Too Complex For Their Own Good?

This week on my Forbes post, “Don’t Outsmart Yourself Financially,” I took issue with an article written by Nobel-winning economist, Paul Krugman, for his rationalizing of the enormous debt load of our country.  But while economists have and will wax eloquent on the past, present and future utilizing brilliant theories well beyond the bounds of common sense (and often practical application), we have no such allowance in the realm of personal finance.  Indeed, YOU SHOULD NEVER PURSUE A STRATEGY YOU CAN’T UNDERSTAND.

Here are a collection of financial strategies that sound impressive but may be too complex for their own good:

  • Equity Indexed Annuities—EIAs are actually fixed annuities, but if you ask one of their passionate purveyors[i] how they manage to offer market upside with none of the downside, I hope you’ve set aside some time because you’re in for a very long conversation…if the agent even knows enough about their inner workings to  educate you.  In short, insurance companies buy bonds with your investment and use the interest payments to purchase stock options to materialize the upside of the stock market.  They hedge their bets—I mean, positions—by handcuffing you with some of the biggest (7%, 9%, even 12% and higher) and longest (10, 15 or even 20 years) surrender charges in the business.  Like too many financial products, these instruments are sold, not bought, and I don’t recommend tying up your money in one of these financial experiments.
  • Life Insurance As Primary Retirement Vehicle—There’s a wow-inducing sales system (called the LEAP system) that was built for life insurance agents seeking to increase their sales in one of the best-paying commission products on the market, permanent life insurance (whole life, variable life and universal life).   After an hour of mind-numbing chart-flipping, you’ll be ready to divert your 401k savings into a brand new life insurance policy![ii]  But unless you make over $250,000 per year or have millions in net worth, you simply don’t need to worry yourself with the variables in permanent life insurance.
  • “Option Arm” Mortgages—The landscape of mortgage products has dwindled significantly from the pre-crash days when you could literally pick the payment on your mortgage in the now infamous option arm mortgages.  A mortgage broker in Pennsylvania at one point pitched me on a joint collaboration in which I would lend financial credence to his recommendations for clients to take on these crazy mortgages and they would, in turn, invest all the extra money they didn’t have to pay towards their mortgage in accounts I would manage.  I laughed at first, thinking he was kidding.  Then I realized he wasn’t.  Especially with rates as low as they are today, there are very few reasons to take on any mortgage other than a fixed mortgage, but there is NEVER a reason to take on a mortgage that increases your debt instead of paying it off.
  • Exchange Traded Funds—This one may surprise you, and I should be quick to point out that ETFs can be very wisely and properly utilized in a diversified investment strategy.  But you’d better fully understand what you’re buying.  Much like a mutual fund, an exchange traded fund is a single investment representing a basket of securities.  For example, you can purchase an ETF that will track the S&P 500 index or commodities like gold or oil.  But the question remains, what exactly is inside of the ETF?  Sometimes it is actual investments, (like stocks in gold mining companies, for instance) but often the underlying properties in an ETF are derivatives—options or futures—and subject to market forces beyond the commodity or index itself.  If you don’t understand how the investment is built, you may be in for a surprise when you see how it actually reacts to market stimuli.

There are many other examples out there, and I’d love to hear what you’ve run into in your financial journey.  Please share your good or bad experience, or ask any questions, in the comments section!


[i] Why so passionate, you ask?  These products have some of the biggest commissions in the business.  Up to and over 12%!

[ii] I worked with one agent in a prior professional life who regularly pitched a “Roth Look-A-Like,” an alternate retirement savings vehicle designed to give you all the tax advantage of a Roth IRA, and more…except that it was nothing more than a whole life insurance policy.  I saw one unfortunate 20-something guy who wasn’t even married and had no dependents buy a look-a-like when his money would’ve been better served in a true Roth.

10 Ways Budgeting Saved My Marriage

Eleven years ago, my wife and I sat across the table from an experienced married couple squirming in their seats uncomfortably as though they feared we were about to deliver some terrible news.  But the source of their discomfort was the bomb they were about to drop on us.

You see, we were not yet married, but engaged, and the couple across the table was our mentor couple in our pre-marital class.  Upon review of our personality profiles and piles of personal baggage, they felt it their duty to discourage us from further pursuing the sacred vows of matrimony.  They’d never seen a hopeful couple more innately disparate, more inevitably destined for failure. 

We are indeed vastly different, but one thing my wife, Andrea, and I share in common is a penchant for resisting authority.  So with the blessing and support of family and friends, I’m thrilled to report we’ll be celebrating our eleventh anniversary this April with our two wonderful boys, Kieran and Connor, ages six and eight.

We have never forgotten, however, the well-intended admonishment of our mentor couple; indeed, we see much of life from vastly different perspectives, foremost among them our view of things financial.  And apparently, we’re not alone. Over 50% of marriages end in divorce.  Over 50% of those splits cite financial disputes as the primary reason for the break-up.

100% of marriages deal with money as a daily necessity.


This thought occurred several times when preparing my recent posts on budgeting on Forbes.com (How To Spend $1 Million At Starbucks) and TimMaurer.com (A Burdensome Yoke…Or A Path To Peace?).  It struck me that budgeting ranked right up there with prayer and counseling as a precious few factors that have helped keep us together.  Here are the top 10 ways budgeting has saved, and continues to save, our marriage:

10)  Budgeting forces us to collaborate.  It seems that as parents of young children, the level of commitments between work, school, church, sports and the arts leaves us functioning more as independent business partners than spouses.  We’re almost always in short supply of adult conversation and genuine collaboration, and (strange as it may seem) budgeting gives us the context for both.

9)     It offers healthy accountability.  Ronald Reagan famously said, “Trust, but verify,” and while 100% verification of trust in our marriage would be stifling, we’ve found periodic accountability to be a healthy way to build faith and trust in each other.  Our joint budgeting effort means all of our expenditures are accessible to the other.  Scrutinizing every penny spent would be unfair (a-hem, note to self), but knowing everything is visible is likely to encourage us each to spend more responsibly.

8)     It humbles us.  I’ve not found a more helpful tool in the pursuit of a successful marriage than humility, and since the use of money is so pervasive in our lives, small mistakes are the norm, not the exception.  Rarely a weekly cycle goes by in which we don’t each humbly acknowledge that we erred in some capacity, humbly submitting our mistake to the other.  And of course, a good budget is designed to withstand these small mistakes.

7)     It provides an opportunity for reconciliation.  The prevalence of small errors in our budgeting, however, provides fertile ground for a destructive tendency: that we’d develop a scorecard, real or implied, and shame the more regular offender (because there normally is one in most households).  So for us it’s very important that a humility ground-rule is established: Any time an offending spouse submits in humility to an irreversible mistake, forgiveness and reconciliation is the only way forward.

6)     It gives us reason to celebrate.  For each mistake, there are several successes in each budget cycle.  The long-term success of our marriage is often built on a series of small victories, and we should never withhold an affirmation for completing a project under budget or enjoying the security of a buffer when an emergency arises.

5)     It cuts down on surprises.  So many aspects of our life are subject to variability and volatility.  We can’t necessarily reduce the number of those surprises, but we can certainly reduce their negative impact by being financial prepared for them.  Financial strain, and especially shock, pushes many marriages to (and over) the brink.

4)     It makes us better parents.  All of us parents could probably agree that it’s possible to spend too little OR too much on our children, right?  We’re responsible to determine what the right levels of spending are for our children, and budgeting allows us to deliberately set aside appropriate levels of funding for education, clothing, sports, music and fun.

3)     It shows our dependence on each other.  Andrea and I do think very differently, and this inevitably leads to divisive thoughts like these: “You know, I think I could do this better on my own!”  But this decries the very essence of marriage as an institution in which each partner’s primary objective is to serve the other.  The process of budgeting puts our (literal and emotional) dependence on each other on full display.  That makes us vulnerable, but it’s good.

2)     It preserves a healthy level of independence.  The income production in most households is almost never perfectly equitable.  Andrea sacrificed a successful career in the financial industry when she chose to stay home with our young children.  This has been an incredible blessing in our family, but it’s also a breeding ground for insecurity and manipulation as I might have a tendency to overestimate my contribution to the family’s finances and underestimate Andrea’s.  It is imperative, then, that part of our budget is the preservation of a certain amount of financial independence for each spouse.  To offset this income inequity, we’ve established “His and Hers” accounts with unilateral privileges.  Many shun budgeting as too restrictive, but properly implemented, it actually gives us room to breathe financially, and we all need room to breathe.

1)     It preserves date night!  One of the interactions I’ve enjoyed most throughout my career was with a client who is a generation or two my senior.  He and his wife have five kids(!) and appear to be more in love today than they’ve ever been.  So at the close of one meeting, I got up the nerve to ask this gentleman what his secret to marriage and parenting was.  His answer?  They never fail to set aside time—and money—for each other as a couple.  He made a convincing case that we are better parents when we deliberately setting aside time to be together, away from the kids, and not just for date nights, but also long-weekends and even week-long vacations to remind ourselves that before we were parents we were lovers.  This proved especially difficult for Andrea and me because by the time we got to the end of most months, we’d already spent our discretionary cash on the rest of life and felt like we were taking funding away from other things to line-up a babysitter and enjoy a night or weekend out.  So now, much as we have preserved His and Hers accounts, we also have an Ours account.

Budgeting is not the slightest bit romantic, but it has the ability to promote and preserve the romance in our marriages and keep us on the right side of that daunting 50% divorce statistic.  There are as many good ways to manage this process as there are couples, and I’d love to hear some of the ways budgeting has helped preserve YOUR marriage also, so please share your story in the comments section!

A Burdensome Yoke…Or A Path To Peace?

Well, it wouldn’t be the New Year if we weren’t reminded that one of the top resolutions that will be made and inevitably abandoned is financial in nature.  “Improve financial condition” is once again the number two resolution for 2012 in the annual Franklin Covey New Year’s Resolutions study, and the only surprise is that it’s not number one!

But no matter what year I’m asked the question, “What’s the most important thing I could do to improve my personal finances?” the answer is never going to be about tactical asset allocation, navigating the alternative minimum tax or conducting a Roth IRA conversion.  Regardless of your income, your net worth, your age or employment status, the clearest determinant of a successful financial plan for ALL of us is the implementation of an effective cash flow mechanism, or its less sexy if not diminutive synonym—the budget.

So in my first Forbes post of 2012, I shared the shocking story with which you may already be familiar, about my affluent friend who found himself on a path to spending over $1 million at Starbucks, to rebut the common misconception that rich people don’t have to budget.  But here I’d like to address the more honest, unspoken question that I believe leaves most people among the ranks of the NON-budgeters:

ISN’T BUDGETTING JUST AN ANNOYING, BURDENSOME YOKE?  ANOTHER TO-DO WITH LITTLE MORE TO OFFER THAN A REMINDER THAT I’M FALLING SHORT?

The short answer: NO.

The less short answer: MAYBE.

Budgeting may indeed be little more than a burdensome yoke destined to be cast off if you don’t dedicate yourself to it wholly.  For example, if all you ever do is track your spending after the fact, which can be quite depressing.  (“Yup, I spent more than I should’ve…again.”)  Many mistake a monthly review of spending with a glance at the bank and credit card statements for budgeting, but a spending review is barely the beginning of a genuine cash flow system.  The process is really about setting forth a desired level of spending for the future and tracking spending at frequent enough intervals that your course can be reasonably adjusted.  A half-hearted effort at budgeting is likely to net you even less-than-half the benefits.

Although I recommend you find the rhythm that works best for you, my preference is a monthly budget that is reviewed weekly.  Each of my budget categories—food, housing, charity, entertainment, and many more—are given a monthly allotment and then we (yes, if your household is a we, it’s almost impossible to make budgeting work solely as an I) review spending weekly and make course adjustments for the month’s remainder.  If you’re able to maintain a weekly rhythm of review, the process is relatively painless in the short run and you’ll save yourself more heartache (heartache is not an overstatement for many people) than you could imagine in the long run.[i]

But what really takes budgeting from routine to revelation isn’t merely mastering the mundane, but planning for the unexpected…with margin.  With the exception of bills that are identical every period, each variable budgeting category should have a built in buffer designed to weather slight variance.  Then you should also have a separate miscellaneous buffer category for emergencies, auto repairs and other occasions that fall outside the bounds of your expectations.

You’ll fall head over heels in love with the boring process of budgeting when the unexpected becomes inevitable, but you’re prepared in advance.  No wondering where the money’s going to come from.  No turning to debt.  No personal financial crisis.  Just peace.

Speaking of love and budgets, stay tuned for an upcoming post on How Budgeting Saved (And Continues To Save) My Marriage.

Wishing you personal and financial peace in 2012!


[i] The not-so-secret to any habit I’ve ever maintained successfully is that it has to be in some way enjoyable, so every Saturday I take a cup of green tea upstairs with the wooden box dedicated as the receptacle for our household receipts to my office, choose some good music to suit my mood and run the numbers.  WHAT WORKS WELL FOR YOU?

Chasing Tomorrow

A couple days ago, I tweeted[i] a question that received some interesting responses:

“Is it possible that financial advisors’ bent towards long-term saving strips clients of joy today?”

The responses I got were vociferous, both in support and opposition of the implied comment in my question.  Interestingly, all of these responses were from financial advisors.  Here was the first grenade lobbed back in my direction:

“It’s just not possible; it’s a fact. We’re in the business of selling deferred gratification.”

That comment came from a good person who is no doubt an excellent financial advisor.[ii]  But, this faulty mindset is, without a doubt, the majority opinion of the estimated 500,000 plus who refer to themselves as some form of financial advisor or professional in the lower 48.  So, financial advisors are in the business of selling deferred gratification, knowingly stripping our clients—YOU—of joy today?  How do you feel about that?  Does that make you want to run out to hire a financial advisor?

This faulty premise leads to a number of mistaken presumptions and results.  First, many financial advisors DO see themselves as the protectors of their clients’ futures, an ostensibly noble mission until we’re reminded most financial advisors also just happen to get paid more when you defer more.  There’s no way around this blatant conflict-of-interest, and any advisor caught obscuring this truth behind a veil of self-righteousness is deluding himself or herself.

There is no question that the job—even the duty—of a financial advisor in almost every case is to encourage clients to consider and establish a reasonable plan for deferring some of today for tomorrow, and to occasionally protest an attempted withdrawal spurred by a temporary urge in spite of better judgment (like the time a 20-something client wanted to take an early withdrawal from his Roth IRA to buy a jet ski).  But I believe financial planning focused too heavily on the future is little better than planning encouraging an “eat, drink and be merry, for tomorrow we die” approach.

While I absolutely believe we, as humans, do have a tendency to overvalue that which is seen or imminent over that which is unseen and seemingly distant, there is no denying the “one-in-the-hand-two-in-the-bush” adage either.   We must repel the urge to make a comprehensive financial plan the protector of only the future—stripping funding from today for a tomorrow not promised.  The ideal financial plan (some might say, The Ultimate Financial Plan…ha, ha, ha…that wasn’t planned…) helps manage the short-, mid- and long-term, balancing money and life.

Encouragingly, I believe there is a movement among financial planners awakening to the reality that in order for a plan to be relevant, it must positively impact more of life’s timeline.  In response to my tweet, Nathan Gehring, a Wisconsin cheesehead (and financial planner and blogger), called for balance and Dr. Carolyn McClanahan, a physician-turned-planner in Florida, noted she feels a duty to provide a plan more relevant to today.  Interestingly, Dr. McClanahan and I both share near brushes with death, personally, that likely impact our insistence on this issue.  But it doesn’t take a near-death experience to grasp this important truth.

(By the way, the biggest mistakes planners and clients make regarding deferred gratification are not in our saving and investing patterns, but in our choices of vocation…how we choose to spend the estimated 101,568 working hours in our lifetime.)

In 1902, Alice Morse Earle wrote, “The clock is running. Make the most of today. Time waits for no man. Yesterday is history. Tomorrow is a mystery. Today is a gift. That’s why it is called the present.”

How much of life do you spend chasing tomorrow?


[i] Yes, it’s true.  I’ve embraced the social medium that took me the longest time to “figure out” or in which to find any redeeming value.  I’m officially a tweeter…or twit, if you will.  If you’re into that sort of thing, you can follow me via @TimMaurer.  And, if you’re like me, reluctant to see the value in Twitter, in next week’s post I’ll be sharing how Twitter has become my #1 source for financial news—if you can believe that—and why I think it could really benefit you too.

[ii] Please also be mindful, if you’re not a Twitter aficionado, that the medium restricts questions and comments to no more than 140 characters (as my regular readers gasp in amazement that I’m capable of articulating anything in so few letters!).  As a result, tweeters often do take short-cuts to get right to the point, sacrificing context that may help substantiate a point.

Bad Advice for Younger Generations

Young couple I read a Wall Street Journal article recently written by a reporter for whom I have a great deal of respect, but who acted as a conduit for a fundamentally flawed (supposed) majority opinion on the part of some financial advisors—that risk taking in investing and financial planning naturally leads to reward.  The article is entitled, “Take some chances, Gen X,” and chides 30-somethings for making capital preservation an investment priority, warehousing cash in defense of a job loss and eyeing debt elimination as a goal.

Hmmm.

I’m not denying the relationship between risk and return.  But while it is true that higher returns are accompanied by a greater degree of risk, the inverse is not promised.  It’s a classic investing blunder to presume taking higher risks will naturally result in a higher rate of return.

Is it possible that while the boomer advisors were pining over outdated investment “science” and Monte Carlo retirement simulations, they missed the simple math their younger clients discovered—that it’s easier to lose money in the market than it is to make it?  If you’ve lost 10% in your portfolio, it will take 11% to get back to where you started.  If you’ve lost 20%, you’ll need to make a 25% rate of return.  If you, however, get slammed by a 50% loss, you need to make a 100% rate of return to recover your losses.  Is it possible that youth and a stomach for losses isn’t actually the optimal investing posture?

The article wisely captures the reasoning behind the financial common sense of younger generations—“Many Generation X and Y investors have watched plunging financial markets destroy their parents’ retirement plans.”  That sounds eerily similar to words spoken by Gen X’s grandparents, the Depression Babies.  While it certainly is true that the intense, deep pain of the Great Depression may have created a syndrome in which some were too conservative, the Greatest Generation’s aversion to debt, skepticism of equity-heavy investing and penchant for emergency cash reserves may be exactly the foundation young investors need for a fruitful future.

The apparent concern of the "advisors"?  (And I’m sure it has nothing to do with the fact that they can’t charge fees and commissions on cash stored for emergency reserves or used to pay down debt…) They’re “…concerned that the low risk tolerance of some of these investors may ruin their retirements too, by leaving them short of funds when they get there.”  Again, the advisors miss the mark.  The point of financial planning and investing is not to retire, but to live a better life now and in the future.  Gen Xers, realizing they may be working indefinitely, thanks to companies and a federal government that raided their retirement promises (pensions and Social Security), are choosing jobs they love over those that pay the very most and seeking the nuanced balance between saving for the future and the present and everything in between.

Maybe the article should have been headlined, “Generation X shows more financial wisdom than financial advisors.”

Tim Maurer, CFP®

Financial Planner and Gen Xer

Know Yourself: Conscious Retirement Planning

So you’re old enough to have finally purchased the house and made it a home.  You’ve molded your children into fine readers and artists as well as piano, soccer and lacrosse players.  You’re on the board of the local Y, you support the PTA and normally make a contribution to the offering plate when it’s passed.

How about your retirement plan—how is that coming along?  Do you have an inherent tendency making saving easy for you, or is it more difficult? Each of us has a saving personality on a continuum spanning a wide spectrum.  Are you a Spendthrift, a Spender, a Saver or a Hoarder (or somewhere in between)?  Your optimal retirement savings methodology depends on that answer.

 

Untitled

Most educators in the realm of personal finance take aim solely at those who find themselves on the left side of this continuum as if more is always better, so I’ll first address those predisposed to over-saving.   Hoarding is warehousing money simply for the sake of seeing it collect, not for a specific use or purpose.  This practice is idolized by far too many in the realm of money management, but hoarding is actually a financial disorder.  I’ve written recommendations for mandatory vacations in financial plans for hoarders to help break their addiction to stockpiling, and I don’t presume it’s a fault simply driven by greed—for many, it’s fear.

Those who lived through or felt the effects of the Great Depression saw such vast amounts of wealth decimated that many developed a scarcity complex.  A client I was blessed to call a friend passed away last year at the age of 87 with no lineal descendants and over three million dollars in liquid cash and investments.  The good news is that three worthy charities benefited from her generosity; the bad news is that she worked until she was 70, she never took a vacation (not once!) and she lived in a bad neighborhood in which she was burglarized and assaulted (but thought she couldn’t afford to move).

Conversely, a good friend and financial planning colleague of mine is living and battling with Cystic Fibrosis, a disease attacking the lungs which leaves its afflicted with a life expectancy of 37.4 years.  My buddy is married with two beautiful children and turns 37 this year.  He’s forced to be focused both on the future for his family’s sake (and hopefully for his sake as advances in medicine push towards a cure for CF), but he also recognizes the absolute necessity of getting the most out of every single day.  Tomorrow is promised for none of us, and our retirement plan should reflect that.

Am I, a financial planner, suggesting you could actually save too much for retirement?   

Absolutely!  I’m not demonizing any particular level of net worth, but you may be socking away as much as humanly possible for your future even to the detriment of your (and your family’s) present.    Many advisors will, driven by their economic bias to manage your money, use the save-for-your-family’s-future guilt trip to wrench more of your dollars into accounts they can oversee.

It is also important for me to acknowledge most of us are actually more inclined to lean in the direction of the spendthrift than the hoarder.  It’s easy to over-value the present because we can see, touch and feel it today.  And many of us have so many pressing concerns demanding attention and funding, it’s only natural for deferred gratification to take a back seat.  So my calls for balance between your future and present plans should not be received as a blessing to underestimate the importance of saving for the future.

The key, therefore, is to know yourself and be honest about your strengths and weaknesses pertaining to saving and spending tendencies and patterns.  

If you’re a spendthrift, you may likely need some form of intervention.  You may need to institute personal austerity measures—like the governments of Greece and Ireland—or introduce some level of accountability with a mentor of sorts.  If you’re a spender, it is likely you can effectively train yourself by setting up automatic savings mechanisms, diverting funds directly from your checking account (or paycheck) to the buckets you’re filling for the short-, mid- and long-term.

A sign you’re a natural saver would be that extra cash piles up each month—seemingly effortlessly—but you may also judge and condescend to family and friends without the same innate advantage.  If you’re a hoarder, you too may need intervention…to force yourself to spend!  One of the best ways to redirect in this regard is first to offer your services—not your money (at least initially)—to a worthy charitable organization, like a homeless shelter.  Or go on a mission trip to a third-world country and see how people live with nothing.  I’m not trying to guilt you into giving your money away, but to demonstrate how people with absolutely nothing may experience more happiness than you.  You’ll have to experience it to believe it.

Retirement planning is not a science, but behavior management is.  By better understanding yourself and controlling the only economic assumption over which you have absolute control—YOU—you’re likely to better enjoy your retirement, and all the days leading up to it.

*This post will also be appearing on TheStreet.com.

Pogo Stick Retirement Planning (for Younger Generations)

Pogo stick
While most of my career has been spent advising the Depression Baby and Baby Boomer generations, I have a real heart for younger generations… which, for those of you who know me personally, should come as no surprise.  After all, I’m a Gen-Xer myself.  I’m married (ten years this April) with two energetic boys, ages 5 and almost 7, so I’m right in the thick of it with many of my peers who have built their careers and financial lives in a decade that has delivered the highest level of stock market and real estate volatility since the Great Depression.  And while the complexity in planning for 30- and 40-somethings is often not as great as those who’ve traveled further down life’s winding path, there is no denying that our planning needs range the broadest spectrum imaginable in personal finance.

Some of these topics, such as retirement, appear almost beyond the grasp of younger generations because the variables are so many and the timeline so long.  Indeed, for those closer to the front-end of our retirement journey, we’re faced with a daunting task indeed.  The retirement planning “three-legged stool”—once consisting of a corporate pension, a Social Security retirement benefit and personal savings (savings, 401ks & IRAs) is now the retirement pogo stick!  It’s on us—you and me—to fund our own retirements.  Further complicating matters, doctors suggest that the quantity of life for Gen X and Yer's may far exceed that of our parents and grandparents.  We’re likely to live a long time, but the quality of life—to the degree that it is improved by cash flow—is in question because of the burden of saving.

Last week, I focused on two retirement planning “silver bullets” for hopeful Boomer retirees (Part I & Part II) who may fear that a decade of economic uncertainty has put their goal for a comfortable retirement out of reach.  Here’s how the two concepts I shared are applied to younger generations:

MOVE: The disparity in cost of living across our great country is so vast that it’s almost unfathomable.  I encouraged those on the home stretch of retirement that one could take a failing financial scenario in Parkton, MD—a typical northeast suburban environment—and transplant it in Knoxville, TN, where the same exact home equity and retirement savings would allow them to live happily ever after… financially speaking.  The advantage YOU have is that you can make a decision NOW to take advantage of this geographic arbitrage in advance.  You can CHOOSE to live in a higher cost-of-living area now while keeping an eye on another area to which you might like to transition later in life to give your plan for financial independence a turbo boost.  (Check out the cost-of-living in your area and dream about others with this tool: www.bestplaces.net.) 

WORK: The second silver bullet for near retirees is to transition from a higher-paying job that feels like a grind to a job that they love for less pay, fully recognizing that both medically and financially speaking, we’re really all better off working indefinitely.  The bad news for Baby Boomersis that many grew up with a more utopian view of retirement… that they’d work for “X” number of years and then cast off the chains of employment to spend their latter years in the lap of leisure, if not luxury.  We, however, should simply never buy this lie propagated by the behemoth financial industry, preferring to dangle the carrot of unencumbered bliss on our horizon so that we’d stay on the hamster wheel of hording in the accounts they manage for fees and commissions.  We should EXPECT that we’ll be working indefinitely, and, facing that reality, we should work tirelessly to seek and find that career that doesn’t feel like work.  We can be financially independent as early as our 30s, not because we’ve saved a few million bucks by then (although that wouldn’t hurt), but because we’re working because we WANT to, not because we HAVE to.

What younger generations have lost is the hope that we’ll be able to rely on someone or something else to take care of us financially in our later phases of life.  What we have gained is the freedom and flexibility to pursue a life that is uniquely ours.  Enjoy every minute of it!