November 1, 2012

www.millersmoney.com

Straight Talk About Working in Your Golden Years

It's no wonder I struggle to keep my weight under control. Every fall my wife Jo and I leave our summer home near Chicago and join the geese migrating south for the winter. We spend the last two weeks before we leave enjoying celebratory meals with our friends before saying goodbye. When we arrive in Florida, the process is reversed as we catch up with our winter friends.

My annual checkup with the family doctor is sandwiched (pun intended) in between. Every year it includes stepping on the scale and facing a much-needed and well-meaning lecture.

Our doctor prides herself on "straight talk." She doesn't hesitate to say things like, "Dennis, you need to lose at least 20 lb. or you're going to have some serious health problems you don't want or need." Beating around the bush doesn't get the job done; she tells it like it is.

Another Round of Straight Talk

Whether up north or down south, much of the mealtime discussion with our friends focuses on retirement, the upcoming election, and the struggle to make ends meet.

The conversation frequently starts with comments like: "What the heck happened? Every time I think I can retire, the rules seem to change."

When I was young, folks in my generation were borrowers, and our parents' generation did the lending… indirectly. They lent money to banks by buying CDs. Their money was safe, and they earned a good income to live on during retirement. Then the banks turned around and lent my generation money in the form of mortgages, car loans, and bank credit cards called Visa and Master Charge.

We paid higher interest rates, the banks made money on the spread, and our parents enjoyed retirement.

Traversing the Minefield

Now it's our turn, but things have changed. Social Security won't cover everything, and retired folks need money coming in regularly to pay the bills. Interest rates are near zero on CDs and quality bonds; the safe and secure option our generation had counted on no longer exists.

Where can you look next? Safe, dividend-paying stocks are the next place most folks turn. But now politicians are talking about changing the rules again by letting the Bush tax cuts expire. That would raise the tax rate you pay on dividends, making dividend-paying stocks less appealing.

In 2008, 42% of dividends paid in the US went to people 65 and older. I would bet it's even higher today, because seniors are looking for investments with a decent yield. Now politicians want to add another obstacle.

As one exasperated friend said, "I feel like I'm trying to traverse a minefield, only they keep moving the mines."

OK, so what can you do about it? Political "solutions" always come to the same end. I've written to my elected representatives dozens of times. Each time I've received a form letter in return and wondered if the representative had even seen my letter or email.

Bottom line is this: No matter who wins the election, the government spending money it doesn't have is not going to change. Vote for whoever you think will do the least amount of damage, but don't expect the government to solve your retirement concerns.

The Government Is Not Going to Fix Your Problems, So Who Will?

You are. You are going to have to change and adapt. That's what successful Americans have done for over 200 years – learn the new rules and figure out how to play the game afresh.

Everyone has to take responsibility for his own retirement, but don't let that discourage you. Most Americans – particularly those who've accumulated even a modest nest egg – have done that all their lives.

Several of my friends have even taken part-time jobs, many at minimum wage, to help pay the bills. Take a quick look around the fast-food restaurants and retail stores in Florida, and you'll see plenty of gray-haired folks in well-established second careers.

Americans, and those of our generation in particular, take pride in hard work. If you need more money, get a job and earn it. That's nothing new. It's what you've been doing your whole life.

While a job may alleviate many of your troubles, it's only part of the solution. Working full or part time after retirement will certainly help pay the bills, but it doesn't address the whole problem. Even if you have enough money to pay your bills, your nest egg still won't manage itself.

If you're working for minimum wage but your nest egg is losing money to poor investing or high inflation, are you really any better off at the end of the day?

The Job No One Wants

I was forced into actively managing our nest egg. I didn't ask for the job, and I didn't want to do it. But our investment money was in CDs, and when the banks called them in, we had cash that I didn't know what to do with.

I had new lessons to learn about how to manage our life savings. I needed to learn quickly, whether I liked it or not. In the beginning, I'd spend a few hours a day reading and teaching myself how to actively manage my portfolio. Frankly, it was a chore. I had to manage my time differently – fantasy football had to take a back seat.

Working Smart

Many friends have told me that they simply don't have time to educate themselves about investing. I wonder what my doctor would say if I told her I didn't have time to lose weight...

Truthfully, they probably feel just like I did. It's not that I didn't have time. It's a daunting, scary task – a real pain in the butt – and I did not want to do it.

My wife said it best: "What other real choices do we have?" She was right; I accepted the challenge, because I knew it was my job.

You have to be honest with yourself. If you have time to work to supplement your income, can you also make time to learn? Unless you really need the money to put food on the table, I'd suggest working a little less and carving out time – even just an hour a day – to educate yourself on growing and protecting your nest egg.

Ultimately, that will pay a whole lot more than minimum wage. One $2,000 gain on an investment is worth working for 200 hours at $10/hour. If you have even a modest portfolio, spending time to educate yourself has a potential payoff far beyond what you could earn from a low-paying job.

If you recall your first summer job, you'll likely remember how hard it was. Mine was hauling bales of hay and cleaning out horse stalls at a local racetrack. While you probably couldn't take a manual labor job today, what you may have lost physically has been replaced by experience.

Mentally, retirees are still on top of their games. You can still work smart.

Getting Started (Or, How to Become a "World Expert")

One of my early mentors said, "If you read one book a month on a subject, within three years you will be a world expert."

I don't know about "world expert," but I can tell you from personal experience that you'd know an awful lot about the subject. And, if that subject is investing, you'd feel very confident about your knowledge and money-management decisions.

When I look at where I was four years ago, I can assure you that educating yourself about investing is not that hard. What is hard is committing to the task and getting started.

Many professions require continuing education to remain licensed and able to practice in that particular field. Continuing education, however, should not stop with retirement. For successful folks, it's just a way of life.

So Now What?

As my family doctor says, "I don't mean to lecture you, but…" What could be more important than looking after your financial (and personal) health? If you need to continue to work, consider moving the job of learning to invest wisely to the top of your list. No one will look after your money better than you will.

On the Lighter Side

I have to tip my cap to the San Francisco Giants who won the World Series. It's interesting how they won the last three games of both earlier playoff series in order to advance; then the Giants swept the Tigers in four games. Add their four-game sweep to the three games they won against the Cardinals to get into the World Series, and that's seven straight wins against tough competition.

And finally…

My friend David sent me a long list of Will Rogers quotes, and a few hit pretty close to home:

"Never kick a cow chip on a hot day."

"There are three kinds of men. The ones that learn by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves."

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Some of my earliest childhood memories are of my grandmother scolding me for not listening. I always had to learn lessons the hard way. Yeah, it was always my fingerprints in the wet paint. It makes no difference if it's wet paint, cow chips, or an electric fence; the results are the same... and it's a mess.

I suspect that some of you reading this are members of the "learn things the hard way club" and are nodding your heads in agreement.

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My heart goes out to everyone touched by Hurricane Sandy. Hopefully they can recover and get back to their normal lives quickly.

Until next week…

Dennis Miller
Editor