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Welcome to my blog!  If you are interested in retirement issues, you are welcome to come along with me as I "think out loud" about my recent retirement.  The most recent article that I have written appears at the top when you arrive at this site; previous articles are listed along the right margin; just click on the title of any article that may interest you.  I hope you will find some of them of interest.  You can also reach me through my web site:

Known Unknowns

Former Secretary of Defense Donald Rumsfield famously once said that there were “known unknowns,” things we know we do not know, but there were also “unknown unknowns,” things that we are not even aware that we do not know.  Such is it with retirement planning.  A couple of articles I have read recently set me to contemplating the things we know we do not know as we are planning our eventual retirement and how we might respond to these “known unknowns.”   I’ve decided to leave those “unknown unknowns” for someone else to discuss.

First, we do not know exactly how much we will eventually need in retirement.  We can arrive at an approximation of our daily expenses, but we all know that unexpected expenses occasionally arise.  We will eventually have to deal with auto problems, leaking pipes and roofs, financial issues with our adult children or grandchildren, as well as our medical expenses.  For example, Fidelity, the large investment company, recently predicted that the “average” retired couple will need about $240,000 to cover medical expenses not covered by Medicare during their retirement.  But of course, that is only an estimate; some will experience more expenses; others much less.  These types of expenses are difficult, if not impossible, to predict. Some expenses during retirement can be planned for by saving on a regular basis; i. e., a roof replacement or a new car that is funded over a period of years so that the funds are there when needed.  For others we may simply need a large miscellaneous category in our monthly budgets that grows from month to month.  These types of computations are clouded even more when we try to allow for the effect of inflation.  If your electric bill is $100/month today, in twenty years of 3% annual inflation it will be $180/month.  The ideal scenario is when one has regular income from Social Security, a pension, annuity, etc., to cover necessary, or fixed expenses, and then some other source of funds (savings) to tap for our discretionary or unexpected spending and leave some earmarked for growth to offset inflation’s effect.

Second, we cannot know what future rate of return we will experience with our investments.  We can know what various asset classes have returned in the past, but we do not know if those returns will continue into the future.  I know, for example, that a portfolio of 100% stocks has returned about 10% per year since 1966, but someone holding such a portfolio has seen some pretty scary years during that time, (i.e., a loss of 38% in 2008.)  A noted radio show host routinely uses 12% as his suggested future return for growth stock funds, but with the current low interest rate environment, I doubt we are going to realize such a splendid annual return in the future.  Most retirees would be exposed to too much risk and find it difficult to even sleep at night if they were reaching for that type of return.  So, I suggest that retirees holding a portfolio balanced 50/50 between stocks and interest earning holdings (bonds/cd’s/cash) plan on no more than a 4.5% to 6% total return over the next ten to twenty years.  I prefer to err on the short side of expected returns; if I am proven wrong we will all be better off than we planned. 

And finally, we do not know how long we are going to live.  Of course, we can note if longevity runs in our family, but that will not account for the guy driving while texting who may take us out.  Plan on living too long and you may forego some spending, and memory making with grandkids that you could otherwise enjoy.  Plan on living too short, and you may end up wanting in your later years.  There are some web sites that purport to give you some idea of how long you may live based on your current lifestyle and health, but I wouldn’t make firm plans based on them.  However, we can note these statistics: according to Scott Burns (noted financial writer) only 16% of 65 year old couples will have one member live an additional 30 years; only 1% of 65 year old couples will see both of them live an additional 30 years.  Thus, many retirement plans are based on thirty years, as this assumption covers the vast majority of couples at age 65.  We always like to plan to enjoy a long life, and we should when it comes to our financial lives, but the fact is that mortality will likely take care of many otherwise faulty retirement plans. 

With our limited knowledge and foresight, our plans cannot possibly allow for all possibilities.  We can, and should, plan as best we can, but ultimately we deal with life as it comes with what we have at hand.  Someone once said that we should work as if it is all in our hands then pray as if it was all in God’s hands.  Of course, it ultimately is, and that is probably pretty good advice.


Fly/Drive safely

5 May, 2013


Ten Things About Which I Am Certain

This time of the year all sorts of lists begin to appear, so I submit one of my own.  Since life is filled with so much uncertainty, here are ten things about which I am fairly certain.

  1. The low cost index mutual fund is one of the best investment vehicles available to most of us.  Over almost any time period, index funds beat the majority of their actively managed counterparts.  The longer the time horizon, the more pronounced the difference in performance becomes.
  2. For most, finding ways to save more is far more important to long-term financial success that finding the perfect investment.  Read this slowly; enunciate properly.
  3. The power of compound interest is the saver's best long-term friend. Impress this on your children and convince them that the sooner they begin saving, the longer this magic can work for them.
  4. Most folks should avoid investing in variable annuities. This rule may be suspended in certain years when you have contributed every possible dime that you can to every other tax-advantaged plan available to you. Even then, other choices may be available that are probably better as most variable annuities are expensive and ill-liquid.
  5. No one on earth, and I do mean no one, knows where the market is headed in the short term.  If they did, they certainly would not tell us.   Thus, you should pay almost no attention to the talking heads in the media.
  6. No amateur should have a 2 iron in his bag.  Enough said!
  7. Most Americans do not want to be told the whole truth, especially by their politicians. The fact that we continue to elect folks who are more than willing to withhold the whole truth from us verifies this observation. And many politicians are only too happy to accommodate our aversion to the whole truth as this makes their re-election so much easier, and most are really into getting re-elected. You see, that elected position, especially at the federal level, is a really sweet gig.
  8. The fact that an individual of average intelligence cannot sit down and in an hour or two determine his federal tax bill is a national disgrace. Although tax simplification is mentioned from time to time in political discourse, no real tax simplification is on the horizon. The monies spent on accountants, tax attorneys, other tax preparers, and the humongous IRS bureaucracy represents another huge and onerous tax on the American people and our economy.
  9. All classes of assets will eventually go both up and down in value. Those who thought that real estate was exempt from this law have discovered otherwise.
  10. Social Security and Medicare will not survive long term in their present forms. This observation is the result of simple mathematics. However, they are very likely to survive in some fashion. Some form of these programs will be there not only for you, but for you children as well. You see, love them or loathe them, these programs are vitally important because they have made retirement tolerable for many, many folks who would have otherwise suffered greatly in their later years.  The changes coming to these programs may be painful, but the days of kicking the can down the road are rapidly coming to an end.  Let us hope that those with the power to effect the needed changes to these programs show the necessary courage and wisdom soon. The longer the wait, the sicker the patient, and then, the harsher the treatment.

I am fairly certain of several other things as well (the love of God, the importance of family and friends, etc.), but these types of lists have historically extended only to ten items, so I will follow convention. You can probably add a few items of your own; feel free to do so.

Remember, money is not the most important thing, but still, money matters.


Mike Ryan

Seven Oaks Financial Planning



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