When the sun is shining and the weather is perfect, it’s time to gather your friends and family for some outdoor fun. While barbecues and picnics are great, why not level up your outdoor space by incorporating lawn games? Whether you’re having a housewarming party for your newly purchased home in Houston or simply entertaining friends at your ranch-style house in Columbus, OH, here are eight outdoor lawn games that are sure to provide endless entertainment for you and your guests.
1. Cornhole
Cornhole has become a staple at outdoor parties, gatherings, and tailgates. It involves throwing bean bags at a raised platform with a hole at the far end. The goal is to get the bags to land on the platform or, better yet, through the hole. Cornhole can be enjoyed casually or in competitive tournaments, making it a versatile game for all ages and skill levels.
2. Giant Connect 4
A beloved childhood game, Connect 4 gets a supersized twist in this outdoor version. Players take turns dropping colored discs into the frame, aiming to connect four of their own discs in a row. This giant-sized version adds an extra layer of excitement and strategy to the game, making it perfect for players of all ages.
3. Spikeball
Spikeball is a fast-paced, action-packed game that combines elements of volleyball and foursquare. Played with a round net on the ground, players take turns hitting the ball off the net, trying to make it difficult for the opposing team to return. With its quick reflexes and dynamic movements, Spikeball guarantees an exhilarating experience for players and spectators alike.
4. Giant Jenga
Jenga is a classic tabletop game, but when played outdoors with giant-sized blocks, it becomes a whole new level of excitement. Players take turns removing blocks from the tower and carefully placing them on top, hoping to avoid a collapse. Giant Jenga requires steady hands and strategic thinking, creating a suspenseful atmosphere as the tower grows taller and more unstable.
“Giant Jenga is such an excellent party game,” says Gordon Buchanan, founder of national lawn game rental provider Triangle Lawn Games. “We see in every setting, whether it be a formal wedding or a relaxed festival, Giant Jenga entertains everyone. From kids to adults, for whatever reason that’s one of those games that just always works.” According to Buchanan, the simplicity is the key. “It’s a simple concept, just pull the blocks out one at a time, and try not to knock it down.”
5. Bucketball
Bucketball is a fantastic game that combines the throwing skills of cornhole with the focus and targeting of basketball. It involves throwing balls into different-sized buckets placed at various distances. Each bucket has a point value and players aim to accumulate the highest score by successfully making shots. Bucketball is easy to set up and can be played in teams or individually.
6. Bocce
Bocce is a classic Italian game that is enjoyed by people of all ages. It’s played by tossing balls to get as close as possible to a smaller target ball called the pallino. The game requires precision and strategy, as players try to knock opponents’ balls away or position their own closer to the pallino. Bocce can be played on any lawn or even on sandy beaches, adding versatility to its appeal.
7. Tug of War
Tug of War is a timeless and thrilling game that tests the strength and teamwork of participants. Two teams pull on opposite ends of a rope, aiming to drag the opposing team towards their side. Tug of War is a great way to build camaraderie and encourage friendly competition, making it a fantastic addition to any outdoor event.
8. Putterball
For those who enjoy golf or mini-golf, Putterball is a must-try lawn game. It combines golfing skills with a touch of beer pong, as players take turns putting golf balls into a large putting green with cups. The objective is to sink the ball into the cups while strategically planning shots to outscore opponents. Putterball offers a fun and challenging experience for golf enthusiasts of all levels.
Northwestern Mutual invests nearly $3 million to help increase community access, inclusivity at prominent Milwaukee attractions Grants will support Milwaukee Public Museum, Discovery World, Betty Brinn Children’s Museum and more MILWAUKEE, May 23, 2023 /PRNewswire/ — Today, leading financial services company Northwestern Mutual announced nearly $3 million in grants to increase community access to Milwaukee’s leading … [Read more…]
Today, I’m going to talk about our move to Colorado. It kind of popped up out of nowhere but now we are right in the middle of it all. I can’t believe how quickly everything is moving along and I am extremely excited.
Out of all of the moves we’ve done, this one is definitely the largest. We’ve moved a few times now, but they have all been fairly cheap and short distance moves.
However, after collecting, hoarding, and buying things over the last 5 years, we have many more items to move this time around. Even if we were just moving across town it would be difficult with all of our stuff.
Moving to Colorado will be our longest move as well as our most expensive. I’ve heard of people spending over $10,000 moving, and that is something we didn’t want to come anywhere close to.
Below are some updates for our move to Colorado, including our moving expenses and what’s left on our moving checklist.
Related:
Moving supply costs.
Moving supplies weren’t as expensive as I thought they would be. I highly recommend you shop around, as I found widely varying prices for moving supplies.
For instance, many moving companies charge around $5 per box, whereas places like Home Depot and Lowes charge between $1 to $1.50 per box. There are also moving box sets that usually end up being a better deal, such as with this one.
We also bought bubble wrap and lots and lots of tape. Our total cost for moving supplies was around $100.
We could have completely skipped any costs for moving supplies if we would have looked around though. You can often find free moving supplies on Craigslist, at stores, and so on. We would have gone this route but I will be honest and say I was a little lazy since the move sprung on us very quickly.
The cost of moving to Colorado.
Up until last week, we were set on renting a moving truck and trying to figure out a way for everything to work out. However, things just weren’t going to happen that way.
Our main problem is that we have two cars and a moving truck to bring to the new house, yet there are only two of us. And this is why we didn’t think a company such as UHaul or Budget would work for this specific trip.
Yes, we could tow one of the cars behind a moving truck, but we need a fairly large moving truck for all of our things. Towing a car behind it on such a long move (over 1,000 miles) and through steep mountains just seems like too much for us.
Then, Wes’s dad the other day said the company he works for uses UPack to move their employees, so I decided to look them up.
After debating for some time, we made the decision to use UPack for our moving to Colorado needs.
UPack was the easiest and cheapest option for us. UPack is a company that moves your stuff for you. They drop off a moving trailer at your home, you load it up, they pick it up a few days later, then they drop it off at the location you are moving to. They handle all of the actual moving, which is exactly why we chose them. We can make the whole 15 hour trip with only stopping one night, but I know if we drove a moving truck ourselves then it would require much more planning, more stops, and possibly even paying for car shipping because we would have to find a way to bring our second car to the new house.
Going the UPack route is pretty similar in pricing to renting a moving truck as well, and much cheaper than hiring a full-service moving company. I priced out several rental moving truck companies and once I priced everything out, it was very comparable to the pricing that UPack gave me. This is because once you factor in the extra lodging, the higher gas costs because we would have to drive a moving truck, insurance costs, and more, renting a moving truck quickly added up.
A UHaul moving truck rental would have been around $2,500 including the rental truck, insurance, gas, etc. Then, we would have had to still pay for extra lodging and somehow still transporting our second car to Fruita as well. I’m assuming that would have made our moving cost somewhere between $3,000 to $3,500 for the extras. The UPack expense from St. Louis to Fruita is $3,000, so it was an easy choice for us since it meant much less work on our end and a much safer way to move.
My Moving Checklist.
Moving to Colorado hasn’t been as stressful as I originally thought. While there are many things we have already completed on our moving checklist, everything seems to be going smoothly even with all of the tasks that are left. If you need a thorough moving checklist, UPack has one that I found very helpful.
What’s left on our moving checklist:
Arrange for the drop off of the moving trailer at the new house (and pickup a few days after). This is one of the more important things on our moving checklist because I need my stuff, of course!
Turn the internet off at our Missouri house. We’ve already cut cable.
Confirm with moving truck unloaders about what time they should be at the new house. Since it’s only me and Wes (and I am extremely weak), we need someone to help us bring all of our heavy furniture into the house.
Wait for Charter internet at the new house. Yes, this is getting installed within the first hour of moving into our new house. After spending all of that time actually moving to Colorado, I will need internet quickly set up so that I can continue working. I just can’t go without it!
Notify companies of our move. There are still a few more places we need to inform, such as our car insurance company, our bank, and more.
Run through the house one last time. Before we move, we need to run through the house and make sure nothing is left behind and we also need to make sure it’s perfectly clean too for the home sale.
New driver’s license. We also need to license our cars.
New health insurance. This is the last task on our moving checklist but also very important. Our current health insurance is only good at certain Missouri healthcare providers, so we definitely need this.
How much did your last move cost you? How did you try to save money? Are we crazy for moving to Colorado at the last moment? Is there anything I am missing from my moving checklist?
Ask any financial advisor about 72t and I’ll bet you’ll see them cringe.
It’s not a popular planning method, mostly because it comes with lengthy restrictions that, if violated, can lead to severe penalties.
Clients don’t like paying penalties. Advisors don’t like when their clients pay penalties. 72(t) has the potential if done wrong, for the clients to pay a huge chunk of penalties. See why we cringe about 72(t)?
Some of you may have no clue what 72(t) is. If you are not planning on retiring early (before the age of 60), then skip this post and come back another day. 🙂
If you are in the financial position to retire early and have a bulk of your assets in retirement accounts, then 72(t) may be of help to you. Let’s take a look at the 72(t) early distribution rules.
What in the Heck is 72(t)?
Most often when you take money from your retirement account before you turn 59 ½, you are assessed a 10% penalty on the top of ordinary income tax. One exception (others include: first-time home purchase, college tuition payments, disability) to that is a 72(t) distribution that is a “substantially equal periodic payments”.
Clear as mud? I thought so. Moving on……
Read more on How to Withdraw From Your IRA Penalty Free
How Does the IRS Consider 72(t)?
The IRS calculates your “substantially equal periodic payments” by using one of the three methods that the IRS has determined and then take your payment on a set schedule for a specific time period.
It is required that you take those payments for either 5 years or when you turn 59 1/2, whichever comes later.
For example, if you start taking your payments at the age of 52, then you must do so for 8 years. Someone who starts at 57, must do so till the age of 62.
72t tables
72(t) Real Life Example
In the 10 years I’ve been a financial planner, I’ve only executed 72(t) a handful of times. The concern is having to lock in your withdrawal rate for a minimum of 5 years is longer than most advisors are comfortable with- myself included.
Recently, I had a potential new client that was getting an early buyout from his job and was considering using 72(t) for a portion of his IRA. Here’s are some of the details (name and some of the data have been changed for privacy concerns).
Paul born 8/21/55 and $720,000 that he will receive in a lump sum distribution from his employer. He would like to do a 72(t) from age 57.3-62.3. He needs about $2,000 a month until 63.5 where he will have the remainder in an IRA. Paul also had $140k in his 401k.
How 72(t) Distributions Work
The 72(t) plan must not be modified until 5 years have passed from the date of the first distribution for those who will reach 59.5 before the 5 year period is completed. However, it is not clear whether Paul plans to take the 72t distributions from the employer plan or from a rollover IRA.
If the 72(t) plan is needed, the best approach is to do a direct rollover from the plan to a rollover IRA, determine what IRA balance is needed to generate 24k per year using the amortization plan, and then transfer that amount to a second IRA and start the plan.
The original rollover IRA can be used for emergency needs to prevent the 72t plan from being broken if he needs more money. Employer plans do not provide 72(t) support and may not offer flexible distributions. They also will not allow funds to be rolled back in the event too much is taken out due to an administrative error.
Note: that if Paul separated from service from the employer sponsoring the qualified plan in the year he would reach 55 or later, distributions taken directly from the plan are not subject to penalty, and a 72t plan could be avoided.
But for that to be practical the plan must allow flexible distributions until the 5 year period ends. If the plan required a lump sum distribution, even though the penalty would not apply, a distribution of 120,000 in a single year would inflate his marginal tax rate and that might well cost more than the 10% penalty.
If a lump sum is required, then a direct rollover to an IRA should be done before starting a 72(t) plan.
Some of you may be considering initiating 72(t) distributions. 72(t) distributions take careful planning and consideration.
Before you lock in those payments, there are some alternatives that you may want to explore:
72(t) Distribution Alternatives
Just because you can, doesn’t mean you should. Definitely look to see if there are other things you can (should) do first.
Here are a few examples.
Leave Your Job Early
If you leave your job January 1st of the year you turn 55 (50 for certain government agencies), you are allowed to pull out lump sum distributions out of your company retirement plan penalty free.
Notice I said retirement plan and not IRA. Once you roll over into an IRA, you lose out on that opportunity.
Consider leaving a portion of money in the retirement plan as a precautionary. Or you can just take a lump sum distribution out of the plan and pay the tax and park it in a high-interest savings account for emergency purposes. Do remember that you will pay ordinary income tax on that distribution.
Don’t Forget About After Tax Contributions
You can also tap into after-tax contributions to your 401k, non-deductible IRA contributions, or after-tax contributions to your Roth IRA. Consider these penalty-free options first prior to locking in your payments.
Net Unrealized Appreciation
Even a bigger secret than 72(t) is NUA. What is Noo-uhh you ask? Well, it is the acronym for Net Unrealized Appreciation. Get it yet? Didn’t think so. NUA pertains to employer stock that you have in your retirement plan that may have an extremely low cost basis.
You may be one of the lucky ones that started working for the company prior to them going public and you’ve seen your company stock double and split more times that you can count.
If you utilize the NUA on your stock you will just be penalized on the basis, not the total value of the stock.
For example, if you have company stock that is valued at $100,000 but your basis in the stock is only $20,000, you would be only penalized on the $20,000 if you took it early if you are under 59 ½.
The remaining gain ($80,000) would be taxed as a long term capital gain when you decided to liquidate it, not ordinary income. That could be the difference between 15% and 35% in taxes, depending on your tax bracket.
Warning!Once you roll over your employer stock into the IRA, you forfeit your NUA.
These are just a few of the alternatives that one can explore before committing to the 72(t) distribution rule.
The Final Call
The verdict is still out whether the client and I are going to do 72(t). Since he has a good amount in his 401k and his wife has a nominal 401k, as well (not mentioned above); I suggested using that money first.
Since he’s retiring early, he can avoid the 10% early withdrawal penalty so as long as the money is distributed from his 401k. Once you do a 401k rollover to an IRA, you lose that option.
Out of curiosity, I went to Bankrate.com and used their 72t calculator to see how much we could get with his retirement account. Below are some of those results.
72t calculator
Here’s a sample amount that one could withdraw from your IRA using 72(t). Note the interest rate of 2.48%. That amount was already entered in on Bankrate’s calculator.
You have the ability to choose your own interest rate but be careful. You want to choose a rate that is normal and sustainable based on current market and economic conditions.
Have you retired early? Would you be comfortable executing 72(t) distributions for 5 years?
Today, my friend Jillian, from Mini-Retirements Mastered course and Montana Money Adventures, is sharing a guest post about mini retirements. This subject is something I find to be super interesting and she is definitely the expert at it! Below is her story and advice.
Fifteen years ago, I fell in love with my husband and we started planning our life together. But I had this crazy idea. What if we took mini-retirements? Mini-retirements go by many names: Sabbaticals, Gap Years, Time Off.
Essentially, it’s all the same idea: taking time away from the 9-5 to focus on things that really matter to us. It could be for a year or two, or just a month off.
The problem? We were in NO place to be thinking about mini-retirements! That first year we had over $50,000 in debt and only earned 12k. The next year was a little better, but not by much. Still, I held on to that dream.
I just turned 35, and we are currently in our 5th mini-retirement. We have taken a few short ones (month long), some medium (6 months) and this one is going on two years now. Mini-Retirements might seem almost impossible, until you understand how to plan, prepare and execute them. After that, you’ll be able to sprinkle them in every few years and just maybe grow your net worth in the process!
Related content:
Four common misconceptions about mini retirement
1. You have to be a high-income earner
This just isn’t true! Our combined income averaged between 30k-60k over the last 15 years. Without a high income, you might need to start with shorter one-month mini-retirements. But there is a LOT of really cool things you can do with an extra month off. When I was 24, I took a month off from my job to travel cross country with my best friend. It was an incredible trip! And we did it for under $2,000.
2. You need to be self-employed
All five of our mini-retirements we either negotiated off from a regular employer or walked away from traditional employment. In my free video training, I walk through the exact process to negotiate a month off from an employer, even if your company doesn’t have a sabbatical program. This can be scary if you have never done it, but with a little preparation, it’s totally possible!
3. You can’t take time away if you have debt
It might take you ten years to pay off your student loans, or 30 years to pay off your mortgage. If there is something you are passionate about pursuing, I don’t suggest pushing that off until you turn 65. If you have a lot of credit card debt, it will be really helpful to pay that off first. It will help supercharge your savings rate and lower your monthly expenses once that bill is gone. But there is no reason you can’t have an amazing month-long experience if you still have a mortgage payment.
4. Taking time off will postpone financial independence
Maybe. But it doesn’t have to! During two of our mini-retirements, we also bought and renovated houses. Taking that time away actually greatly increased our net worth and passive income! If you really want to increase your income and net worth, simply add some of those activities to your mini-retirement. There are no rules about what you can or can’t use this time for.
There are so many incredible things you could do if you had a bit of time away from the 9-5. The first step in my full Mini-Retirements Mastered course is to help you narrow down what you really want to focus on in the next mini-retirement! Which things are very time-sensitive and if you don’t tackle it now, the opportunity might pass you by.
Four Mini-Retirement Options
1. Once in a lifetime opportunity
There are a few things in life we just don’t get second chances on. Sometimes because the timing is never right again or life just changes. We had a chance to move overseas when I was in my 20’s for four years. While we were there, we traveled almost every month. I took art classes in Amsterdam and literature classes in Rome. Everything was close by and made it affordable. Because we had made financial sacrifices earlier in our marriage, we had the resources to invest in those experiences.
I have known people who took time off to hike the entire Appalachian Trail or bike along the Croatian coast. In our current mini-retirement, we are traveling in a pop-up camper in the summers with our five kids. They are between two years old to ten. It just wouldn’t be the same if we waited 20 years! Seeing all the US national parks has been an amazing experience and we just didn’t want to miss this time with them.
2. Passion project
People often have that ONE THING they want to do. Maybe it’s volunteer overseas for a year. Design and build a house with minimal help. Start a non-profit. Or adopt a sibling group from foster care. These are the things that, if we do very little else with our life, at least we can look back and say, “But I did that!” And these are the perfect things to fit into a mini-retirement!
By saving an extra 10-15% of your income a year, you would have enough to take a year-long mini-retirement every decade!
3. Build Financial Freedom
When we moved back to the US from Germany, the housing market had crashed and was at an all-time low. We took time off two more times to buy and renovate our primary home and then two rentals. There were other people who might have wanted to do that but didn’t have the free time to make it happen. Taking those two mini-retirements actually helped us build $1,200 in passive rental income and grow our net worth. Instead of derailing our path to financial freedom, it sped it up!
4. Grow a business
This last mini-retirement has been focused around family/travel and growing a creative and entrepreneurial business. We carved out this time, starting with one year as a test. We wanted to lean into our interests. Test some ideas. See if we could find a project that we were passionate about and was a perfect fit for our lifestyle. Something that would leverage our talents and really help people. If there is a business you want to grow and see if you can scale up, a mini-retirement might be exactly what you need!
Of course, there are logistical challenges that scare us. You might be nervous about healthcare. Or scared that you won’t be able to find another job when the time comes. It might simply be the unknown cost! How much would this month-long adventure cost? How much would it cost to start a business, or travel the world for a year?
Once you decide you want to move in this direction, you will find, for every logistical challenge, there are multiple logistical solutions. Then it’s just the matter of finding the courage to live a life that perfectly lines up with everything you value, are passionate about, and meets your goals.
I want to dive into one of the logistical challenges that be top of mind for you. How can I afford this!?! This is the first logistical stumbling block for a lot of people. I want to show you how you can get started with any budget. Even a once-in-a-lifetime experience doesn’t have to break the bank to become one of your most cherished memories in 10 or 20 years.
Let’s start with the idea that you negotiated a month off from your current employer or find yourself between jobs for a month.
How to Budget for a Month Off
Find your Baseline Budget:
If you have been tracking your expenses and budgeting for a while, this might be an easy number to find. Maybe you spend $2,000, $3,000 or $6,000 a month. Now, this won’t include any investing or savings you do. We are going to put that on hold for a month. If you want to take multiple mini-retirements like we have, simply adjust your yearly investing to cover your off times. An extra 1-3% investing a year, could cover your investing during your mini-retirements.
Then subtract any extras from that baseline. Let’s say you normally spend $200 a month on entertainment. If you are going to be traveling for a month, that expense would be put towards your trip entertainment.
Now you have your month off baseline number. Let’s say it’s $2,500. (Even if you earn $4k a month, after taxes, investments and extra expenses, your core expense might only be $2,500.)
Find your Dream Budget:
What is it you want to do with this time? I like to focus on things that could only happen in this season of life. Things that, if I waited another 10 or 20 years, the opportunity might pass me by. I’m 35 now, but the trip I did at 24 isn’t something I could do again. I have five little kids at home. My best friend is now CEO of a large non-profit organization. There is simply no way we could both escape for a month long road trip! Plus, I have given up sleeping on the frozen ground or in the front seat of my Honda Civic. I’m in my thirties, I now require a mattress of some kind!
Once you know what your next month-long adventure will entail, it’s time to figure out the cost.
As I research each cost, I add them to an Excel sheet I name my dream budget.
A dream budget will serve two purposes. First, in the planning, your adventure will get better. You will refine and customize what you really want to do. Second, you will have specific prices for each piece. If you decide to start a side hustle to help save up for your mini-retirement, you will know exactly what your extra $100 earnings will bring you.
Your extra $100 might buy three nights at a youth hostel or national park campground. $20 will pay for food for the day. $80 will pay for a yearly science museum pass for the whole family.
Open up a dream budget checking account, and stash all the extra dollars in there. Each dollar is getting you closer to building that dream experience. Even $1 will buy you a scoop of gelato in Italy.
Let’s say you settle on a US road trip for two people. You plot it all out and come up with a dream budget of $3000 plus baseline expenses of $2500. $5500 is your total cost. If you want to do this in the next 18 months you will need to save about $300 a month between now and then. Maybe that’s in your budget or maybe it’s not.
Then the question becomes how do I hustle for $300 a month to put towards something I really care about? Or maybe you would be willing to give up your eating out budget to make this happen?
Once we narrow down exactly what the challenge is, we can start to problem solve and find solutions for that challenge.
This week I will be hosting a free training on how to take a month off. I’ll be teaching the three essentials to negotiate a month from an employer who doesn’t typically offer that benefit. I’ll also talk about how to pack a mini-retirement go bag for those unexpected opportunities. With all of this leading up to the only time this year my full Mini-Retirement Mastered course will be open.
If you ever want to be able to do something like a mini-retirement, you won’t want to miss it! Now is the perfect time to start laying the foundation!
What do you think of mini-retirements? Do you want to take one?
Being a financial planner comes with a certain amount of stress.
Most would contribute the schizophrenic stock market as the leading culprit of the high stress levels.
And that is absolutely correct. Dang you market!
Coming in at a very close second is helping a client strategically plan for their early retirement.
What do I define as an early retirement?
Any client that is retiring before they can attain social security (and don’t have a pension). Trying to help ease the income needs for retirement puts added stress to make sure they don’t run out of money in their golden years.
An additional level of stress occurs in making clients stick to the plan.
Too often clients start viewing their retirements accounts as ATM machines, and I have to make sure they don’t get too crazy with their spending habits.
Oh yes, early retirement can be very stressful for all parties involved.
The BIG Mistake
When it comes to making the biggest mistake in retiring early, I’ve seen it done countless times and it can be a very costly one.
So, what’s the big mistake? Let me illustrate by sharing a recent conversation I had with an individual that had recently changed jobs and had to make a decision with his old 401(k).
This individual was 50 years of age and had a decision to make with his 401(k). He had been at his previous job for a number of years and his 401(k) had collected a nice sum of approximately $500,000. He was trying to make the decision whether to roll the 401(k) to his new 401(k) or roll it over to an online brokerage like TD Ameritrade or E*Trade. In the conversation, I could tell a lot of his focus was on fees, where to invest the money, access to the money, etc.
The one part that he failed to consider is what happens if he wanted to retire early. After some initial fact finding, I asked a simple question:
Do you plan on retiring early?
He quickly shot back and said
“Yes, my hope is that I can retire somewhere around the age of 57.”
That simple statement leads to ultimately the biggest mistake that many people make when changing jobs and retiring early. A little known IRS rule allows folks that retire early, starting at the age of 55, to take premature distributions from their employer sponsored plan while avoiding the 10% early withdrawal penalty.
How is this all a mistake? The mistake has everything to do with the technicality of the term “employer sponsored plan”. Employer sponsored plan would include your 401(k), 403(b), TSP, or 457. What that does not include is your IRA’s.
That’s right, your IRA, according to the IRS, is not an employer sponsored plan, so if you roll that over into an IRA, you lose the ability to take out your money and avoid the 10% early withdrawal penalty. And the last time I checked, no one likes to pay a 10% penalty just for the fun of it.
Had this individual rolled over his 401(k) into an IRA, he lost this inherent gift from the IRS.
Not Just About Job Change
It doesn’t just have to happen when you change jobs. I’ve seen several people that prior to working with me had retired early and rolled their 401(k) into an IRA not knowing about the 10% free withdrawal rule. Unfortunately, the majority of the time that I’ve seen it, the individual is working with a financial advisor that failed to disclose this. Either the advisor wasn’t up to speed on the rules, or I think their eyes were on the prize, meaning that they would only get paid if that client rolled over the money into an IRA that they managed. Do I have proof? No, just call it a hunch.
If you’re planning on retiring early, please keep in mind that to avoid paying an unnecessary 10% early withdrawal penalty, you must leave your money in the 401(k). Don’t make that mistake.
Note: Within in IRA, you are allowed to take premature distributions if you follow rule 72t or meet certain conditions. 72t is a more complex planning strategy that ties up your money for a minimum of five years. If you want more rules about 72t, feel free to check out another post where I wrote about the 72t rules and ways to avoid penalty on withdrawals from your IRA.
Are you planning on retiring early? Have you thought about rolling your 401k into an IRA? If so, be careful!
Editor’s note: TPG’s Erica Silverstein accepted a free tour from Tours by Local to review its services. The opinions expressed below are entirely hers and weren’t subject to review by the company.
I’m standing atop a 13th-century arched stone bridge, looking out over a river rushing photogenically over smooth-hewn stones. I’m on a guided tour in the mountainous interior of the French island of Corsica, yet I’m blissfully alone — with the exception of Yulia, my guide.
“Alone” and “guided tour” are two concepts that tend not to be found together, but I’ve achieved this unusual combo during a cruise port call by booking a tour through a company called Tours by Locals.
Tours by Locals is essentially a matchmaking service for travelers looking for a local perspective and guides looking to show foreigners their homeland. Tours by Locals partners exclusively with top-caliber guides and thoroughly vets them before letting the guides post tours on its website. The guides use their local knowledge to create their own tour itineraries and set prices so they’re fairly paid.
As an avid cruiser, I often find myself on ship-organized tours on a bus with 25 to 40 other people, following a set itinerary and wasting time waiting for my shipmates to buy souvenirs, use the bathroom and meander back to the bus. I often skip the tour and explore on my own, but I don’t always get the full background on what I’m seeing. A private tour offers the best of both worlds – a small-group, customizable itinerary and a knowledgeable guide – but can be expensive.
For cruise news, reviews and tips, sign up for TPG’s cruise newsletter.
I was curious if a Tours by Locals tour would be worth the price, so when I was offered the opportunity to try one on a port stop in Ajaccio, Corsica, I jumped at the chance. I chose the approximately five-hour “Prunelli Gorges Half Day Road Trip,” which costs $586 for up to three people and promised “extraordinary views and discovery of Corsican tastes.”
Here’s how my day went and my thoughts on whether the experience was worth the price.
A slow start
The benefit of a cruise ship tour is convenience. You’re whisked off the ship straight to a tour bus, and you don’t have to worry about meeting points and finding your guide.
Sign up for our daily newsletter
I’d been texting my guide Yulia on WhatsApp prior to my ship’s arrival in Ajaccio, Corsica, a port I’d never been to. She promised to be waiting for me just outside the port with the other private guides, holding a sign with my name on it.
But when I got outside, I didn’t see an obvious meetup point for private guides and instead of a woman with a sign, I got a text that Yulia was stuck in traffic and running late. Uncertain where to meet her, I wandered around the terminal building feeling awkward until we finally managed to connect.
Even though guides try to arrive early, no one can predict bad traffic. Make sure you have texting access, either via Wi-Fi or an international cellphone plan, wherever you plan to wait for your guide to arrive.
Related: Ship-sponsored vs. independent shore excursions on cruises: Which should you book?
Avoiding the crowds
Although the planned tour was to explore outside of the city of Ajaccio, Yulia thought it was a good idea to see a few of the town highlights before we set off. She took me through the local market across from the port, where she told me about the region’s sausage and cheese, and I ogled bowls piled high with olives and colorful fruits and vegetables.
Ajaccio is famous for being the birthplace of Napoleon, so she gave me an overview of Napoleon’s family and early years while we walked by the house where he was born and the cathedral where he was baptized.
Yulia provided the context I would have missed by wandering the city streets on my own. I could have gotten the same information on a walking tour of the city booked through the cruise line, but I’d be jostling for views in a large group and strolling at the pace of the slowest walker.
After a coffee break, we headed off on the first leg of the tour, to drive out of the city and up into the hills to visit two small, local businesses: Corsica PaM, an essential oils distillery and laboratory owned by two brothers, and Le Jardin des Abeilles, the shop and tasting room for a family-run honey farm.
Cruise ship tours do go to these places, and I imagine you’d all have to listen to a canned presentation about how things work and then wander about while 25 people browse and make purchases. Instead, Yulia showed me the different essential oils, describing the ones she uses personally and taking me out back to see the fields of rosemary and lemon verbena, which are distilled for their oils.
The proprietors only spoke a little English, so she translated as one of the brothers explained how to extract the oils from the plants. Yulia explained how the unique Corsican scrubland, called maquis, is home to endemic species of plants, such as the “immortelle” plant, which are ideal for the production of organic essential oils – and how what would seem like a modern healthy and beauty trend comes from a long history of using plants for medicinal purposes.
At the honey farm, I had a private honey tasting with one of the owners who explained the differences in his five seasonal honeys and let me taste them – as well as a special small-batch honey he did not sell. He explained how Corsican honey is unique as it’s produced from the island’s black bees and gets its flavor based on its specific climate and native flora. Yulia laughed and took photos as I sampled the most bitter honey, and I felt less alone than I would have as a solo traveler visiting on my own.
Related: Tips for booking the best cruise shore excursion for your money
Special extras
Yulia, who also guides for cruise ship and other large group tours, told me that the typical itinerary offered by ships is to get on the bus, visit the oil and honey farms, then return to town. But that was only the beginning of my private tour.
From the honey farm, we drove farther into Corsica’s interior, past some small mountain towns to the Prunelli Gorges. We could have stopped in one of the villages if I were hungry and wanted to try local charcuterie or wine, but as the tour was customizable and I was still full from my cruise ship breakfast, we happily carried on.
The gorges are an area of steep, craggy mountains, dotted with rivers and lakes, and full of hiking trails and via ferrata routes that I’d love to explore on a longer stay. The government no longer allows tour buses to traverse the narrow, curving roads, so you’re not going to get to the gorges with a group.
Yulia was determined to show me some unique spots, despite a rain shower that plagued most of our drive through the gorges. She took her little Kia down an unpaved road so I could see Tolla Lake and its dam set amid the craggy peaks. We slowed down to follow a herd of goats being shepherded by a dog, no goat-herding human in sight, as we pulled up to a scenic overlook to take in the vista and see where some of the black bee hives are kept.
Yulia parked by the side of the road and took photos of me on a bridge over a rushing river. And then, with the weather clearing, we pulled over again to hike down to the old Genoese-era arched bridge to cross the well-worn stones and appreciate more river views. We barely saw another human on the entire road trip.
Making it personal
I’m an introvert and Yulia’s English was fluent but not perfect, so at first conversation didn’t come easy. How am I going to make it through a half day alone with this stranger, I wondered. Had I been traveling with my family or a friend, it would have taken the pressure off, but as I was solo, it was up to me to make conversation.
But as the hours passed, we became more comfortable with each other, and Yulia opened up about how she came to Corsica, her family life, her hobbies (including gardening and flower arranging) and even how essential oils helped her during a difficult time in her life. Throughout the tour, she volunteered to take my photo as I was alone and as she put it, photos are always better with people in them. The experience was like traveling with a new, extremely knowledgeable friend.
Traveling with Yulia also gave me a glimpse into what it’s like to live in Corsica, from French bureaucracy and political corruption to the housing situation and local commutes.
She also shared her honest feelings about why smaller tours are much better than large-group tours. In her opinion, some of the more manufactured tours from Ajaccio (such as a little train that takes tourists up the mountain to a specially built center to try some local Corsican foods) are low-quality and inauthentic.
So many travelers come here and they don’t know what they’re looking to get out of a visit, she said. I admit, I wasn’t sure what I wanted to get from my day in Corsica, other than to get out of the city and get a glimpse of the island’s beauty. I got all that and more.
Should you book with Tours by Locals?
A private tour is always better than a group tour, in my opinion. You get to customize the itinerary, you don’t have to wait for large numbers of people to use the bathroom or buy coffee, and you can ask questions or get more personal with your guide.
However, $586 is a lot for one person to spend on a driving tour with a handful of stops, even with Tours by Locals’ policy of tips not being necessary. (Guides set their prices so are paid fairly; Tours by Local takes a cut of the fee.) For a couple, $293 per person for a half-day tour is possibly double or triple what you’d pay for a cruise ship tour, but the quality and intimacy make it worth it if you have the budget.
If you’re looking for the best value, you will want to shop around and compare prices and tour inclusions with other independent guides or guide-providing services. You’ll need to read the tour descriptions carefully; for example, Tours by Locals excursions are priced per tour, but the maximum number of people for that price varies from guide to guide, and you may or may not be able to pay extra for a larger group.
What I liked most about Tours by Local is the ease of searching out a guide. Instead of scouring the internet or online chat groups for recommendations, you put in your destination and up pops a list of tour offerings. You can read reviews of the guides, see the full tour itinerary and type of transport, and even get a feel for what items are not included and how much cash you might want to bring. You can even message a guide to ask questions before you commit, and pay by credit card online rather than worrying about paying day of in cash.
I don’t have the budget to book a private local guide in every city I visit, but for special occasions or in a destination I wanted to explore to the fullest, I would definitely consider using Tours by Locals for a private tour.
Save more, spend smarter, and make your money go further
When it comes to saving for the future, the most commonly asked questions are “what funds should I choose for my 401(k) or IRA?” and “how much should I save per month?”. If you’re like most people, you likely zero your focus in on the former. However, in the grand scheme of things, shifting your focus to how much money you should be saving per month is the smarter, more efficient way to build your funds.
Every month, some money is added to (or subtracted from) your 401(k) or IRA due to factors beyond your control. Your stocks go up or down. A bond fund pays a dividend. In short, market stuff happens and with every month, you add some money to your account. If the amount of money you add is bigger than the effect of the market fluctuations, then your savings rate becomes significantly more important than your investment performance.
What is the savings rate?
Your savings rate is the amount of money you save every month expressed as a percentage or ratio of your overall (gross) income. The higher the savings rate, the more money you save per month. Your savings rate is often regarded as one of the most critical elements of your long-term financial planning. It’s also one of the few factors you can directly influence by making strategic choices. Ultimately, your personal savings rate can be one of the most telling percentages to account for when assessing your retirement savings success.
According to a 2005 Federal Reserve data report, the U.S. personal savings rate hovered between 2.5 and 3%. This rate is alarmingly low and indicates that it could take nearly 40 years of saving to equate one year of living savings in retirement. This past national average also signals back to the previous point— in 2005, more people were focused on building their retirement accounts than actually stashing away disposable income for future planning.
How to calculate your savings rate
Using the savings rate formula is a simple three-step process:
Add up net savings
This should include all non-retirement savings and your retirement savings for the year (including employer retirement contributions). This number could very well end up being negative if you had net debt rather than net savings for the allotted time period. For example, taking a withdrawal from any savings account or taking a loan from a savings account would be a reduction against anything you saved.
Calculate total income
Add your total take home pay plus any pre-tax savings (including employer contributions).
Divide total net savings by total income
Take your total net savings from Step 1 and divide it by your total income in Step 2. Multiply the outcome number by 100 to convert it to a percentage.
Example: You make $50,000 a year and you save $5,000 to your 401K. You had to withdraw $1,000 from your Roth IRA earlier in the year to pay for an unexpected expense but you added $500 back to your Roth IRA by the end of the year. Your employer also contributes $2,500 to your 401K for you.
Your net savings is:
$5000-1000+500+2500 = $7,000
Your total income is:
$50000+5000+2500 = $57,500
Your Savings Rate is:
$7000/57500 = 0.1217
0.1217*100 = 12.17%
What influences the savings rate?
From the state of the economy and fluctuations in market interest to age and wealth, there are a number of different factors that directly influence the savings rate.
Economic factors, such as economic stability and personal earnings, are critical for the calculation of savings rates. Intervals of extreme economic volatility, such as recessions and global crises, typically lead to a rise in investment as consumers minimize their usual spending habits in order to brace for an unpredictable future. However, on the opposite end, periods of exponential economic growth can also build optimism and trust that stimulates a comparatively higher percentage of consumption.
Income and wealth significantly affect the savings rate because there is a positive correlation between the per capita gross domestic product (GDP) and savings. Generally speaking, low-income households tend to spend the majority of their income on everyday essentials and needs as opposed to wealthier people who can afford to stash away regular portions of their income toward saving for the future.
Shifts in market interest can also have an impact on the savings rate. Higher interest rates may lead to lower average spending and higher investment levels. This is a result of the substitution effect— being able to spend more in the future outweighs the revenue effect of retaining existing income earned from interest payments for most households.
Personal savings rate example
To give a more concrete understanding of personal savings rate, let’s use a real-life example to better illuminate the purpose and meaning of this percentage. Say there are two people who work at the same job with exactly the same pay. One saves 5% and earns 10% annual returns while the other saves 10% and earns 5% annual returns. Based on the personal savings rate calculation, it will take over 25 years for the employee with the 10% return to come out ahead.
There are two key lessons here you can take away. First: on your first day of work, immediately save 10% of your gross pay and keep doing so forever. Mathematically, if you are employed and working for 45 years starting at age 20 and you consistently stash away 10% of your income, you’ll end up with enough money to retire comfortably.
The second lesson: if you hit the middle of your career and are still making avoidable investment mistakes like market timing, day trading, and performance chasing, consider changing your strategy. It’s a much more worthwhile venture to learn how to diversify your portfolio and keep costs and risk as low as possible to properly build a financially stable future.
How to increase your savings rate
Bolstering your savings rate is primarily about strategic budgeting, but there are a number of different elements to consider when creating a plan to improve your personal savings rate. Use the tips below to get a head start on building your savings rate.
Tip #1: Cut your spending
It’s vital to examine your current budget and evaluate the areas in which you may be able to cut costs. Identifying these places where you can eliminate ensures that you have ample opportunity to dedicate more of your monthly income toward savings. Every dollar counts, so when going through your budget, be meticulous and intentional about any spending shifts to maximize your saving potential.
Tip #2: Increase your income
The best way to save more money is by making more money. Though that is far simpler said than done, there are a few easy ways you can increase your income without making any significant changes to your existing lifestyle.
Consider the following:
Tip #3: Automate your savings
Instead of depending on yourself to remember to stash away a certain amount of money toward your savings account, introduce yourself to automated saving. One of the simplest ways to do this is by setting up automatic recurring transfers. The moment you get paid, a specified amount of cash will transfer into your savings account, no manual switching needed.
What about investments?
How many people do you know who started saving for retirement at age 20 and haven’t been unemployed, or taken a 401(k) loan, or gone off to India in search of themselves, before they hit age 65? In their 2011 retirement confidence survey, the Employee Benefit Research Institute found that 70 percent of Americans believe they are “a little” or “a lot” behind schedule. The best thing we can do to increase our retirement nest egg is to (snooze alert) save more and spend less. In attempting to do so, many turn to making various investment choices.
Investment choices are undoubtedly important, especially once you’ve accumulated a sizable chunk of savings. It can be fun, scary, and mysterious, and with the chance of earning a huge amount of money if you play your cards right, investing is downright attractive. But it goes without saying that making money is a lot more alluring than saving money. And that’s exactly why it’s so important.
By focusing on bettering your personal savings rate, you’ll enjoy the long-term benefits without any risk or chance involved. By stashing away disposable income for future planning, you can effectively escape the game of chance and gain the assurance you need in growing your own savings on your own terms. Also, money makes money – the more invested, the more you will make.
The silver lining of saving more
Last question: is it better for your 401(k) balance to go up because you’re saving more or because your investments are performing well? Or does it matter?
It matters. Improving your balance by saving more is better. Once you retire, you’ll be using your savings to pay expenses. The lower your expenses before retirement, the easier it will be to cover them from your nest egg. And when your savings rate goes up, your expenses (as a percentage of your pay) have to go down, right? Or, you can just increase your savings rate each time you get a raise to cover the difference.
Maybe the secret of a comfortable retirement isn’t about savings rate or investment performance: it’s about redefining “comfortable.”
Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.
Save more, spend smarter, and make your money go further
Previous Post
Save on Parenthood: Skip These Baby Gear Money Traps
Save more, spend smarter, and make your money go further
When it comes to saving for the future, the most commonly asked questions are “what funds should I choose for my 401(k) or IRA?” and “how much should I save per month?”. If you’re like most people, you likely zero your focus in on the former. However, in the grand scheme of things, shifting your focus to how much money you should be saving per month is the smarter, more efficient way to build your funds.
Every month, some money is added to (or subtracted from) your 401(k) or IRA due to factors beyond your control. Your stocks go up or down. A bond fund pays a dividend. In short, market stuff happens and with every month, you add some money to your account. If the amount of money you add is bigger than the effect of the market fluctuations, then your savings rate becomes significantly more important than your investment performance.
What is the savings rate?
Your savings rate is the amount of money you save every month expressed as a percentage or ratio of your overall (gross) income. The higher the savings rate, the more money you save per month. Your savings rate is often regarded as one of the most critical elements of your long-term financial planning. It’s also one of the few factors you can directly influence by making strategic choices. Ultimately, your personal savings rate can be one of the most telling percentages to account for when assessing your retirement savings success.
According to a 2005 Federal Reserve data report, the U.S. personal savings rate hovered between 2.5 and 3%. This rate is alarmingly low and indicates that it could take nearly 40 years of saving to equate one year of living savings in retirement. This past national average also signals back to the previous point— in 2005, more people were focused on building their retirement accounts than actually stashing away disposable income for future planning.
How to calculate your savings rate
Using the savings rate formula is a simple three-step process:
Add up net savings
This should include all non-retirement savings and your retirement savings for the year (including employer retirement contributions). This number could very well end up being negative if you had net debt rather than net savings for the allotted time period. For example, taking a withdrawal from any savings account or taking a loan from a savings account would be a reduction against anything you saved.
Calculate total income
Add your total take home pay plus any pre-tax savings (including employer contributions).
Divide total net savings by total income
Take your total net savings from Step 1 and divide it by your total income in Step 2. Multiply the outcome number by 100 to convert it to a percentage.
Example: You make $50,000 a year and you save $5,000 to your 401K. You had to withdraw $1,000 from your Roth IRA earlier in the year to pay for an unexpected expense but you added $500 back to your Roth IRA by the end of the year. Your employer also contributes $2,500 to your 401K for you.
Your net savings is:
$5000-1000+500+2500 = $7,000
Your total income is:
$50000+5000+2500 = $57,500
Your Savings Rate is:
$7000/57500 = 0.1217
0.1217*100 = 12.17%
What influences the savings rate?
From the state of the economy and fluctuations in market interest to age and wealth, there are a number of different factors that directly influence the savings rate.
Economic factors, such as economic stability and personal earnings, are critical for the calculation of savings rates. Intervals of extreme economic volatility, such as recessions and global crises, typically lead to a rise in investment as consumers minimize their usual spending habits in order to brace for an unpredictable future. However, on the opposite end, periods of exponential economic growth can also build optimism and trust that stimulates a comparatively higher percentage of consumption.
Income and wealth significantly affect the savings rate because there is a positive correlation between the per capita gross domestic product (GDP) and savings. Generally speaking, low-income households tend to spend the majority of their income on everyday essentials and needs as opposed to wealthier people who can afford to stash away regular portions of their income toward saving for the future.
Shifts in market interest can also have an impact on the savings rate. Higher interest rates may lead to lower average spending and higher investment levels. This is a result of the substitution effect— being able to spend more in the future outweighs the revenue effect of retaining existing income earned from interest payments for most households.
Personal savings rate example
To give a more concrete understanding of personal savings rate, let’s use a real-life example to better illuminate the purpose and meaning of this percentage. Say there are two people who work at the same job with exactly the same pay. One saves 5% and earns 10% annual returns while the other saves 10% and earns 5% annual returns. Based on the personal savings rate calculation, it will take over 25 years for the employee with the 10% return to come out ahead.
There are two key lessons here you can take away. First: on your first day of work, immediately save 10% of your gross pay and keep doing so forever. Mathematically, if you are employed and working for 45 years starting at age 20 and you consistently stash away 10% of your income, you’ll end up with enough money to retire comfortably.
The second lesson: if you hit the middle of your career and are still making avoidable investment mistakes like market timing, day trading, and performance chasing, consider changing your strategy. It’s a much more worthwhile venture to learn how to diversify your portfolio and keep costs and risk as low as possible to properly build a financially stable future.
How to increase your savings rate
Bolstering your savings rate is primarily about strategic budgeting, but there are a number of different elements to consider when creating a plan to improve your personal savings rate. Use the tips below to get a head start on building your savings rate.
Tip #1: Cut your spending
It’s vital to examine your current budget and evaluate the areas in which you may be able to cut costs. Identifying these places where you can eliminate ensures that you have ample opportunity to dedicate more of your monthly income toward savings. Every dollar counts, so when going through your budget, be meticulous and intentional about any spending shifts to maximize your saving potential.
Tip #2: Increase your income
The best way to save more money is by making more money. Though that is far simpler said than done, there are a few easy ways you can increase your income without making any significant changes to your existing lifestyle.
Consider the following:
Tip #3: Automate your savings
Instead of depending on yourself to remember to stash away a certain amount of money toward your savings account, introduce yourself to automated saving. One of the simplest ways to do this is by setting up automatic recurring transfers. The moment you get paid, a specified amount of cash will transfer into your savings account, no manual switching needed.
What about investments?
How many people do you know who started saving for retirement at age 20 and haven’t been unemployed, or taken a 401(k) loan, or gone off to India in search of themselves, before they hit age 65? In their 2011 retirement confidence survey, the Employee Benefit Research Institute found that 70 percent of Americans believe they are “a little” or “a lot” behind schedule. The best thing we can do to increase our retirement nest egg is to (snooze alert) save more and spend less. In attempting to do so, many turn to making various investment choices.
Investment choices are undoubtedly important, especially once you’ve accumulated a sizable chunk of savings. It can be fun, scary, and mysterious, and with the chance of earning a huge amount of money if you play your cards right, investing is downright attractive. But it goes without saying that making money is a lot more alluring than saving money. And that’s exactly why it’s so important.
By focusing on bettering your personal savings rate, you’ll enjoy the long-term benefits without any risk or chance involved. By stashing away disposable income for future planning, you can effectively escape the game of chance and gain the assurance you need in growing your own savings on your own terms. Also, money makes money – the more invested, the more you will make.
The silver lining of saving more
Last question: is it better for your 401(k) balance to go up because you’re saving more or because your investments are performing well? Or does it matter?
It matters. Improving your balance by saving more is better. Once you retire, you’ll be using your savings to pay expenses. The lower your expenses before retirement, the easier it will be to cover them from your nest egg. And when your savings rate goes up, your expenses (as a percentage of your pay) have to go down, right? Or, you can just increase your savings rate each time you get a raise to cover the difference.
Maybe the secret of a comfortable retirement isn’t about savings rate or investment performance: it’s about redefining “comfortable.”
Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.
Save more, spend smarter, and make your money go further
Previous Post
Save on Parenthood: Skip These Baby Gear Money Traps
If you love cat pictures, today is your lucky day. Because I’m back!
As longtime readers will recall, I contributed to Get Rich Slowly from 2009 to 2013. I often wrote about more “technical” (i.e., boring) topics, such as taxes and IRAs. In order to provide a reprieve from the technical-ness, J.D. occasionally sprinkled in cat pictures. I tried not to take it personally.
Photo: ZUMA Press
But for the record, I think other creatures would have been more appropriate. Such as the blob fish.
For those who remember me, it’s great to see you again. For those who don’t, here’s my Cliff’s Notes tale of priesthood, eating pre-chewed food, reproduction, and why I know a thing or few about money.
I hung up my GRS writing boots last year because I had overloaded my life with new ventures, which included more actual financial planning for folks. But things have settled down, which allows me once again to be a part of this self- and other-bettering community. But here’s the thing about financial plans: They’re really financial projections, using just your current numbers — the size of your IRAs and 401(k)s, how much you add to those accounts, your current Social Security benefit estimate, and so on. A financial adviser — or you, using a retirement calculator — inputs a bunch of figures and out comes the verdict: You’re guilty of not saving enough, or you’re innocent of all financial wrongdoing.
I wholeheartedly believe that everyone should do just such an analysis annually to estimate whether they have a reasonable shot at retirement, or other financial goal, and to determine what they can do if things aren’t looking so hot. However, these analyses also have their limitations because they only care about what can be quantified.
So more and more over the years, I’ve found myself using financial-judging software as the basis for starting a discussion, and then wading into more fluid factors that are also crucial indicators of future financial freedom. Here are five of those factors, oh-so-briefly explained. I could devote an entire article to each. (Yay, more cats! Or blob fish! Or a sitcom about them getting married but their parents not understanding!) But what follows will give you an idea.
Your non-portfolio assets. We all have a lot of stuff. In fact, that’s why we have a house, according to the late, great comedian George Carlin, who said, “Your house is nothing more than a place to keep your stuff while you go out and get more stuff.” For some, a house is not enough. According to the Self Storage Association, 9 percent of American households were renting a unit as of 2012. Chances are, you have stuff you either don’t need or that could be replaced with a less-expensive option. It starts with your stuff-container (your house) but can involve a wide and diverse range of property: other real estate, collectibles, electronics, appliances, household items, vehicles (including bikes and boats), and the many gifts of Christmases past. You can fall back on hawking these wares in a pinch, but it is even better to turn depreciating dust-collectors into growing assets now by selling them and investing the proceeds. An investment in the Vanguard 500 index fund would have grown to almost 19 times its value over the past three decades. And unless you’re a 95-year-old javelin catcher who smokes, you should think of your investment time horizon in terms of decades.
Your human capital. Regardless of what advertisers or Wall Street might say, your biggest asset isn’t what you buy or own. Your biggest asset is you — what you can do, what you know, what you’ve accomplished, and who you know. In financial terms, this can be considered your human capital — your ability to earn an income (including the variety of ways, the amount you would earn, and how easy it is to move in and out of the workforce), the things you can do that you would otherwise have to pay someone else to do, and your social and professional network. A sub-category is your financial literacy, i.e., how smart you are with your money.
Your health. A recent study from gerontologist Ken Dychtwald and Merrill Lynch found that good health is the No. 1 ingredient of a happy retirement. It is hard to enjoy your golden years if your creaky bones have you in tears. But there is also a financial component: Healthier people spend less money on health care. They keep the money that would otherwise go to hospitals, pharmacies, and the medical equipment industrial complex. Of course we are all very fortunate and grateful such things exist, but they don’t come cheap. Plus, healthier folks feel better, can do more, and can work later in life if they want to — as opposed to the approximately 25 percent of retirees who left the workforce at least partially for health reasons.
Your habits. Financial success is determined largely by financial behavior. As “The Millionaire Next Door” — the study of real-life wealth by Thomas Stanley and William Danko — and Stanley’s follow-up “Stop Acting Rich” taught us, monetary security doesn’t just happen. The majority of Americans who earned their millionaire-hood did so by having a plan for where their money would go, maintaining a system for making sure they are on track, living on 80 percent or less of their income, and not buying homes in high-priced neighborhoods. Only 30 percent of the variability of wealth among households is explained by income, so the truly well-off are doing something right besides bringing home a bunch of bacon.
Your family’s assets. When it comes to stuff, you may have heard that you can’t take it with you (even though many people think shopping is a divine experience). You might be in line for an eventual inheritance. But for many families, the biggest “asset” is the support they give one another, such as child care, elder care, professional expertise, hard-earned wisdom, and a safety net. However, to keep wealth of all kinds in the family as seamlessly and cheaply as possible, you and your relatives should have frequent and open discussions as well as the properly executed financial documents.