retire

Ask the Readers: If You Could Retire Today — Would You?

Ashley Jacobs — Tue, 20 Feb 2018 09:30:05 +0000

Editor's Note: Congratulations to Tanea, Kelly, and Tia for winning this week's contest!

Everyone's retirement goals are different. Some people want to retire as soon as their finances allow it, and others want to work as long as they are able.

If you could retire today, would you? What are some of your criteria for a comfortable retirement? How would your life change if you could retire today?

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Tell us if you would be willing to retire today and we'll enter you in a drawing to win a $20 Amazon Gift Card!

This article is from Ashley Jacobs of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Don't Choose These 10 Cities If You Want to Retire Comfortably

Linsey Knerl — Thu, 04 Dec 2014 11:00:07 +0000

Retirement is a time to enjoy hobbies, move a little slower in daily life, travel, and after decades of hard work, just rest. All of which is tough if you pick the wrong retirement city. (See also: 10 Unexpected Things You Should Consider When Picking Where You Retire)

When looking at locations, you'll generally want to weigh six categories: cost of living, housing costs, taxes, the health care system, activities for seniors, and, yes, the weather. And with those in mind, you'll likely want to steer clear of these 10 cities that fall short in one or two or more of those categories.

1. San Francisco, CA

The weather is very mild — it doesn't get hot in the summer and winters are usually rainy. However, the cost of housing in this area is so high that most retirees are not going to be able to find it within their budget. Retirement income is taxed heavily in the state of California, unlike many other states. The cost of living is also very high. In fact, Kiplinger ranked California as the worst state to retire.

2. Honolulu, HI

While the location is beautiful and the weather gorgeous year round, Honolulu will require you to have quite a large nest egg. According to a recent study done by WalletHub, cost of living in the city are among the highest in the country. It's also very expensive to travel to and from Hawaii, making family gatherings more difficult.

3. Oklahoma City, OK

Healthcare is a concern for all seniors, and it will be a real concern if you retire to Oklahoma, which ranks among one of the worst in the country for health care (trailed only by West Virginia). Crime is also a problem here, with the city ranking 7th in the nation for crime among large cities.

4. Louisville, KY

The low cost of living, modest housing costs, and picturesque mountains may make it appear to be a good choice for retirement, but Louisville has been named as the "worst place for allergy sufferers to live," making it an easy destination to avoid by retirees with respiratory or other health issues.

5. Bridgeport, CT

High taxes are a major concern for retirees, and some states tax retirement income much more than other states. (Florida's low rate is what makes it one of the most desirable states for retirees, for example.) But Connecticut is one of those states that taxes both Social Security and pension income. Bridgeport, more specifically, has expensive housing costs and even more expensive health care costs. Assisted living facilities in this area of the country can charge over over $400 a day — almost twice the national average for long-term care, which will deplete your nest egg very quickly should you require assistance at some point.

6. New York, NY

The Big Apple requires a big budget, as real estate is pricey and hard to afford on a fixed income. By taking your current retirement budget and adjusting it to the high cost of living for any of the more popular parts of NYC via this calculator, you can see that the real estate isn't the only thing that will cost you. Even retirees who own their own homes will feel the pinch of higher utility bills and transportation fees.

7. Chicago, IL

Illinois as a whole gets a low approval rating from its own residents, with one in four saying the state is the worst place to live. Why? It could possibly be because of the high income tax hikes and lower bond rates, both signs of a troubled economy. Add in the fact that many Chicago residents have decided to leave the city altogether, making Chi-town the 6th most-abandoned large city in the U.S. and it's a less appealing option to live out the rest of your years.

8. Philadelphia, PA

While it's not as expensive to live in as New York City, there are some issues that may keep the 65 and older crowd away from the city of brotherly love. A higher-than-average sales tax and poor air quality may be of concern to retirees. Throw in the high rate of crime (it ranks 5th nationwide), and you have a few good reasons to shop around for your retirement abode.

9. Washington, D.C.

In addition to brutally cold winters, economics continues to be a problem for our nation's capital, with the numbers of those under the poverty line increasing — despite a rise in median income. With seniors living on a fixed income, the high cost of real estate can also cause concern.

10. Providence, RI

Across numerous rating scales out there, Providence almost always appears at the top of the worst lists. This is due to a high cost of living, high tax rates, and one of the highest unemployment rates in the nation (currently at a rate of 10% for the city and 3rd highest for the entire state.) If you are hoping to supplement your income or kill some boredom during your retired years, finding a part-time job in Providence may be impossible.

Where are you planning to retire?

This article is from Linsey Knerl of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Five Types of People Who Never Retire (Are You One of Them?)

Marla Walters — Wed, 26 Nov 2014 16:30:17 +0000

"I actually think the whole concept of retirement is a bit stupid, so yes, I do want to do something else. There is this strange thing that just because chronologically on a Friday night you have reached a certain age… with all that experience, how can it be that on a Monday morning, you are useless?" — Stuart Rose

What springs to mind when you think about retirement? I wistfully think about sleeping in, and not using a time clock (which I despise). But for other people, the word "retirement" causes shudders. (See also: Will You Ever Be Able to Retire?)

Consider these five categories of people who will never retire. Are you among them?

1. The Broke Non-Retiree

Personally, I find this the most unsettling scenario. Whether due to poor financial planning or heavier-than-anticipated financial needs, more and more older workers continue to find themselves in the labor pool. According to the Center for Public Affairs Research, a 2013 survey revealed that a startling 47% now plan to retire at a later age than they expected when they were 40. The survey also found that 39% of workers age 50 and older report having $100,000 or less saved for retirement, not including pensions or homes; 24% have less than 10,000.

Maybe it's time to take stock of your financial future by estimating your retirement expenses.

2. The Workaholic

There is a difference between the person who enjoys work, and does so with enthusiasm, and the person whose life is out of balance and cannot stop working. Perhaps you have run across some of these in your work, too. As the Wall Street Journal explains, workaholics have difficulty transitioning from work to retirement life, because so much of their identity, social network, and purpose is tied to their career. They can feel adrift in retirement without the structure work provides.

When working is almost an addiction, it can be devastating to face retirement. One of my former co-workers springs to mind. Although qualified to retire for years, she fought it tooth and nail, taking work home and working weekends. Even when finally convinced by management that it was time for her to step down, she would find excuses to drop by the office, or call people to have lunch. If you recognize yourself in this description, there is help available. Consider support groups, such as Workaholics Anonymous, which aim to help workaholics develop coping skills and the ability to relax during downtime.

3. The Successful Investor

You may know some people in this category. They bought rentals, years ago, and now are landlords. Or perhaps they bought silver or gold, or learned how to effectively invest in the stock market. There is a common thread here: They got moving, educated themselves, and by their 50s, were enjoying a leisurely lifestyle. But that doesn't mean they want to (or can) stop. Many keep at it, repairing their rentals, or checking their investments every day. They've made being a successful investor their life's work, and they have no need to "retire" from it.

4. The Life Re-Inventor

Starting a new career later in life can be an invigorating way to re-invent yourself. My friend Nancy, a former school art teacher, began working with the mentally ill, eventually started teaching classes, and is now co-authoring a book about art therapy. She finds it tremendously rewarding and has learned a lot of new things. Her husband, an engineer, always wanted to be a teacher, so he started volunteering at a school. He was so successful at tutoring, he was shortly offered a paying position.

For my friends, the career switch was fairly easy. However, you certainly wouldn't want to quit your present job and jump into something new without doing some research and soul-searching. Will your new career help fulfill life ambitions? Will it offer a large enough paycheck to make the switch and time investment worthwhile? (See also: 6 Ways to Avoid Running Out of Money in Retirement)

5. The Mega-Successful Lifers

Consider the lives of the truly, astoundingly successful. For a mega-successful CEO or famous actor, the demand for their talents are so high, that there's less incentive to quit working. According to a study by Merrill Lynch and Age Wave, the desire to keep working until the last day is common to over 60% of the wealthy. But you don't have to be filthy rich or famous for this to be true of you, too. Evidence also suggests that many people who are successful in more realistic endeavors — such as artists, small business owners or physicians — also feel the incentive to continue using their talents until the very last day. Will you?

What are your retirement plans? Do you see yourself in one of these categories? Please share in comments!

This article is from Marla Walters of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Best Money Tips: Essential Things to Do to Retire Early

Ashley Jacobs — Wed, 23 Apr 2014 09:00:56 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found some stellar articles on retiring early, saving on wedding reception food, and simple ways to cut household expenses.

Best Money Tips: How to Retire Early

Ashley Jacobs — Mon, 19 Aug 2013 10:00:30 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found some stellar articles on how to retire early, ways to keep your security deposit, and how to get free prescription drugs.

Best Money Tips: Things to Do Before You Retire

Ashley Jacobs — Thu, 30 Aug 2012 10:00:42 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found some fantastic articles on things to do before you retire, questions to ask yourself before you buy something, and how to create a low-cost will.

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This article is from Ashley Jacobs of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Best Money Tips: How to Retire on the Cheap

Ashley Jacobs — Wed, 01 Feb 2012 11:00:26 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found some awesome articles on how to retire on the cheap, ideas to increase your income, and dangers of leasing a car.

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Be sure to check out our News & Events Calendar to see all the awesome upcoming events in the personal finance world!

This article is from Ashley Jacobs of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Don't Despair Over Small Retirement Savings

Philip Brewer — Wed, 23 Sep 2009 13:00:03 +0000

If you quit checking your 401(k) balance last year, because the market crash made it too depressing, now might be a good time to take a fresh look. It'll still be well down from the peak, but it's probably recovered quite a bit from the low. However small it may be compared to some imagined goal, don't underestimate the value of any amount of retirement savings.

My brother just told me about a colleague—a college professor approaching retirement age—who suffered so badly in the crash that his entire retirement savings were not much more than one year's pay. "Obviously," my brother observed, "He's not going to be retiring on that anytime soon."

The fact is, though, there's a big difference between "small" and "insignificant" when it comes to money. If you're earning, let's say, $80,000 a year (which a full professor approaching retirement might well be) and your savings are only $80,000, it's easy to imagine that your retirement savings are insignificant. It's not true, though.

A capital sum of $80,000 will support spending of $260 to $330 a month for the rest of your life (and probably forever—see my post How much can I spend in retirement for a description of the 5% and 4% rules).

Now, somebody who's been living on $80,000 a year is not going to support themselves on $300 a month—but that doesn't mean that $300 a month is insignificant. It might pay your property taxes, or your home maintenance expenses, or your utility bill. (If you have a small, well-insulated house in a low-tax community, it might pay all three.)

If you have nothing else to retire on, this is probably too little—but hopefully your retirement is not dependent on just your retirement savings, but instead gets a boost from other savings, physical capital (such as a house), pensions from previous employers, social security, intangible capital (such as a copyright on a book), and so on. Most especially, of course, your retirement is based on your ability to save more money at your regular job before you retire, and then your ability to continue to earn some money after retirement.

Finally, I'd like to point out that your expenses in retirement have only the most tenuous relationship to your pre-retirement income. Yes, those "can you retire" calculators all ask about your income and then assume that you need to replace a large fraction of it—but that's just stupid. In retirement you need to fund your expenses, not your income.

Someone approaching retirement ought to be about at the peak of their earnings—which to my mind ought to mean that their expenses are rather less than their income. It's one thing for a 20-something just out of college with a low income and a high student loan burden to be spending every cent of his or her take-home pay. For a 60-something college professor, expenses ought to be quite a bit less.

The difference, of course, is the money that's available for investment. But that's the less important part of the equation. More important is that a low cost of living means that you can retire without having to replace your entire income. And if that's true, even a modest amount of savings can support your retirement.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Retirement accounts and money to spend

Philip Brewer — Wed, 08 Apr 2009 17:54:54 +0000

Everybody knows that retirement accounts like 401(k)s and IRAs offer great tax advantages (and once upon a time--and maybe again someday--a corporate match). But people who have plans to spend the money before they reach retirement age worry about the restrictions on early withdrawals that come with the various retirement plans. Here's a cheat-sheet for working the angles.

There are two different points where you need to do your considering: when you're making your saving and investing decisions and are thinking about where to put the money, and then again when you're making the spending decisions and are thinking about where to take the money from.

Start your thinking by dividing your goals for the savings (other than retirement at full retirement age) into three categories: major purchases, emergency funds, and early retirement.

Major purchases

Your retirement accounts are generally a poor choice for money that you're planning to spend on things like buying a house or a car, sending the kids to college, or taking a lavish vacation.

You can borrow from your 401(k) for the down payment on a house, but you're combining the big problem with such borrowings (losing your job means you have to pay the money back in 60 days or owe taxes and penalties) with a big bite out of your retirement savings.

Better is to save for these goals outside your retirement plan. In some cases (such as college savings) there are other tax-advantaged plans that are better suited for the purpose.

One special case is funding your own college expenses. You don't have to pay the 10% penalty on money that you withdraw from an IRA to pay your own college expenses, so an IRA is a perfect place to save money if you're planning to go back to college.

Emergency funds

Money in your retirement account is available to handle emergencies to a very limited extent. Generally, it's available two different ways. You can borrow against your 401(k) and you can withdraw your contributions (but not your earnings) from a Roth IRA once the plan has been established for 5 years.

Making use of either of these options is generally a bad idea--but in an emergency, sometimes it's a matter of bad versus worse.

You ought to have an emergency fund that's not in retirement accounts. But it's worth understanding that the money isn't completely unavailable, especially if that makes it easier for you to put a bit more aside.

Early retirement

Here's where way too much brainpower has been wasted by people who plan to retire early and worry about coming up with cash to fill the gap between the date they retire and the date they can start taking money out of their 401(k) or IRA.

First of all, if you're really retiring, you can take money out of your retirement account. There are rules to follow--you have to arrange to take a series of payments calculated to last the rest of your life--but that's exactly what you'd want to do if you were actually planning on living on the money.

Second, if your goal is to retire early, you're almost certainly going to be hitting the maximums on your retirement accounts and having to save some after-tax money anyway.

The upshot is that maximizing your retirement savings is entirely compatible with early retirement. It probably won't be enough for early retirement, but maxing out every retirement savings option you've got is a great start.

I wrote a while back out what order to max the accounts out in.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Book review: Cash-Rich Retirement

Philip Brewer — Mon, 28 Apr 2008 13:08:05 +0000

Cash-Rich Retirement: Use the Investing Techniques of the Mega-Wealthy to Secure Your Retirement Future by Jim Schlagheck.

Do you need a kick in the pants to get you saving for retirement? Do you need someone to wave their arms and run around screaming that your whole future is at risk, in order to motivate you to put some serious money aside and take the time to learn how your 401(k) works? If so, this is the book for you.

It's fascinating to read this book in conjunction with Work Less, Live More, which I checked out of the library the same day.

Where that book goes way beyond the classic notion of retirement at age 65, suggesting that not just retirement, but early retirement, is readily available to almost anyone--if they're willing to live frugally and maybe keep on doing a bit of work on the side--this book is the complete opposite.

Schlagheck scarcely talks about early retirement, and it doesn't even seem to imagine that anyone might do any work to earn money after they retire. It's all about straight-up retirement: You work to retirement age, and then you quit. And, it warns, if that's your plan, you may be in for an unpleasant surprise. Not only is your retirement in "grave danger," the whole system of retirement is on the verge of being a failed experiment.

Schlagheck sees two sources of danger.

The first is the "coming demographic storm" of baby boomers all getting set to retire at once. Not only are they all going to want to get their social security payments at once, they're also going to be taking their pensions (from old-line businesses and from state and local governments) at once. Plus, they're all going to stop accumulating investments, and switch to selling them instead. With everyone trying to get their money at once, Schlagheck sees a real danger that they won't all succeed.

The second is a set of foolish ideas about investing. You cannot, he says, safely rely on capital gains for your investment returns; reliable long-term returns are largely going to come from income: dividends, interest, and rents. In addition, you can't get adequate diversification simply by dividing your investments among American companies of different sizes (a generous helping of S&P 500 seasoned with some mid-cap and small-cap funds). You need to diversify both internationally and among asset classes (stocks, bonds, REITs, etc.).

I actually agree with most of what Schlagheck says, especially about his focus on income in your investment portfolio and on the kinds of investments you ought to be focusing on. In addition to the excellent chapters on investing, he's got a good chapter on health insurance, some interesting thoughts on long-term care insurance, and lots of good detail about complicated subjects like annuities (that aren't so well covered other places).

Where I have a problem is in the way he's trying to work the reader up into a tizzy. The book could not have been printed before the digital age, because in the days of metal type the printer would have used up his entire supply of exclamation points before getting halfway through the manuscript. Every page is splashed with italics warning you of a threat or urging you to action. The repeated exhortations to "save, save, save" become wearisome, and the drumbeat warning that your retirement is in danger don't become more compelling with repetition.

Still, if you or someone you know is just blithely assuming that retirement will take care of itself, a wake-up call like this may be just what you (or they) need. The information is right on, even if I got an unusually vigorous workout for my eye-rolling muscles as I plowed through the cautions, dangers, perils, warnings, and urgent urgings.

For the right person, though Cash-Rich Retirement by Jim Schlagheck is a fine book. Excellent content. Just a little strident for my tastes.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Book review: Work Less, Live More

Philip Brewer — Tue, 22 Apr 2008 13:12:46 +0000

Work Less, Live More: The Way to Semi-Retirement by Bob Clyatt.

Early retirement is a topic I've always been interested in. The particular version of it that this book deals with--living well on less money, as a means to getting by without having to work at a regular job--is not only interesting, it's the life I'm living. Allowing for the fact that it's aimed right at my own personal sweet spot, I liked it even better than I expected. It reads like the author started following me around a year ago, figured out exactly what questions I needed answered, then carefully and thoughtfully wrote a book to answer them.

The book is aimed at people interested in "semi-retirement," by which he means people who want to (or have to) work less, but who aren't in a position to (or don't care to) stop working altogether. There are an increasing number of people in that situation:

people who are burned out on their old careers
people whose skills no longer match the job market
people who want to spend more time with their families
people who want to focus on interests (art, music, writing) that don't pay enough to support them

About half the book is about money, because for most people, money is the limiting factor in making the sort of lifestyle choices the book is talking about.

There's a chapter on frugality (which is necessary before semi-retirement, to free up cash for saving and investing, and then necessary after semi-retirement, to make that modest portfolio last). It's got some good information on how to include less-than-annual expenses (like major home repairs, replacing a car, and so on) in your planning.

There's a chapter on investing, with a focus on asset allocation and setting up a portfolio that will earn a good return without too much volatility. It starts with basics, like low-cost index funds, then expands on it just a bit (adding investments whose values aren't strongly correlated with those, to help stabilize your portfolio's value).

There's a really good chapter on figuring out how much of your investment portfolio you can safely spend each year. It covers a lot of the same information I cover in my article on How much you can spend in retirement, and ends up in about the same place, but he's got an interesting twist that I think is really valuable.

Others who have looked at this have concluded that you can probably spend about 4% of your capital the first year, and then increase the amount you spend each year by enough to keep you even with inflation--and expect that the return on your investments will add up to enough to maintain your portfolio indefinitely.

There are several negatives with this strategy. If you have a bit of good luck in the market--especially good luck early--your portfolio might grow quite substantially. In that case, just growing your spending to match inflation might seem a little meager. On the other hand, if you have some serious bad luck in the market, continuing to take the inflation-adjusted draw could burn through your capital very quickly.

The intuitive solution is to go ahead and step up your withdrawals in good years, while cutting back slightly in bad years. (Cutting back drastically might be even better, but most semi-retirees are already living frugally enough that it might not be practical to cut back to just 4% of a portfolio that was sharply reduced after a severe downturn in the market.)

What Clyatt has done is put some numbers to that intuitive solution. He proposes that you feel free to spend 4% of your portfolio each year:

In a good year, you get the full benefit of your portfolio growth.
In a so-so year your 4% might just barely (or not quite) match inflation, but a semi-retiree can probably deal with that.
In a poor year, your 4% might shrink so much as to produce an actual decline in the amount of money you can spend. In that case, Clyatt says, you can go ahead and spend 95% of what you spent last year, putting a floor under the amount your available cash can shrink from one year to the next.

And here's where Clyatt provides some real value. That 95% value isn't arbitrary. He tested it. If you'd started following this strategy for any 40-year period since 1927, you'd not only not have run out of money, your portfolio would have at least maintained its value. Over 10, 20, and 30 year periods you'd sometimes see a decline in value, but no instance when the portfolio ran dry.

For me, just that analysis is worth the price of the book. The stuff on taxes is just a bonus.

The rest of the book is about other aspects of being a semi-retiree. There's stuff on finding the right work--meaningful, remunerative, and not as stressful as the full-time work you're semi-retiring from. There's stuff on dealing with no longer being part of the work-a-day world. There's stuff for couples, if one or both of you is suddenly spending a lot more time at home.

It's worth comparing this book to Timothy Ferriss's The 4-Hour Workweek. The "work less" theme runs through both of them, but Ferriss focuses on making a bit of money from something other than a regular job, and then on convincing your regular employer to let you turn your regular job into one where you don't need to show up all day every day. Clyatt doesn't have anything about that second part (dealing with your boss), and a different focus on the first (work that's meaningful and low-stress, rather than maximum return for minimum hours).

I've also previously reviewed Retire on Less Than You Think. It's a good book, but it's focus is largely on how a retiree can live cheaply without much loss in standard of living--and I was a little underwhelmed by the insight that you can retire on less money through the magic of spending less. (If you--or perhaps your spouse--needs to internalize that message, it's a great book.)

If you've already got that part down, then Work Less, Live More may be a better choice for you. It doesn't skimp on the frugal living part, but it assumes you can figure a lot of that stuff out for yourself. (It does have a good section on health insurance for early retirees.) If you've ready to deal with the details of being a semi-retiree--or planning to be one--this is a great book.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Retirement on the installment plan

Philip Brewer — Mon, 17 Mar 2008 14:13:45 +0000

Among the fraction of the population who manage to put money aside, many view their investments through the lens of retirement. They've got a number in mind--call it $X--enough that they never need to work again. Until they've got that, they're stuck working away at the daily grind. There's another way to do it, though. Make your goal to live live on your own terms for the whole length of it, not just for a little while at the end.

This is really the story of Sam, a guy I knew back when I lived in Florida, right after I graduated from college. I had very little student loan debt (generous parents), but I had more than none, which meant that I had no choice but to get a job and start earning some money. Sam, though, had a little capital.

A little capital

For the past 30 years, most Americans have started their lives in debt, thanks to the way we've decided to fund college education--everyone but the wealthy ends up with student loans. Before that--and even today, if you can put together low-priced colleges with generous parents--people tended to start out flat broke. A few people though, even people who don't come from wealth, start out with a little capital, or accumulate a bit on their own.

My friend Sam had a little, around $5000. This was the early 1980s, so today's equivalent would be $10,000, maybe $11,000.

He'd gotten it mostly as gifts. His uncle had given him some railroad stock when he was 14. A crappy gift, he'd thought at the time. He didn't even get pretty stock certificates, just a receipt that showed the shares had been transfered into a brokerage account in his name. Once he had a brokerage account, though, other relatives had taken the opportunity to dump their odd-lot holdings on Sam. (Back then, the commission on selling less than 100 shares could easily eat up all your profits, even if the stock had done well.)

In those days, brokerage accounts came with brokers. Sam's broker was pretty good--collected the dividends, sold the crappy shares, held onto the good stuff and bought more. Sam didn't pay much attention then, and didn't pay much attention later, when he went through a rough patch at an age that most people would be going to college. By the time I knew him, he was over that, and none the worse for it, except that he hadn't gone to college.

It was the early 1980s, though, and you could get jobs in software without a degree, and that's what Sam did. He did contract work as a computer programmer. He made pretty good money, but it was irregular. The contracts he got ran for a few months at a time, and he could never be sure there'd be a next contract.

For a young guy living in south Florida, with no debt and a little capital, it seemed to me like a nearly perfect life.

He lived pretty frugally. He had a roommate, which was important because rents were high. His roommate was a student, which meant that his income was low but stable. Sam's was higher, but irregular. When he had a job, he'd put some money aside--in particular, he'd pay himself back for any of his capital that he'd had to spend when he was between jobs. He might get a few months ahead on the rent and the cable bill.

When he didn't have job, he'd work on his MGB, hang out at the beach, maybe travel down to the Keys, and generally do exactly what he wanted. It was like taking his retirement a month or two at a time, right along the way.

There are two big downsides to this: it's expensive, and it's risky.

Expensive

Think of your long-term investments as buying your future retirement income: each one-time payment today will provide a certain income starting when you're 65 and going on for the rest of your life. A $1000-a-year stream of retirement income might cost as little as $1000 when you're in your twenties. It'll cost twice as much if you buy it when you're in your thirties. It'll cost you almost five times as much, if you don't buy it until you're in your forties.

If you keep spending your savings when you're in your twenties, you miss out on the chance to buy your retirement income at a huge discount. On the other hand, lots of twenty-somethings do that without managing spending a few months in early retirement along the way.

Risky

I never knew enough about Sam's finances to know things like whether or not he had health insurance. Doing without was a risk then, even for a twenty-something, and it's a bigger risk now.

The other big risk was the risk that he wouldn't find another job as good as the one he left. That's a paralyzing fear for a lot of people. Even a pretty crappy job, if it pays the bills with enough left over to save for retirement, can seem worth hanging on to.

An option worth considering

You can't do it if you have debts. If you've got monthly payments to make, it doesn't matter how frugally you live, you've still got to come up with cash, and that generally means that you need to have a job.

Even for someone with no debt, it's not a practical way to live without some capital. To get by with an irregular income, it's essential to have some savings. It's also nice if someone else in your household has an income as well.

Some people do well in the daily grind. If you're not one of them--if you're the sort of person who spends his days checking his stock portfolio, dreaming of the day he'll have enough to retire, this is an option worth considering.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Book review: Retire on Less Than You Think

Philip Brewer — Wed, 03 Oct 2007 12:15:10 +0000

Halfway through Fred Brock's book Retire on Less Than You Think: The New York Times Guide to Planning Your Financial Future, I was mentally drafting a review that would call it good but kind of basic for most Wise Bread readers. Then it clued me in to an oddity of federal law that could make the difference between keeping or losing my health insurance. That one bit is not only worth the price of the book, it could easily be worth my entire life savings. Actually writing the review, I realized the book is full of bits like that. I happened to know most of them already, but I've been studying this stuff for years. I have to say this is a must-read book for anyone who hopes to retire before they're 65.

[Updated to add: A revised version of this book has come out since I wrote this review. Check out Retire on Less Than You Think, Revised Edition: The New York Times Guide to Planning Your Financial Future.]

Brock spends nearly a third of the book on one rather obvious idea: You can retire on less if you spend less money! This will, perhaps, not be a great revelation to the average Wise Bread reader. To be fair, though, the book is aimed at affluent New Yorkers (and affluent folks from other east and west coast cities) who would be shocked at the notion that they might live anywhere other than where they do. Perhaps it is important for those readers that he so patiently makes the case that you can spend less money without reducing your standard of living at all--and that you can spend a lot less money if you're willing to make only slightly more drastic changes in the way you live.

In fact, the best parts of this book are in this area, because Brock talks about actual people who have retired on less money than some people might consider possible. He covers a pretty wide range from barely frugal at all to pretty darned frugal (such as Elton Pasea who saves enough of his $1200 a month from social security and a pension to take annual bicycling vacations in Europe).

Brock goes to quite a bit of effort to debunk the notion that you'll need to be able to replace 70% or 80% of your pre-retirement income from savings or your pension in order to retire. Rather, you need to replace that fraction of your spending (which had better be less than your income, if you're hoping to retire early).

After making the case that early retirement is within the reach of almost anyone who lives on less than they earn, he gets into the good stuff. There's a chapter on simplifying your life that's good, if a bit basic. A chapter on deciding where to retire with some good resources for finding someplace affordable and some sound advice on choosing to live near family and with access to things you want to do. There's a section on analyzing your assets, with some good info about reverse mortgages for people who own a house. There's a chapter on health insurance that had that great tidbit for me. It rounds things out with a chapter on social security and then some worksheets, suggested resources, and an excellent index.

(The tidbit for me, by the way, had to do with the the federal law HIPAA. That's the law that prompted all of your doctors and pharmacies to start giving you privacy notices. It also assures that, if you change employers and go from one group plan straight to another, the new plan can't exclude coverage for preexisting conditions. (I knew that part.) It also (and this was news to me) requires insurers to offer coverage to anyone who has left a job, continued their coverage under COBRA, and then exhausted the COBRA coverage. I'm still covered under my employer's insurance as part of my severance package, but I hadn't been planning on exhausting the COBRA coverage--I'd been planning to use that only as a back-up in case I had trouble finding insurance. I didn't understand that by getting an individual policy earlier, I'd lose access to guaranteed, non-cancelable insurance! That one point is probably of interest to only a small number of people, but it's critically important to anyone leaving a job and not yet eligible for Medicare.)

Retire on Less Than You Think by Fred Brock. It's a short book--you could read it in an afternoon. But in addition to advocating for the idea that a simplier life lets you follow your bliss--to retirement or where ever else it might lead you--there are dozens of bits of information that could spell the difference between a happy retirement and having to go back to work in your old age.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Tiny Nestegg? Retire abroad!

Andrea Karim — Thu, 05 Apr 2007 15:20:25 +0000

Can't afford to live on your pension or Social Security in the U.S.? Why not find a cheaper place to live? No, not Canada - the other communist mecca... that's right, China!

Ha ha! I know I'll get all kinds of flack for that one. I'm just kidding, Comrade, don't take me seriously! I know China isn't communist anymore.

NPR, my favorite news source, offered up a story yesterday filed by Keva Rosenfeld, whose mother-in-law (I'm not sure if it is mother-in-law per se so much as his partner, Karen Murphy's, mother) has chosen to retire in China, finding it much too difficult to live off of $400 a month in the United States. Interestingly enough, the old gal (she's 75) has chosed Shanghai, arguably the most expensive city in China, to spend out her remaining days.

Although the story promises some amusing tales of generational misunderstandings, it's much shorter than it should be, told from Keva's viewpoint, as he goes to Shanghai with his wife for a visit with his mother-in-law. There is a short discussion about how small a dingy the Shanghai apartment is, but little about how and where she shops for groceries, if she has learned to barter for her gorceries, if she has made any friends, or what it's like to live in Shanghai knowing absolutely no Mandarin AT ALL. Where does she go for health care? How does she explain what she needs in an emergency?

China is a place you can't really avoid hearing about these days, so I hate to add to the hullabaloo. Slate featured a couple installments about traveling to China for medical treatments a while back.

Having lived in China, I can attest that unless you live in a big city like Shanghai or Beijing or Shenzhen, you're likely to have a hard time adjusting as an American. Not that the big cities are easy, either. Things are made immeasurably more difficult if you don't have any language skills. However, although Keva can be heard in the NPR story suggesting that no one in Shanghai speaks English, this is most certainly not the case.

I'd be really curious to know if this will be a trend among the Baby Boomers (Murphy's mother is not a boomer, but I can see boomers doing this), or if living in China is really more for people like Ms. Murphy's mother, who is described as a "bohemian". And if Westerners start moving en masse to China, will it still be a viable place to live on less than $500 a month?

This article is from Andrea Karim of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

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