Warning/Disclosure: this is an extremely long post in reply to questions raised by Aggie.
Aggie... my retirement plan(s) have been and continue to be a journey... in one form or another, I have been exposed to all of your choices, if not personally then vicariously through a family member or close friend. Personally, I took over the reins of my retirement plans (and accts.) in my 30s when I realized I'd never have a traditional pension plan to backstop my retirement beyond whatever SS would provide... out of 40+ years of full time work, less than half of those years were spent working for an employer (I've been self-employed and/or a small biz owner the rest of that time), and thus didn't even have access to 401Ks much of the time.
So I looked around at the people I knew who were successful, and/or already comfortably retired, etc. and started asking myself what differences existed between their situations and mine. Then I began asking them questions along the lines of what had worked well for them and what hadn't.
The first, and perhaps best thing I did was to decide that my mentor (who had built a small newspaper empire in the midwest and mid-south from scratch) was a smart guy when it came to money (among all of the other things he was really really smart about) and that one of the things he always talked about professionally and personally was how good his tax acct. was -- the same guy he used for his biz taxes, he used for his personal taxes. That tax acct. was also a very smart guy. He was not cheap, however, just to illustrate: I'd been doing my own taxes up to that point and I consider myself pretty knowledgeable as well as smart enough. The first year I decided to take my taxes to the same accountant my mentor used, he asked me to bring in my last 5 years' tax returns as well as my current records. A week later, he asked if it would be OK to file amended returns on some of the previous 3 years before doing the current one. I told him to do whatever he thought was best, but that I did not want to rely on any "gray" areas avoid taxes so I would never have to worry in the event of an audit (much more common for self-employed and/or biz owners). The result of filing those amended returns was a refund that in total was equal to my then-current after tax income for one year, and the amended returns relied on nothing remotely gray-ish that could/would more red flags or challenged if it came to an audit.
I've never done my taxes myself in the intervening 34 years. I used that same accountant even after I moved to CA until he recommended someone (somewhat) local (35 miles away). I've been using that guy ever since. On average, it costs me $500/yr. (inflation adjusted). I still try to keep up with tax laws and I often call the guy for information, but come tax time, I simply gather up all of my records and dump them into his lap, spend an hour discussing various aspects of the past tax year and the current one in progress.
Other people have the knack, desire and ability to do their own taxes as well as anyone else, but I don't. I decided long ago to focus on the savings/income side of my retirement plan(s) and leave the part I am not skilled at to a professional.
So for my own personal retirement savings and plan(s), I ended up spending an hour or so almost every day learning all that I could about saving, investing, living within my means, etc. I still do.
My wife, when I met her, was relying 100% on a "financial advisor" for her retirement savings. We didn't get married until our late 30s (my 2nd after a brief 30-month 1st marriage 10 years prior, her first) so she was already 15 or so years into it. The good news was that she'd been saving outside her pension via a 403b account (she's been teaching for 39 years, planning to retire next spring). The bad news was I discovered that her advisor was actually an insurance agent/salesman who had all of her money going into two annuities, one a variable annuity.
School districts are notorious for not providing access to any good information about various retirement plan options available to teachers -- not even much info about the state pension plan "ins and outs." So it is common to see insurance guys roaming school hallways after classes are out for the day, soliciting business from teachers too busy and/or ignorant to take charge of their own retirement planning. The first thing we, as a couple did wrt my wife's retirement savings was to stop contributing to the annuities and start a separate 403b account through my tax guy that was heavily weighted toward no-load or very low-load mutual funds -- initially 5 index funds across various sectors, AND we doubled the amount she was saving pre-tax to the maximum allowed at that time and increased it in lockstep as the limits increased over the years.
We kept her existing annuities that with 15+ years of contributions were already well into 6 figures 20-some years ago and sported a guaranteed return and/or lifetime benefit upon retirement -- the thinking was that when/if she retired, we'd revisit whether to keep the annuities or roll them over to self-directed IRA or Roth IRA depending on where we were as a couple financially, etc. -- call it diversification by procrastination as those 2 annuities were financial instruments I would have avoided. We have not reached a decision about them yet. In the meantime, her stock-oriented 403b is now more than 3 times larger than the 2 annuities combined and will be rolled over into self-directed IRA and a Roth IRA next year.
The really ugly part of the above was when I was in the "discovery" phase with my wife's retirement savings, I began talking to the guy who sold her the annuities. I kept asking what her options were. I had no experience with teachers or 403b plans and had never heard of annuities before. He simply refused to give us any information about her retirement savings options beyond pushing various other annuity/insurance plans -- I mean he flat out refused. That was a huge red flag obviously, so back to my tax accountant for information/edumacationing about teachers and what was available. That led to stopping all contributions to the annuities (the insurance guy was screaming at us over the phone at that point) and setting up a new 403b account which on paper was administered by my accountant, but was in reality self-directed. I made suggestions, but the decisions were made by my wife (who has a lower risk tolerance than I do -- but I LIKE that because it meant even more diversification when looking at our combined retirement savings.
My brother became an instant multi-millionaire when, after a couple of decades of working his way up from a substitute UPS driver into middle/upper middle management at UPS, the company went public and I learned that he had literally backed up the truck all of those years buying as much UPS stock via employee stock purchase plan that he could. He continued to work at UPS, retiring from there after 37 years -- he gets a traditional pension from them. Not too many years after becoming a multi-millionaire and seeing it stagnate, he hired some guy in a firm in NYC to manage his investments. That guy began divesting my brother's UPS holding and diversifying into the usual suspects such people are comfortable with -- which was a good thing for my brother. He had no interest in learning anything about investing and was happy/comfortable with someone else doing it all for him. His wealth began to increase again.
My brother (older than I by 4 years) retired early in his 50s. Within 18 months he unretired and began working for another company in logistics because he'd blown through a lot of money buying expensive boats, the most expensive house in our little rural college town where we were born (but where I have not lived since 1972, but where our parents still live), trips around the world, etc. He worked another year or two and retired again... spent a lot of money again, saw his wealth dwindling at an alarming rate, and unretired again, working with yet another company doing their logistics... he would go through that cycle two more times, finally ending up as a consultant for a company that sets up Amazon warehouses all over North America. He works full time for about 6 weeks at a time several times a year with plenty of time off for travel and playing with his expensive toys. His spending is such that he now realizes he needs to continue supplementing his pension, SS and retirement acct. income if he does not want to run out of money in 10-15 years. His wife taught for 18 years and gets a modest teacher pension (Ohio).
My father did most of his retirement planning himself and at least until I knew better, seemed pretty savvy about it to me. He's the one who taught me to avoid borrowing money and/or paying interest to anyone for anything outside of a house, and he only bought 2 houses, putting 50% down on each and paying them off in 10 years. He's paid cash for every car he ever bought. Did 90% of his own car maintenance and repair (his day job was as an intellectual property manager/engineer/marketing guy for what eventually became International Paper). He has the traditional pension -- but only something like $25,000/yr after starting there in 1950 after getting his EE and MBA on the GI bill after serving in WWII, continuing to work there until he retired in 1987 -- the company sold off all of it's intellectual property and closed it's R&D (with which my dad had worked closely all those years) and eliminated his entire dept. -- he was 62... they paid him 3 years of full salary at that time, but all in one heavily taxed lump sum. Most importantly, though, was/is the health benefits that IP continues to provide. I calculate that benefit easily exceeds his pension and SS combined.
One note on dad's SS: his generation will receive way more SS benefits than they paid in. My generation will pay more in than we collect.
My mother also has a very modest teacher pension for 12 years of that after all of her kids were out of high school.
My dad was/is a religious investor, turning 90 this June. Though he makes the plans and decisions, he continues to this day to use an independent full-service broker (with ungodly commissions) to make any actual trades -- maybe 3-6 a year, tops. I still cannot reconcile his attitude toward using an expensive broker with his attitude that drove him to avoid all interest/finance charges on things like cars and his DIY religion when it came to car and home repair/maintenance, but that's his comfort zone. The only big problem I've seen was the RMD fiasco I've already outlined in a previous post here, and any opportunity costs lost along the way.
Best inheritance I will get -- and already enjoying -- is that mom and dad bought into that retirement village and took all of the care and decision-making on themselves, not forcing the 3 of us kids (I have a younger sister, too) to worry about them financially or have to wrestle with decisions about assisted living, nursing care, etc... our only struggle so far has been over the car keys issue -- mom gave them up voluntarily, but not before her car had come to resemble something used every weekend on the demolition derby circuit. We are still struggling with dad, but he at least agreed to annual independent evaluations (physical and on the road) and abides by their recommendations. So I expect no money... never have -- mom and dad made that clear and I am thrilled with their decisions along those lines. I get to actually enjoy my time with them rather than worry about their finances or healthcare situations or where they will live as they age -- car keys issue is not insignificant, but I am sooooo much luckier than my wife whose father died 16 years ago, but whose mother is in bad shape and made absolutely no plans for her dotage.
My brother-in-law, who has gone through bankruptcy twice, manages my mother-in-law's finances. My wife seems to be in charge of the healthcare and living arrangements for her mother -- which meant that 3-4 years ago, she moved her mother from her home in a Chicago suburb to Champaign IL where my wife's younger sister lives. Unfortunately, my sister-in-law and mother-in-law have never got along well and my wife ends up flying back there several times a year for weeks to address health issues and housing problems. My wife is now spending a lot of time looking into nursing care here in the San Diego area -- with her mother now essentially blind and deaf at age 92, it no longer matters that her mother wanted/preferred to stay in IL -- she landed there after WWII, after fleeing Prague and spending the war in Britain, because her older sister (the only other family member to survive the war) was already in IL and still lives there (in relatively good health for someone her age -- 94).
So the above "case studies" cover just about all of the points you listed in one form or another and demonstrate the positive and negative outcomes (IMO) of each. All of the above have contributed -- and continue to contribute -- to my own education about retirement plans. Coupled with the vast education I've received here (and elsewhere on SI as well as other sources/places), I have the major outlines, but still tweak our retirement plans based on current events and circumstances.
Not sure anyone will still be reading this post at this point, but I again want to thank everyone here who contributes to my education and provide(s) ideas, experiences, etc. -- I am a LOT better off as a direct result. This post is an attempt to present a number of thoughts on all of the issues I've faced to this point in the hopes that others will benefit in some way -- an attempt at paying back.
Thank you all. |
