depression, which are coming. Not only will Cap and Trade add $1500 to $3000 a year to the average family’s expenses, depending upon which figures we use, but those are going to be “after tax” dollars. That means we must add a third to the estimates in the actual impact C&T will have on expenses. And remember that such estimates always turn out to be far less than projected.
My first summer jobs paid a dollar an hour, practically tax free, and I saved enough to pay half of the cost of my first car. (Daddy was teaching me good habits, including saving half of what I made. It helped that my beloved three-year-old Plymouth Cranbrook cost $225! The summer before I started college he smiled at me lovingly and told me to go clean out the rest of the account and spend it on more new clothes than he had already given me money to buy. THAT was a real lesson in the value of saving!)
I was employed as a secretary for a little while and made $225/month. A department head at the local college made an unthinkable $800/month! The difference was…I took home almost two hundred and twenty of that. Social Security, these days, eats up over 15% of income, between deductions and what the boss isn’t paying you because he is giving it to the government on your behalf.
The formula I want to get into now is far worse. I was taught that a husband should endeavor to leave his widow 80% of his highest income. Let me repeat that: in order to provide security and continuity of the lifestyle they had achieved, eighty per cent. of his highest income will be required. That is really pretty modest, because expenses go down only in the gasoline not used for him to go to work, food, and occasional wardrobes updates men need less frequently than ladies.
I realized in 1992 that every widow and those who wanted to retire eventually was in serious trouble, because the interest rate fell to 5%! Oh, my, how young and naive we were back then. Here’s a little mathematical exercise: if you make $100,000, and the interest rate is five per cent., how much do you need in insurance and/or reliable investments to ensure that your beloved spouse is not going to end up in a cockroach-infested, cold water, walk-up flat eating Fancy Feast? Don’t even bother to figure it out, because these days you have to multiply the figure by at least five, your stock market portfolio is down at least 50% (if you didn’t get out in time, and if you did…there wasn’t any place much safe to put the money), and worse times are ahead. Do you have an insurance policy for ten million dollars? I didn’t think so. Neither did John.
As nearly as I can tell my mathematical genius, OR/SA husband had one of two plans for my old age. (The private research corporation he worked for wanted him to work until he was at least seventy-two!) The first was that he was going to out-live me, and the second (I’m guessing!) is that I am so utterly fabulous that I would surely find another husband before the insurance money ran out. Passing lightly over his opinion of my manifold charms and perfections (not shared, oddly enough, by a great many), he failed to take into consideration that I would not be able to remarry! If I do, I will forfeit my entire income! Worse, my new spouse would have to live fifteen years, unless the rules have been changed recently, before he could “leave” me a share of his retirement income. Awk. Um.
The government is ruining the morals of sweet little old ladies because the pretty universal conclusion widows reach even when they find wonderful men is, “I love you dearly, but I just can’t afford to gamble my old age on the probability that you will live to be eighty-seven.” Decent men don’t even ask to ladies they love to take a risk of that magnitude. My darling Charles made the modern equivalent of a proposal amongst the older set, e-mailing me, “Hey, pretty lady, how’d you like to live in sin?!” I burst into delighted laughter–never having been the sort of lady who gets propositioned by sexy sailors–picked up the telephone, and accepted.
He explained anxiously later why he had not shown up with a gorgeous ring and a bouquet of roses, gone down on one knee, and delivered a classical proposal imploring me to make him the happiest of men by bestowing my hand upon him in marriage. He knew it would endanger me. He was pretty sure I would have accepted, but darn it…it would cost a bare minimum of half a million dollars to change my name to his–as proud as I would be to bear it–and I have a perfectly good name I answer to every time I hear it…and it just isn’t safe. I dislike being a scarlet woman, but there isn’t any other rational choice.
The sole feeble beam of hope I can see is that most women no more than sixty have probably qualified for Social “Security” in their own right. I’ve done a lot of interesting things, but I haven’t “worked,” in the government’s eyes, forty quarters, not by a long shot. Perhaps Donna Reed, if widowed a second time, could qualify for a sop of a few hundred in SS, but she sure couldn’t live on it. Rueful chuckle…I always thought that failure in life was needing SS. What’s the official “poverty” level, again? Nah, I own my own home outright, and that will surely disqualify me from food stamps.
Please take Gary’s advice and check your hole card. Even if things stabilized right where they are and get no worse, can you afford to retire? What will your wife have to live on? Will she be able to remarry if her experiences with you have caused her to think that she doesn’t want to end her days without the companionship and love you have provided? Will she end up saying, “Welcome to Wal-Mart?”
I’ll leave you with a final superb rule: “Never confuse what you can pay for with what you can afford. If you do so frequently enough, eventually you will not be able to do either.” That is the sin of those who lived on credit cards and pulling equity out of their houses every time they built up a little.
Paying for dead horses is very painful. Three generations living under the same roof sounds very unpleasant, as much as I adore my children and they would love to have me live with them. One of my favorite sayings is, “The worst that could happen is…” although I use that in the analytical sense of risk management, and the answer has to be “Nothing really serious!” What is the worst that could happen to you if you do not do your best to secure your future now? You’ve already started by reading what Agora has to say.
What is the worst that could happen to your wife? What could you do to prevent it?
My apologies if I have ruined your weekend, but it is never too early to plan ahead, and even now we can all take steps to alleviate the grim future we envision.
Regards,
Linda Brady Traynham
May 29, 2009
Linda Brady Traynham
Linda Brady Traynham is a former editor and analytical project report writer and is now a Whiskey & Gunpowder field correspondent on a ranch in the Republic of Texas. She studied Counseling at Boston University and got her Masters degree in Philosophy from the University of Hawaii.
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“Mother”,
I ask this with all sincerity (tongue in cheek)…..Got any daugthers? If so, and they’ve got half of your sense, I’d love to meet them! ; ) I’d be more than happy to relocate to Texas, at least until June, July and August roll around.
And I wouldn’t even ask them to live in sin, I’d take the plunge for a woman with a good head for financial matters. Can’t seem to find any up here in the people’s republic of the greater northeast.
FWIW, I make the same money as your son, though I am a bit older, and my household expenses are less than 1/4 of my take home pay. : )
Jack.
Dear Jack: I have an incredibly beautiful titian-haired daughter (who looks nothing like her mother) and she is brilliant intellectually and financially. She is also about to celebrate her tenth wedding anniversary with a two-week cruise in the Med, but I will accept the lovely compliment with pleasure, thank you. Beauty, by the way, handles all the money and makes all of the financial decisions, to her husband’s profound relief. He’s happy being a professional golfer whose career will be managing country clubs, and it is relaxing to leave all household decisions to her so that he can concentrate on profit margins in the kitchen and gift shop, and smut grass invading the greens, I guess. She decides what they can afford, never settles for less than they want at the price she is willing to pay, and when she wants to buy something she whips out her debit card! If you want a girl like her, start hanging around investment bankers and CPA offices. If you want an adorable nut like me, she’s still working on it, somewhere, and she’ll be ready in about thirty years!
I’m VERY proud of you for managing to keep your household expenses so low in this day and age. What are your secrets?! Share, share, ’cause the other readers need to know. One of mine was never going with the herd, and hunting a house until I found one I liked that was within budget, and never mind what sort of neighborhood it was in. Of course, that was safer back then. Sometimes good ones can be found in older neighborhoods, lovely old places with lots of space and light.
My sincere sympathy for having to live in the PNW, with high prices, high taxes, and ultraliberal politics. Still, the opera is good in Portland, Seattle, Tacoma, Vancouver (BC) and Victoria…are you going to make the bash in Canada with Gary and the guys? We’re planning on going next year, assuming ‘planes are still flying then…
Thanks for the nice note, and write again. I’m always looking for interesting correspondents, and I would love suggestions for articles readers would like to see as well as your comments on business. What’s the local reaction to Montana’s great “gun control” bill?
You don’t know much about it up there, but we have interesting mechanical contrivances known as “air conditioners,” and even in the summer Texas is wonderful.
Hugs,
Mom-Mom (That’s what Andrew’s numerous friends all call me!)
i am so happy that linda has become a regular contributor to this online newsletter. Her articles are practical, personal, and philosophical. linda could easily have her own advice column…especially since her views are more sound than media whizs like Suze Orman.
Dear Charlotte:
What a lovely compliment, thank you! Linda Traynham
Charlotte,
You and I both.
Linda,
Nice article, perhaps I can offer a solution to your marriage dilema. Have a marriage ceremony in church just dont have it certified by the government. The idea that the government has any right to decide who can and who cant get married dosnt make any sense to me. On another note I congradulate you on educating your daughter in such a fashion. It seems amazing to me that people will spend hours upon hours teaching their children about sports, hobbies and other non essential parts of life, but do not take the time to educate them about finances. My father (a farmer) spent countless hours teaching us about money and finances. When I was 5 he gave my brothers and I a twin calf that the mother would not accept, to raise and sell. He taught us how to figure expenses and profit margins. He taught us how to do cash flows, figure depreciation, commodity markets and budgets. When I was in jr high I started buying silver and when I was in high school my brothers and I went together to buy a cow herd, rented land and farmed as a partnership. We all had steady employment during the summers from about 3rd grade on. (not working for dad though, he didnt pay very well) When my brothers and I would reach 7th grade we were put on a salary of $20 per week. I didnt find out till later this served two purposes. 1 he was able to write this off as an expense and 2 it limited how much we cost him. We had to pay for all our own expenses: clothes, school lunches extra ciricular activites, pretty much everything. This was the mid 80s so it really wasnt that much. It gave us just enough money to cover the basics but not enough to get us into trouble. He also paid this to us on 1 Jan of each year in a lump sum, so we would have to make it last the entire year. (of course mom took pity on us and would sneak us a new pair of shoes now and then). We also knew where the key was for the gas tank on the farm
We all paid for our own college, although dad helped us out getting financial aid by “adjusting” his income. The other thing he taught us was that we were all in it together. Our money did not belong to us..it belonged to the family. Money even to this day flows between us all easily and without issue. We always had an all for one and one for all approach to living. We are closet socialists disguised as capitalists. As a result we can out compete our independantly minded neighbors.
It wasnt until recently that I really appreciated the education that our father gave us. Im in my mid-30s now and live on about $800 per month. I drive a 1992 honda that I bought for $750 that gets over 30 miles to the gallon(if I take a long trip I just rent a car its just cheaper this way). I rent a small house (I have run the figures on buying a home and its the worst investment I can imagine) I have 4 pieces of furnature a table 2 chairs and an inflatable bed. I have a laptop and books for entertainment. (Im not married hahaha I wonder why??) I invest in farmland (land and animals are the only true forms of wealth) gave up on investing in pieces of paper long ago. The other side of this is that I vacation in Europe 2-3 times a year. Im not worried at all about the future. I can change my career path any time I want. I have the philosophy that after your basic needs are met a person should only spend money on things that increase your life expiriences, wisdom and friendships. Live simply but live richly …. the more things you own the more you are owned by things…are my personal mottos (I stole these from other sources, but i dont remember where now) I have a good job that puts me in the upper 25% of incomes in the USA. As a result I can give 10 to 15% of my income to worthy causes without feeling a pinch and can do some real good in this world which is far more satisfying than any amount of money in the bank. Thanks for the articles that keep making us think.
Dear Old Man River:
What a wonderful e-mail and all I had hoped for when I began writing for W&G. As odd as it may sound I wasn’t looking for “fame and glory” but for interesting companions. Responses like yours are what I dreamed of. Chuckle…we’ve finally found one thing to agree with Sonia Sotomayer on! A wise old half Irish lady knows better than a passel of liberal legislators, and she knows men of substance and character when she comes across them, too, and a few of you young whipper snappers have great plans, as well.
I LOVE your account of your life which parallels mine in many ways. If YOU, personally, would like to carry on this conversation, please write me at ranchLT4@aol.com.
The reason you aren’t married yet, Cupcake, is that there are far few superior females in this world than there are males. (Take that, NOW! It’s a fact, so live with it. Of course there are fantastic ladies, but in general anything one of them can do well a lot of men can do just as well.) It can take many, many decades to find a fitting mate.
My darling Charles and I are so bonded and happy that we do not need the sanction of man or even the church, although I appreciate your comments. It is a sad commentary on life now that the “ethical” thing to do is to have an untraditional arrangement, but that’s how it it is. Our families approve of our relationship, we don’t care what the world in general thinks, and darned if we can see any reason to forfeit significant sums to the government to change my name. Thought! For about $25 I can go do so legally with no penalties!
Seriously, OMR, I would like it if you and I became friends because I suspect strongly that you are “one of my species,” which most of homo sap. aren’t. Hug, Linda
Linda,
I’m glad to hear that you’ve got such a wonderful daughter — not surprised — just glad.
I’m actually in the Northeast, people’s republic of Delaware to be precise, for the time being at least, I’m actively looking to get out.
I must attribute my financial accumen to my parents, both of whom grew up during the first great depression. Mom was lucky, her father — with an eighth grade education — was able to get a good job in a refinery and provided nicely for his eight children. Dad’s story was not so happy. His father owned an auto repair shop, and they struggled. My grandmother would take my father and his brother and sister to a family farm in Salisbury MD each summer to “fatten them up”.
My first lesson in economics came in the early 80′s when mom had me put $500 dollars I’d saved up from delivering newpapers into a CD. If I recall correctly, the interest rate was just over 18% on a 5 yr CD. When it reached maturity, I was about 17. I went in and asked if I could roll it over at that rate!
I bought my house when I was 24. I’d been living at home, which was ok with the folks, because they knew I was squirrelling away about 2/3rd’s of my income. I put 1/3 down on the house. I was making $8/hr at the time (1992). Since then I’ve changed careers, and I’m making nearly 4x’s as much.
I’ll consider your advise on where to find a good woman. Sadly, I’ve reached the conclusion that I’m not gonna find her around here. Is it too much to ask for a woman who’s witty, conservative, and can split a little firewood (not a whole cord, but just a little bit in a pinch)?
Yes, I’ve read about the “gun control” bill in Montana. Personally, to me gun control has always meant: sight picture, sight alignment, trigger control and follow through.
Anyway, bes wishest to you and yours, and keep up the great articles.
“Your other boy” ; )
Jack.
Many people think retirement planning can be done later in life and they can’t be more wrong. Retirement planning should allways start early.