It’s Thursday, I’m at FINCON, and you’re probably looking forward to the weekend. My head is going to explode from all the new blogger info & experiences, so I’m not even going to try to write it up until it’s over and I’ve had a nap chance to reflect on it.
Instead today’s post is about what other people have written.
Ironically today, 6 September 2012, marks the beginning of the third year of this blog. Two years ago I had just sold the manuscript for “The Military Guide to Financial Independence & Retirement” to Impact Publications, and I was struggling to condense it all down into an accompanying 64-page 4″x5″ pocket guide. I had just signed up with WordPress (easy), and I was happily roaming through its control panel– pushing all the buttons and tweaking all the parameters (also easy) to decide what the blog should look like. My daughter helped me set up my Facebook account (fun) and I quickly realized how much time it could suck out of the average day (not so fun).
Back then I was feeling a bit of self-imposed time pressure to craft three posts a week. Since then I’ve written over 300 of them, with a few more contributed by guest bloggers. The book and the pocket guide have been out for a little over a year. The book’s Facebook fan page and its Twitter account have both grown to new highs while finding other innovative ways to vaporize an hour.
I don’t know about you guys, but I’ve learned a lot in the last two years. I’m looking forward to the next few years, too! If you want to have a more direct role in that, then feel free to send in a “Guest Post Wednesday” or consider buying the revenue stream.
It’s been a while since I’ve put up a “weekend links” post, but when I see an interesting link it goes on my list. Some of these have been out for a few months, but they’re worth a review as you consider where your net worth is heading.
First up is a cautionary analysis from John Greaney, one of the pioneers of the early retirement movement. John only posts a few times a year (he has no trouble figuring out what he’s going to do all day) so when he puts up a new one it’s worth reading. His latest post points out the financial hazards of using a “Dave Ramsey Endorsed Local Provider” to invest in mutual funds. A one-time 5% (!) front load may not seem so bad to someone who’s just crawled out from under a mountain of credit-card debt. However the ELP’s high annual expenses and portfolio turnover can siphon off nearly half of the portfolio’s returns during the next 40 years. John proposes several alternatives (based on Vanguard funds) that accomplish equivalent growth for only a fraction of the “endorsed” provider costs.
Steve Vernon is back with another article on three ways to raise your retirement income. This time he points out that most retirement planners treat inflation as a fixed (and perpetual) cost of retirement, but the reality is somewhat different. Many expenses in retirement will rise with inflation (utilities, food, fuel) but many others will not (electronics, Internet access, clothing). He suggests that Social Security plus an inflation-adjusted annuity can cover the basic retirement expenses, while the rest of a retiree’s spending can come from investments that aren’t necessarily indexed to inflation. Even an immediate fixed annuity starts out with payments that are 50% higher than an inflation-adjusted annuity, which covers a lot more discretionary spending early in retirement.
The result of only partially accounting for inflation is that a retiree has more income for living it up earlier in retirement. Their basic expenses are covered for all of their retirement, even if they live longer than they expected. If their portfolio does well during the first decade of retirement then they can party on in perpetuity. If their portfolio is savaged by a decade or more of bear-market losses, then their basic expenses are still covered and they can make their own hedonic adjustments to their discretionary spending. It’s the retirement equivalent of planning for the worst while expecting the best.
Although today’s retirement-planning software doesn’t adequately analyze variations of inflation and spending during retirement, a new tool called “AgeBander” lets you project different inflation rates for different spending categories. Then you can determine your basic retirement expenses (and their inflation rates) while figuring out how much retirement income you’ll need for your discretionary living expenses.
Wade Pfau goes into much greater detail with research on what risks retirees are willing to accept when their basic expenses are covered. It turns out that with a guaranteed income floor in place, our investor psychology makes us more comfortable taking a higher market risk with the rest of the portfolio. The research indicates that retirees are much more comfortable spending 4-5% of the remaining portfolio every year (with a 1-out-of-20 chance that it’ll fail during the next 30 years).
If you’re wondering what other tricks our investor psychology can play on us, take a look at the 10 most common behavioral biases. We’re never entirely free of these issues, but awareness is the first step for coping with their influence.
I’m always looking for new & improved financial calculators, and this one presents its conclusions in a highly intuitive graph: Networthify. Enter your income & savings, make some assumptions about your average annual investment returns (after taxes & inflation), and watch the slider forecast when you’ll reach your financial independence. It assumes that you spend the same in retirement as you do during your working years, and it also assumes that you’re living off the portfolio total returns (no drawdown of principal). Better yet, if you’re not happy with the calculator’s results then you can click on the graph to choose a result you like, and it’ll immediately display what savings rate you’ll need to get there.
Here are a couple of links for veteran’s benefits. First up is the guide to the veteran’s preference system used in hiring federal civil-service employees. This is the reference for the points added to the civil-service exam score of veterans due to certain types of military service or service-connected disability. Spouses, widows/widowers, and mothers (not fathers) of veterans can also earn “derived preference” points when the veteran is deceased or disqualified for a federal position because of a service-connected disability.
Next, a new law was signed this month to help families who were exposed to contaminated water at Camp Lejeune. However the legislation also added and extended more features to the VA home loan program. The three most significant changes are expanded eligibility for surviving spouses, continuation of adjustable-rate mortgages, and an extension of the higher lending limits.
Finally I’d like to call your attention to two new financial bloggers. Jason Hull has just hung out his shingle at Hull Financial Planning. He’s already completed his military service and enjoyed an exit from a successful startup, so he has the financial chops to understand a veteran’s concerns about personal finance. Even more interestingly, he’s emulating Jeff Rose’s style of video with a Personal Finance FAQ series. Click on the links to enjoy short videos about how your monkey brain affects your finances.
The Military Money Manual was started just a few months ago, and it’s a chance to watch a site grow & evolve. He’s a 25-year old servicemember with a goal to reach financial independence by age 40. He’s in good company, too– his spouse paid off $45K of student debt in just one year on a $60K salary.
Enjoy your weekend! It’s going to be an intense one for me. I’ll be taking three days of notes for a head-expanding FINCON summary post on Monday. I’ll also be spending a little time every morning with my Dad in the care facility and working on projects with my brother. (Later this month I’ll post an update on how we’re doing.) I’m also meeting up with other relatives & friends, so let me know if you’ll be around FINCON too. I have the blog set up to keep the posts & comments coming in autopilot, but send me an e-mail or fill out the “Contact me” box if you need a quicker response.
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