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From the Book – Selected material from Retirement Planning for the Utterly Confused

Note from Paul: This blog encounter some difficulties on another server (mostly my fault during a re-direct that I failed to accomplish. So now all of the info that was once contained there, is now here. With any luck, I won’t make the same mistake.

To bring you up-to-speed if you are new here, this blog was created to help explain some of the references in the book in greater detail. The blog was begin back in June 2007 and continued until I made a server error in June of 2008. All of the book references will be located on this page while additional entries made after this online bibliography was complete will have separate entries (although they may reflect the same day, they will have been written over the past six months. New entries will also have their own pages as well.

Feel free to comment or ask questions.

Retirement Planning and Chiaroscuro

One of the first words in the new book deals with the rather obscure term chiaroscuro. Described by Richard Larmann of the University of Evansville as “a method for applying value to a two-dimensional piece of artwork to create the illusion of a three-dimensional solid form. This way of working was devised during the Italian Renaissance and was used by artists such as Leonardo da Vinci and Raphael. In this system, if light is coming in from one predetermined direction, then light and shadow will conform to a set of rules.”

Retirement planning is an art form that harbors subtle shadows and nuances that too often draw your eye away from where you need to focus. Painters using this method understand that it is the foreground the commands your attention but it is the background that lends the art its visual depth.

We often focus solely on how much we are saving for those after-work-years and not on the shadows, which because we do not pay as close attention to, often subtract from the effort.

You can see this used in the following paintings by Caravaggio and van Honthorst.

My personal favorite is by German artist Elsheimer seen here in the burning of Troy.

Retirement Planning and Calendars

I began the discussion in section one of the book with calendars. Let’s face it, time is what we are most focused on when it comes to retirement planning. While the book focuses on how we can make the best use of time and how to offset many of the problems along the way – each of which seems to act as a subtracting force – we often ignore the importance of our linear march to the end.

Time is a powerful, almost spiritual force that early peoples believed was better left to the priests. While I mention the earliest calendars in the book, the real breakthrough work was not being done in Europe or Egypt but here in the Americas.

Using the regularity of Venus, Mesoamerican Indians had calculated the rather regular movements of this planet.

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This planet moves in a regular pattern. It spends 263 days in the morning sky, disappears for 50 days behind the sun and then spends 263 days as fixture on the evening horizon. But to these ancient Mayans, this was not enough. In fact, they developed a much more complex calendar of which Venetian observances became only one of three measures of time.

They also used a calendar that tracked a solar year much the way we do now and something called a Long Count, which meshed the other two calendars into one.

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The Long Count calendar gave these early time keepers the ability to extend beyond the boundaries of secular and solar timekeeping where every day in a 52 year period had an exact and distinct name. According to Charles C. Mann, author of 1491, early peoples took their birth date as their name.

A Long Count calendar was important for numerous reasons. It gave coherence to the other two measures of time. And even more importantly, it gave them the ability to extend their thinking into the future.

How far? They were able to set a beginning date – somewhere around mid-August 3114 B.C. and an ending date 23 billion plus years into the future.

Because our retirement plans are based on a much shorter time period – our work years, we are left with a sense of urgency to accomplish great things in a relatively short period.

When we begin our saving for retirement later than we like, we are often left with feelings of guilt and apprehension. I hope to fix some of those problems. Not all of them, just the issues pertaining to your money.

When we begin early, we are often sidetracked as life begins its relentless quest for our attention and money.

Time is our foil. Perhaps we can fix that and turn this steady march into a more rewarding journey.

Retirement Planning and Behavior

First and foremost, retirement planning is about how you approach the subject. It is for most of us, a sort of behavior modification. We want to do better. We plan to do better. But in the end, we often fail and there are numerous statistics to prove that to be true.

While reading about some other person’s failures is far more entertaining, reading yourself into some of the studies I present in this section of the (as-yet-to-be-edited) book can be eye opening.

Sharon A. DeVaney, who is a Professor of Family and Consumer Economics, Department of Consumer Sciences and Retailing, Purdue University and Sophia T. Chiremba, Ph.D. candidate, Department of Consumer Sciences and Retailing, Purdue University co-authored a paper discussing the different types of savings habits titled Comparing the Retirement Savings of the Baby Boomers and Other Cohorts

In that paper, they reveal some interesting statistics about who we are and how we approach savings. For instance, Ms. DeVaney and Ms. Chiremba noted the following:

I mention several other studies in this section of the book including an update on what is known as “the Life-cycle Hypothesis”, a suggestion that savings is determined by your age. Bracketed by younger people who borrow against future earnings and older folks who spend what they have saved, this hypothesis suggests that middle-aged people are most likely to save.

Icek Ajzen suggested something entirely different. He published a paper in 1985 that first appeared in an article titled “From Intentions to Actions: A Theory of Planned Behavior”. Mr. Ajzen believed that savings is determined by our approval rating among our peer group and the successes we may have had in the past.

To overcome that, we need to focus on what is not known, couple that with what is possible and soldier on without any notion of perceived gains. The possibility of a more comfortable future if we plan our retirement without the burden of our bad behavior is a huge but not insurmountable challenge.

Retirement Planning and Star Stuff

As our discussion with time progresses, there is no better way to explain the effects of time better than a look to the stars. Stars are a window to the past. They offer us a glimpse of what was and although we perceive them in the present, what we see is actually an event that has traveled across space only to appear as a fixed apparition in our night sky.

There are 400 billion stars in the Milky Way galaxy, most of which are clustered at the center. Our little solar system of which the sun would be considered not much more than typical is on the outer reaches of the spiral. In fact, we are mostly guessing what the Milky Way looks like. When we depict the galaxy as a spiral, we are actually assuming that we are much like Andromeda or M31.

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As I introduce the section just before compounding, I mention a celestial event that took seven years to reach our night sky. When SuperNova 1987A exploded into the night sky astronomers were thrilled.

It was the first “nearby” supernova to appear in the last 3 centuries. In addition to the light show, astronomers were able to detect 19 of the elusive neutrinos produced by the collapse of the star’s core. It is estimated that for an instant in 1987 on the earth the neutrino luminosity of SN1987A was as large as the visible-light luminosity of the entire universe.

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Compounding has similar astronomical qualities. The savings socked away at an early age literally explode as time progresses. In the same way the light from SN1987A traveled, compounding offers a chance to illuminate an other wise inanimate lump of cash.

Einstein, yes, the same one with those revolutionary theories about relativity and time and space is credited with the following quote: “compounding is the most powerful force in the universe”. But it is doubtful that he actually said exactly that. With his death occurring in 1955 and closest attachment to the quote appearing almost 25 years later and in numerous versions, his affiliation to the quote appears remote.

He may have appreciated the elegance of the math, the way money can grow as if by magic using compounding. What he wouldhave been marveling at was the mathematical simplicity of the Rule of 72.

Rule of 72 works like this: If you wish to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at six percent interest, divide 6 into 72 and get 12 years.

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If you are curious at how far that beam of light from SN1987A traveled in a year, you would be required to just a little math. A light-year is the distance that a beam of light, uninterrupted and in empty space, would travel in a year — which is about 9, 470, 000, 000, 000 (nine million million, four hundred seventy thousand million) kilometers. Multiply that by seven.

Douglas Adams’ The Hitchhiker’s Guide to the Galaxy described the vastness of space as “Really big. You just won’t believe how vastly hugely mind-bogglingly big it is. I mean, you might think it’s a long walk down the road to the chemist, but that’s just peanuts to space.”

Retirement Planning and Life Expectancy

No retirement planning book would be complete without a look at life expectancy. Trying to determine how long you might live, whether you will outlive your money and exactly how much money will be needed should you break all-time length of life records affects every plan.

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In the book, I point to the work done by Wharton School of Business professors Dean P Foster, whose field is statistics and Lyle Unger, an expert in Genomics and computational biology. Their work on longevity based on how much walking one does was expanded into a full fledged calculator with the addition of Chua Choon Tze, who brought his finance background from the Lee Kong Chian School in Singapore.

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The calculator was expanded to include numerous diseases and charts that will narrow your possibilities by ranking you among your peer group.

Included are references to fitness using a maximal treadmill exercise test as a measure of fitness with an initial speed set at 3.3mph, 0% grade for 1st minute, 2% grade for 2nd minute, an increase of 1% for each subsequent minute until 25 minutes thereafter, the speed is increased by 0.2mph each minute until test is terminated

To do this of course, you would need to compare what you think the maximum amount of time that you can stay on the treadmill with mean time for men of 16 minutes 52 seconds and a mean time for women of 11 minutes 28 seconds.

They also asked the user to judge their diet (Dairy, Meat, Grain, Fruit, Vegetable) and their stress level. The following list would have a negative effect on your overall life span:

More fun can be had at NW Mutual’s longevity game. As you input the information, your body changes shape and often not for the better. Starting out at the average life expectancy of 74, each question prompts an increase or a decrease in that anticipated age.

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There is much more to creating enough wealth to weather a long lifetime. And these calculators and games only hope to illustrate the changes you can make to achieve a longer healthier life. My job is to help you get the money you need.

Retirement Planning and Misconceptions

Misconceptions live quietly on the dark side of retirement planning. These are understandable and largely forgivable human traits that are often quite innocent in their origins.

Given two pieces of information, we can often form child-like combinations, jumbling facts in a process that resembles sound thinking. In part two of the book I am writing, I discuss the idea that homes are not investments. Many of us make this mistake. And because we do, this is probably the largest preconceived notion we make about retirement planning.

This kind of conceptual misunderstanding often leads us to make unfounded assumptions about our wealth and more importantly, our plan. And because of that, it hinders our ability to make good long-term decisions.

The greatest problem facing someone who harbors many of these kinds of beliefs, of which I mention seven that can have a detrimental effect on your retirement, is the fact they tend to become a sort of gospel filled with what we believe to be undeniable truths.

Bill Beaty at the American Institute of Physics has complied a list of common scientific misconceptions that plague good understanding of our world around us. When it comes to retirement planning, the list is much shorter but with more disastrous results if not corrected in time.

But how did we get to the point where we follow what we think we know and argue so vehemently against the truth? Perhaps it was a simple as following the person who traveled the road before we did.

I am reminded of a poem by Sam Walter Foss (1858-1911) titled the Calf-Path. Mr. Foss it should be noted, was a librarian and a poet from rural New Hampshire. The poem below is not his most famous but does tend to illustrate that idea that once we are given an idea, in this case a path, we tend to take it unwittingly even if it is not the shortest distance to the place we seek.

Retirement Planning and Alchemy

I begin the second section of the book titled “Seven Misunderstandings” with a brief discussion about the alchemist. The history of this pseudo-science, archaically referred to as Ars Magna has its roots on many different continents. The practice of transmutation was practiced by the Arabs, the Chinese, the Hebrews, and the Indians.

Many believe that the nature of alchemy can be broken down into three distinct categories. Some suggest four, adopting a French term to describe the alchemists who persisted in a single quests rather than anything that might resemble scientific methodology. Called “Les Souffleurs” or blowers, their goal was almost solely for material gain.

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But alchemist struggled with religious implications as much as the did with the philosophical and scientific disciplines of their profession. Because of the nature of the art form, transformation was necessary and given the time frame when alchemy arose, there was no one better at achieving such changes than the Pope himself. Unfortunately, alchemy does not lend itself to quick study.

It was far easier for the Pope to simply call it the work of the Devil. Roger Bacon, Albertus Magnus and Thomas Aquinas all supported the notion that alchemy was otherwise.

The scientific alchemist invented, discovered or were among the first to develop gunpowder, arsenic, phosphorous, a wide variety of acids and most importantly, some sort of method to prove their findings. The alchemist believed that there were “three principles – salt, sulphur and mercury and that sources of these three principles were the four elements: earth, water, fire and air“. Simply boil water in a kettle and you can see how the alchemist arrived at such conclusions. After the water boiled, what was left but earth and air (in the form of steam).

Among the most notable scientists to embrace alchemy was Newton. He was an astronomer as well. In Newton’s time, astrology and astronomy were one and the same for thousands of years leading up to and during Newton’s time in history. Astrology and alchemy had also been intertwined for thousands of years. This made Newton’s deep studies into mathematics and his related breakthrough theories in gravity and astronomy, for which he is best known, possible. Newton was a mystic and possibly an occultist but much of what he worked on was destroyed in a fire.

Is it any wonder they have been described as Sorcerers? Because of the time needed to devote to such pursuits, the philosophical alchemist arose. This alchemist searched for elixirs to prolong life or inanimate objects that would provide wisdom.

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Alchemist did finally achieve some degree of notoriety when in 1935, the Nobel Prize for Chemistry was awarded to Doctors Irène Joliot-Curie and Frédéric Joliot of Paris for their synthesis of new radioactive elements carried out in partnership. In the speech given at the ceremony, Professor W. Palmaer who was serving as chairman of the Nobel Committee for Chemistry said,”

Retirement planning can have similar goals. We seek to transform years of hard work and toil, diligent saving and scrimping in the hope that the reward will be a comfortable, work-free lifestyle. Is this any less the work of an alchemist who tries to change one thing into another.

It is my hope that we can, in this section of the book, redirect some of the misunderstandings you might have and transform them into gold.

I leave you with this quote from Bertrand Russell: “The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts.”

Retirement Planning and Debt: Liquidity

No one can downplay the importance of debt in your financial plan. While I am guilty for frequently mentioning the concept as a negative influence on your plan, we are besieged with information offering us a contrary view.

We are encouraged to keep the economy going by spending. Savings on the other hand, is actually portrayed as a negative influence. An economy can slow the flow of goods if consumers keep their cash close.

While this may be true, it is overspending or buying on credit that has propelled these markets on a global scale. And that movement is based on the availability of money.

What motivates equity markets is liquidity. This is a financial terms that in its simplest form refers to the availability of cash to borrow. Let me explain how liquidity works, often differently depending on where and who you are.

On a corporate level, liquidity can be incredibly deceiving. It acts as a reward for savvy business acumen. And because of so many people are using their skills to find this excess capital where little to none exists, we have these stock market levels (over the month of July, the DJIA hit 14,000, then gyrated wildly downward in fits and starts losing five percent of its value).

Liquidity in its purest form comes from the banking system. The Federal Reserve Board fixes the overnight short-term interest rates for the best borrowers. When it does this, it is suggesting a rate at which it believes the marketplace has just enough cash at the right price to keep the corporate engines fueled. That rate is then passed on to each subsequent lender, who increases the rate in small increments right on down the line.

This gives the average borrower like you and I the impression that the Fed controls the economy with each pull of its purse strings. And you would be right, to a degree. The flip side of making money inexpensive to borrow is having enough available in adequate quantities to those willing to pay the price. But liquidity offers business and consumers different opportunities but similar punishments.

In order for the borrower to qualify for a sizable loan, whether it be business or consumer related they often need to have some sort of underlying asset that they are willing to “put on the line” for the amount of money they seek. With business, it is often money borrowed for reinvestment in production or to expand a product line. With the consumer, it is often their largest asset: their home.

Most of the time this borrowing is at the heart of how a business grows, tapping inexpensive money that gives them additional competitive opportunities.

Each asset the company owns acts as collateral. But what happens when the borrower wants money not for the usual and traditional purpose of expanding the business but to reinvest it? On the surface, it creates an illusion of economic health.

A business can borrow cash to buy back its own stock. The net effect of such a maneuver suggests two things: the company thinks its stock is fairly valued and is taking some of it off the table, making it unavailable for buyers and secondly, it believes that the markets will reward just such an action by increasing the share price. But what happens when the interest rates (called debt service) rise faster that the return on the stock? Nothing until someone begins to realize that this whole debt structure might be nothing more than a house of cards.

The housing analogy is not accidental. For well over three years, I have wondered how consumers would react if their ability to extract money from their homes dried up. For over two years I have been wondering what would happen if all of those creative mortgages, the ones done with adjustable rates and fancy, no-documentation paperwork, became too burdensome for the borrower.

As money becomes too expensive to borrow, opportunities to make money in market places like stocks begin to seem risky and after they calculate the debt service, not too affordable. Businesses, instead of growing and creating new markets find themselves facing the possibility that they may just have painted themselves into a corner.

Consumers, no longer feeling as though the cost of borrowing is worth it, will spend less. This of course has a domino effect disrupting economic growth.

That is the simple explanation. There are global forces at work as well but these will only have an effect on you if your liquidity has dried up. With debt, liquidity is based on your ability to borrow and pay the cost of that transaction and, most importantly, you feel as though the risk and the cost are worthwhile.

If you have no debt, your liquidity is based on your ability to tap cash when you need it. In the book, I fall back on the old stand-by, the emergency account as the base for a good retirement plan. Creating just such an account allows you to have more than just enough money to get you by during times of income disruptions, it gives you peace of mind knowing that the money comes without a cost if you need it and you were able to save it.

It also has the effect of immunizing you from any economic fallout as a result of nefarious corporate and marketplace shenanigans or because other consumers over-extended themselves in unwieldy loans.

Retirement Planning and Debt: Depreciation

How often have you heard someone say that as soon as you drive a car off the lot, it is no longer worth what you paid? There is a lot of truth to the statement but some of it is exaggerated. Yes, it does lose value but not as dramatically as you might think – at least in those initial moments anyway.

Depreciation happens to things with a fixed life span. We know that cars do not last forever. While they aren’t exactly disposable, many vehicles have a fixed life from an accounting point of view.

While you can have an effect on that life span – unusually hard driving might create more wear and tear on a car than accounting calls “normal”, generally speaking, depreciation allows for a systematic lessening of the value of the property over the course of time. In the case of cars, five years is considered by many to be the best number to use.

Another term you may have heard of – GAAP or Generally Accepted Accounting Principles is the method used to adjust the book value of the asset downward in a systematic way. When you buy an asset such as a car, the price you pay is considered the historic value. The book value is considered a contra asset account, each entry lowering the price of the asset.

Autos use straight-line depreciation. This assumes two things. The first is the historic value; the second is referred to as the salvage value. As a math sentence, it would like this:
Cost of the car ÷the salvage value = the annual straight-line depreciation.


In the book, we look at the difficulties of getting you right side up in an upside down car loan. To be “upside down” suggests a car loan that continues long after the depreciation that as brought the car’s value to zero.

One of the key factors in such a mistake is the attraction of “the right price”. Too often we are drawn by the amount of the monthly payment and not the cost of financing the purchase. Had we calculated the debt service (the amount of interest paid) and the depreciation (how much the car will be worth at a given point in time) against the balance owed, we might have had second thoughts about a loan that lasts longer than five.

For instance, which would you find more alluring: a five year loan on a car worth $30,000 at 6% would cost you $579.98 or a seven year loan – not unheard of these days at the same interest rate and a payment of $438.26? Admit it. The lesser of the two would be the most attractive option.

Key to keeping this happening is buying a car you can afford – not the car you want and use the money saved to finance that under-funded retirement.

Retirement Planning and the College Loan

There are basically three types of college loans: the one you do not have, the one you are paying for or the one you are paying for your children.

I write the following in the book: “Yet the psychology of debt assumes that it (and this instance we are speaking about your ability to repay your collegiate debt) will soon turn bad.”

“Life is a maze….” Cyril Connolly, 1944

There was a time in the not-so-distant past when college graduates and those who chose to enter into the workforce could expect to earn similar incomes. Thirty years have passed and, as we all know (or assume) this is no longer the case. In fact, when those two post-high school incomes met along that timeline in 1975, college was much cheaper.

According to the College Board, who recently stepped away from the loan business, the average student will leave college with about $20,000 of debt. (Realistically, the student who fully finances her or his education will often have as much as ten thousand dollars of additional debt above and beyond the cost of classes.) And that is just for undergraduate public school completed in four years. Many students extend their college years beyond this, attending graduate school and adding another $30-40,000 in loans.

Want to find out how much you are likely to make with that college education? Salary.com has compiled a list of entry-level incomes for a wide variety of careers.

How does college play itself out in your retirement plan? There are three basic concepts to understand.

The first: A thirty thousand dollar loan can quickly turn itself upside down if the student does not pay it off early. Letting it languish for the full ten-year payback period will add as much as a third more to the cost of the education.

Second: Because the student is not likely to prioritize those loan payments, they will be much more prone to roll the debt over into some sort of longer termed consolidation loan, extending the period of payback and because of that, paying additional interest charges, fees for loan origination and in the process, learn one of life’s most frequently taught lesson – debt overload. Once this happens, and if the post-college income generated from those years racking up that debt fails to match the debt, young people just starting out will be well behind the best years for saving.

Third: Parents shouldn’t pay. Okay, middle class parents shouldn’t pay. Diverting money to your child’s education seems noble enough and might even make you feel better but it doesn’t work if you are not using that money for your own retirement.

I have suggested that a family with a household income of less that $80,000 devote any money to growing their child. Lessons, activities, sports and travel all eat up enormous amounts of cash from the average budget. But it will produce a much better (and more attractive, at least from a collegiate perspective) citizen/student. And that child is more likely to obtain scholarships and grant money because of it.

Parents at this income level have few good opportunities to save for their own retirements. Passing up even so much as single dollar directed towards a savings plan for those later years would be catastrophic.

Incomes above that amount will not be in much better shape to save for college but they will feel the pressure of their peer group to do so. With the recent credit crunch revealing some cracks in the accounting of many households who have kept their eye on prizes they could ill afford, saving for college may add to an already strained budget.

Retirement planning rule of thumb: If your total household debt exceeds 70%, you should focus on your future and not that of your child(ren). That debt will afford them better borrowing opportunities but, on the other hand, that same debt will be creating a negative momentum for your own future.

Retirement Planning and Your Family

There is a fine line between selfishness and selflessness. Call it a grey area. Better yet, call it a graying area.

In the world of retirement planning, it is how you navigate this no-reward zone that separates those who can (make and keep to their plan) from those who cannot (finance all of the needed accounts that make retirement what it could be).

The suggestion to begin early in life with your retirement plan is made for a simple reason: failure to finance these plans early on offsets the chance that you will be forced to make a decision at some point, taking into account the pressures that family will place on you.

The cost of raising a child is relatively well known. Calculating those numbers, and you can try your plan at Baby Center yield some long range and conservative projections. Using the default information available at their calculator estimates that your child, as yet to be born will cost you $266,698. Those figures, by the way are in 2006 dollars.

But consider this, before we move on to the more difficult subject of retirement planning and your parents, many of the costs that these kinds of calculators estimate will be incurred children or not. You will pay for housing, medical, food, clothing and transportation, kids or no kids. Your skills as a money manager will, without a doubt be put to the test the larger the family you have however, these are not break-the-bank problems that are insurmountable.

The real and almost incalculable cost comes from the other end of the spectrum: your parents and those of your spouse. There are over 20 million of us caring for our parents or otherwise financing that care above and beyond what social insurance and services provide.

ABC News referred to it as Role Reversal. Elderly caretakers and those who might possibly be at some point have been described as the “sandwich generation”, caught between those “costly children” and those aging parents. Few of us calculate these costs when we stare dreamily into the future thinking about our own retirement.

There are several ways to offset these problems before they arise. First, be selfish about your own retirement. This is what will keep you from possibly having the same situation your aging parents maybe in or are headed for. This is best offset by beginning your savings for retirement early. You will be able to save less allowing compounding to do the work for you.

If you are starting later, a group I refer to in the book as “the Chaser”, that selfishness becomes even more important. Beware though of the rising feeling of guilt that can accompany this plan. You will, without a doubt, see some of the money as better spent on the kids or even the parents. But doing yourself the favor is also doing your children the favor as well.

As you approach retirement, you will have a better grasp of the actual cost of your family. You will have built a better base – at least financially that many allow you to take a few extra days off to care for that aging parent without jeopardizing your nest egg.

Below, you will find some additional information of how to handle this problem from the folks who focus on the issue.

THE AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR THE AGING (www.aahsa.org or 202-783-2242) publishes free brochures on how to choose a nursing home or assisted-living facility, a directory of continuing-care retirement communities, and information on long-term care insurance.

FAMILY CAREGIVER ALLIANCE (www.caregiver.org; 415-434-3388) offers information for caregiver concerns, newsletters (English, Spanish, and Chinese), and an online support group.

THE NATIONAL ALLIANCE FOR CAREGIVING (www.caregiving.org; 301-718-8444) is a national resource center that provides information on elder-care conferences, books, and training for professionals.

NATIONAL ASSOCIATION OF AREA AGENCIES ON AGING (www.n4a.org; 202-872-0888), an advocacy group for local aging agencies, offers The Eldercare Locator (800-677-1116), a service that puts you in touch with a local resource-and-referral organization, which, in turn, will recommend home health care aides.

Retirement Planning, Aristotle and Your Home

I begin chapter six with a look at Aristotle (384 BCE – 322 BCE>. This Greek philosopher, schooled by Plato and who later taught Alexander the Great, was refuted to have known everything there was to know during his time. That task would be much harder to achieve today.

He did however leave us with some very basic logic, some of which has been proved wrong – I will get to that in a minute – but much of which can be still used to make good arguments about certain subjects.

According to the Philosophy Pages, he made major contributions in the field of Physics with his determination of the four causes. They are listed below as the material cause, simply is the basic stuff out of which a thing is made. The formal cause {Gk. eidos [eidos]}, which is the pattern or essence in conformity with which these materials are assembled, the efficient cause is the agent or force immediately responsible for bringing this matter and that form together in the production of the thing, and lastly, the final cause {Gk. teloV [télos]} or the end or purpose for which a thing exists.

“The material cause of a house, for example, would include the wood, metal, glass, and other building materials used in its construction. All of these things belong in an explanation of the house because it could not exist unless they were present in its composition.

“Thus, the formal cause of our exemplary house would be the sort of thing that is represented on a blueprint of its design. This, too, is part of the explanation of the house, since its materials would be only a pile of rubble (or a different house) if they were not put together in this way.

“Thus, the efficient cause of the house would include the carpenters, masons, plumbers, and other workers who used these materials to build the house in accordance with the blueprint for its construction. Clearly the house would not be what it is without their contribution.

“So the final cause of our house would be to provide shelter for human beings. This is part of the explanation of the house’s existence because it would never have been built unless someone needed it as a place to live.”

The reason I bring up this early philosopher at the beginning of the discussion on how we view homes in relation to retirement planning is rather straightforward. We believe that our houses are the center of our universe. Aristotle believed that the earth was the center of the known universe. Consider this passage: “… the natural motion of the earth as a whole, like that of its parts, is towards the center of the Universe: that is the reason why it is now lying at the center. …

“From these considerations it is clear that the earth does not move, neither does it lie anywhere but at the center. In addition the reason for its immobility is clear from our discussions. If it is inherent in the nature of earth to move from all sides to the center (as observation shows), and of fire to move away from the center towards the extremity, it is impossible for any portion of earth to move from the center except under constraint. … If then any particular portion is incapable of moving from the center, it is clear that the earth itself as a whole is still more incapable, since it is natural for the whole to be in the place towards which the part has a natural motion. …” (Aristotle, On the Heavens (W.K.C. Guthrie’s translation), Loeb Classical Library, 243-7 [296b8-297a1])

Fifteen hundred years later, Polish astronomer Copernicus would prove him wrong. Religion, in the time between had adapted this center of the universe idea and held on to it firmly, even after Nicolas Copernicus (1473-1543), who refused to reveal his thinking until a deathbed confession to a close friend.

Copernicus, by dispelling the notion that the earth was indeed at the center of the known universe, an erroneous observation that could have been made by anyone looking towards the heavens, dashed the ego of man. Ego is a sense of worth and there is no easier way to outwardly display that ego than the place you call home. The more opulent the house, the greater the ego that resides in it.

And as is often the case, you consider your house to be at the center of your financial universe. Only you would be wrong in doing so (an argument I make in detail in the book). Recent developments in the housing market, namely the current mortgage meltdown due to egotistically reaching for more home than a person could afford – abetted by lenders willing to take a risk, have left many people pondering their future and their net worth in a new light – one that is not so appealing.

Making the leap from thinking about your home as an investment to one where you seek shelter or raise a family could be difficult for some. Consider this quote from Nancy Reagan: “…homes are really no more than the people who live in them.”

Now consider Warren Buffet’s home.

Retirement Planning and Your Home’s Net Worth

While I discuss the importance on factoring your home out of the equation as you make your retirement plan, the value of your house is nonetheless important. But its importance is limited to present financial considerations and not what you might consider wealth.

During the research for the book, I was curious as to the worth of my home, how the process works at many of these sites offering an e-appraisal, and whether the estimate they provided was close to what I considered the actual market value. I contacted HouseValues.com, a website that uses readily available information from a variety of sources: taxes, Multiple Listing Services, and recent sales in the neighborhood.

As I made my way through the site, answering the questions on each page, I could see where this was headed. The appraisal would only lead to an actual contact with a real person, possibly a realtor, and because I was not in the market to sell my home, I wanted to avoid the interaction. They can be, given enough information, as annoying as insurance agents. By the time I got to the page that prompted me for my phone number and the best time to contact me, I had had enough. I simply closed the window and ended the experience.

At least I thought so.

Robert B. was in his office at Prudential Properties, logged on to HouseValues.com as well. He was – get this – literally following each keystroke entry I was making. As an agent, his registration with the site provides him with a valuable tool to potential sellers in the neighborhood he calls his home district.

Because there were certain criteria about the house entered to determine the worth, he had enough information available to put together a bound introduction packet. This “blind analysis” came with helpful hints on pricing, prepping, and marketing my home, and a newsletter published by RMLS, a regional version the MLS service. On a page title “Final Notes”, Robert B. suggested that the figure he was providing was + or – 7% of the actual value of the home. He would be able to get much closer to a real estimate once inside to see the property for himself.

Also included were comparables, tax and county records, an aerial view of the house (which looked pretty good on the MS Virtual Earth shot in color), some notes suggesting that perhaps I had inflated the actual square footage, and a price range, which, without touring the property was uncannily close to what we assumed it was worth – emotional attachment notwithstanding.

As I said previously, I had backed out of the site and left the house to do some errands. Two hours later I received a cellphone call from my wife. Robert B. it seems was on my doorstep, hand delivering the packet I just described. Surreal possibly; creepy definitely.

Here are some things to consider if you are attempting the same kind of estimating. Personal information need not be given to get an estimate. Use a free email service because you will be contacted.

Be aware that you may live in a nondisclosure state such as Texas. Any estimates on homes that were sold in your neighborhood or one that you are looking to buy into are based on loan information in those states and it comes mostly from affiliate banks and lenders.

The key to getting the best estimate lays with what is known as “available home stock”. This is reference to similar homes that are available for sale or that have recently sold. If activity has been low in your area, the homes are older (which means either there has been little done to the existing home or it has been remodeled extensively and without a peek inside at the work, the estimate could be far from realistic) or the houses are very dissimilar, the estimate could be far below or well above reality.

There are times when an appraiser is necessary without the attachment of a broker. Often, in heavily active markets, tax assessments can swing widely and you may be forced to challenge a bill. In that case, the $200 – $500 fee charger by a certified appraiser could be worthwhile.

These folks, according to The Appraisal Institute offer inspections based on economic principles. They will provide you with some cost analysis on improvements, how those changes will relate to the current value and price of the surrounding homes, and whether the improvement is needed.

This feasibility study can help you determine the price before the realtor tours the property. She or he will determine the price that will sell the house quickly; not the price that the house may be worth. The appraiser can also uncover repairs that a home inspector may report to potential buyers who will be hoping to use the information as a negotiating tool.

The Appraisal Institute suggests the following to homeowners toying with the idea of selling their home (and for those who are willing to spend the money to determine their home’s worth).

Prior to making any upgrades to your home, do your research. This includes:

To increase the marketability of your home consider the following tips:

Retirement Planning and Another Rainy Monday Morning

Although there is no scientific proof that we think about retirement most often on a rainy Monday morning, it would have to rank high among the reasons of why folks focus their hard earned cash on reaching those final days. The idea of dragging ourselves out of bed to go off and do a job we may or may not be necessarily enamored with doing, can seem especially hard as the list of things we would rather be doing grows.

But few of us use work and the paycheck that comes from the job you do in a way that would limit the number of Monday mornings you have yet to face.

Consider the employee who participates in a 401(k) plan. She or he is probably contributing the same amount to their tax deferred plan as they did when they first signed up for the program.

In the mean time, the nature of your job has changed. If you haven’t left for greener pastures at another company, you may have received some time based or merit raises. Bonuses aside, the increase in pay was probably quickly, even seamlessly absorbed into your daily budget. And there is your retirement plan, the one you set up all those years ago, languishing.

But wait, you might say. As your pay increases, so does the amount taken out of your check if you have set yourself up to have a certain percentage removed. But it is not enough to take a percentage of a percentage. If you receive a 2% raise, a $1,000 a week paycheck would increase by $20. A 5% deduction of pre-tax income would see an increase of exactly one dollar a week or $52 a year.

You have basically two choices. Dave Barry, humorist and author who at one time suggested investing in tiger poo instead of mutual funds said, “You still have time to salvage your retirement! All you need to do is develop some financial discipline, develop a realistic budget, avoid frivolous spending, pay off your debts and start putting away a meaningful amount of money each month for the future. Don’t be discouraged! You really can do it, if you put your mind to it and use your magic time-travel ring!”

Or you can funnel a percentage of that raise (or all of it) into your 401(k). Suppose the increase in pay you receive takes place on a annual basis. Suppose that you take that modest cost of living adjustment of just 2% we mentioned above. This is almost a negligible amount when you look at it on a week-to-week basis on a $52,000 yearly income to about $20. This may not seem like much except when you apply it to your future. That $1,040 extra bucks is huge to your retirement plan.

In the book, I ask you to look at work from your current point of view. You may enjoy your work. The vibrancy and daily rigor a great job can give you are hard to replace during retirement.

The Bureau of Labor Statistics publishes a monthly report on employment. This report can be an indicator of economic strength or weakness and depending on who you are – average Joe or a Wall Street investment type, it can mean nothing or everything. What we miss in those numbers, which for the most recently published unemployment rate in September was 4.7%, is what they tell us about the future. This number comes with all sorts of caveats and often is re-adjusted for one reason or another.

One other number we should look at is the Civilian Labor Force Participation Rate. For September, it was estimated that 66.0% of the population was working.

Yet, according to National Atlas, a government mapping site, the growth of the population, especially among those who are aging, could spell disaster.

The site reports that “for the population 65 years and over, the growth rate in the South (16 percent) was nearly three times the growth rate in the Northeast. And the growth rate in the West (20 percent) was more than three times that of both the Northeast and the Midwest for this age group.

“The 50-to-54-year age group experienced the largest percentage growth. Of the 5-year age groups, 50-to-54 year olds experienced the largest percentage growth in population over the past decade, 55 percent. The second fastest-growing group was the age group 45 to 49.

“The baby-boom cohort entered these two age groups during the past decade. The third fastest-growing group in the past decade was 90-to-94 year olds, which increased by 45 percent.”

To me, this signals some tough competition for fewer jobs. If you had planned on working in your later years and you haven’t decided what that some other job will be. You had better ramp up those savings while you have a chance.

If you did plan on working well into what would normally be considered retirement age, now is the time to cultivate a new career.

Retirement Planning and Your Health

Few of us factor in the cost of our health on our retirement. We live with great gusto when we are young, never thinking of the possible implications those risky behaviors can have later in life.

We often discuss risk in financial terms but that discussion is often focused on the risk of an investment. But risk can be controlled in the world of investing just as it can be controlled when it comes to your health. Opting for less risky investments however can lead to smaller returns on that investment dollar. The opposite is true for your health.

When it comes to your health, this one area that requires you to review how much risk you have taken and what that risk will affect. Health risks demand conservative investing.

Those risky behaviors can have daunting costs later in life that can serve to undermine the best-laid plans. While incidents of cancer actually decreasing somewhat and most of the credit for that is due to earlier detection, it still remains a menace that is, in many cases preventable.

At Harvard University’s Cancer Prevention Center, they list ten controllable risks and habits, each of which has additional side benefits across your entire health picture.

Those risk factors are:
Maintaining a Healthy Weight

Physical Activity

There is growing proof that physical exercise can prolong your life and ultimately lower your risk for disease. Remember, it isn’t too late to start and when you do, do so regularly. But if you haven’t done much more than remote control calisthenics, it would probably be best to talk with you doctor prior to getting started.

Tobacco Use

Tobacco use is the leading preventable cause of death worldwide. Aside from causing 90 percent of all lung cancer, cigarette use is related to the risk of cancers of the bladder, kidney, pancreas, lip, mouth, tongue, larynx, throat, and esophagus, among other chronic diseases.

Although the X Pack is primarily designed for those who have begun smoking at an early age, the product, the brainchild of Dr. Lorien Abroms, who won the Gareth Green Award for Public Health Practice is suitable for any age group.

Additional links:

Diet, Multivitamins, Alcohol Use The HCCP is quick to point out that just because you may have received numerous and often conflicting reports about what you should and should not eat, that you should not be discouraged. The science behind diet is evolving but one thing can be said for certain, fruits and vegetables, less meat and generally avoiding unnecessary fats will help you reduce your risks for many health problems. Alcohol should be drunk in moderation if at all. Once again the science is still finding its footing on this subject but most studies agree, too much of anything is bad for your delicate system.

Additional resources

Sun Exposure The science on this category is pretty straightforward. Sunlight is not a good thing for most of us and for those of us who think we can tan, it can be deceivingly bad. The proportion of major cancers due to sunlight is startling: Melanoma (over 90%) ,Basal cell carcinoma (over 90%), and
Squamous cell carcinoma (over 90%) This is a risk factor that is easily controlled.

Here are some suggestions:

Sexually Transmitted Infections Few if any of us consider infections as a risk for more serious diseases.

And even fewer, consider the risk of any sexually transmitted disease as having long-term, often cancerous results.

INFECTIOUS AGENTS ASSOCIATED WITH CANCER
Agent Type of cancer
Human papillomavirus (HPV) Cervix, vulva, anus, penis, head and neck
Hepatitis B virus (HBV) Liver
Hepatitis C virus (HCV) Liver
Helicobacter pylori Stomach
Epstein-Barr virus (EBV) Nasopharynx, Hodgkin’s disease, non-Hodgkin’s lymphoma
Human herpesvirus type 8 (HHV-8) Kaposi’s sarcoma
Human immunodeficiency virus type 1 (HIV-1) Kaposi’s sarcoma, lymphoma
Human T-cell lymphotrophic virus type I (HTLV-I) Leukemia/lymphoma
Schistosomes Bladder
Liver flukes Bile duct

Screening and Family History & Genetics

And lastly, frequent screening for such treatable and often preventable diseases such as breast cancer, cervical cancer, colon cancer and melanoma all help to reduce your risk later in life. And while genetics is still in its infancy, the communication you have with your doctor, especially when it comes to family history of illness is extremely important.

So if you are focused solely on the monetary value of your retirement plan, it would be wise to take into consideration some of the additional factors that are well within your control and most importantly, can end up thwarting all your well-intentioned efforts.

Retirement Planning and Woulda, Coulda, Shoulda (or Old Age and Health, Part Two)

The poem below, because of copyright restrictions and the fact the Shel Silverstein’s people never got back to me after I requested permission to include it in the book goes something like this:

Woulda-Coulda-Shoulda
By Shel Silverstein

While the previous post here outlined some of the serious health risks that are under-realized and little acknowledged in most retirement plans, I wanted to spend a moment explaining some of the references that I used for this section.

We will not be the retirees in the commercials. This is bad news for some us and a grim reality for others. The idea that we will enter old age in a different physical condition than we are currenlty in is highly likely. For most of us, that condition will not mean an improved state but rather one that is in need of repair.

We are the woulda-coulda-shouldas that scrimped and saved, lost sleep over money, worked too, too hard, and lived perhaps a bit too well. But living well will present its problems sometime in the future as our bodies will ask us, “what exactly did you do?”

Consider Ellie Metchnikoff (1845-1916), a Russian biologist who studied in Russia and Germany, and after working with Pasteur in Paris, became deputy director of the Pasteur Institute in 1904. He also won the Nobel prize in 1908 for medicine for his work in immunology.

As a biologist, he noticed that his advancing age was bound to complicate things for him. In the preface of his book The Prolongation of Life: Optimistic Studies also written by Ilya Ilyich Metchnikoff and Peter Chalmers Mitchell he wrote: “It is, of course, quite natural that a biologist whose attention has been aroused by noticing in his own case the phenomena of precocious old age should turn to the study of it. Because it is equally plain that such a study could give hope of resisting the decay of an organism which had already for many years been growing old.”

As a scientist, he began his research by looking at the historical and cultural ways peoples around the world treated their elderly members. He was well aware of how the old were thought of in Europe during his time. The sight of these people with the ravages that time took on the body concerned him. What Metchnikoff found made him pause asking why those cultures developed the attitudes toward the elderly and the way they treated their old.

The Melanesian islanders buried their old tribe members alive when they reached a point of uselessness. Natives of Tierra del Fuego would eat an elderly woman in times of famine, he wrote in cool style of an academic, because “dogs could catch seals, whilst old women could not do so.”

But we are civilized now. Right? At the time Metchnikoff wrote his book, a follow-up to his book Nature of Man, old age was nothing to look forward to. Suicide was rampant among the elderly of Metchnikoff’s era, with rates running almost twice that of any other age group. Murder of the old, as was discussed in Dostoyevsky’s “Crime and Punishment” seemed to be justified because of the childlessness, worthlessness, ill-temperedness and poor health of an old woman one might encounter was thought to be “a nuisance to everyone. She does not even now why she should live”.

A Danish law passed in 1891 began what could have been the first governmental type intervention into the deteriorating circumstances of the elderly. Metchnikoff was a biologist and his primary concern was how we age, why we do so in such different degrees and what if anything can be done to cease or at least slow the process. He looked at numerous sources for his answer from the cellular level to the giant Dragon Tree, the baobab, the cypress and of course, the one we are most familiar with, the sequoia of California.

I do however mention Sanford Bennett in the book and mostly to encourage those of use who have abused our bodies more than just a tad over our lifetimes. He found himself, as he writes in his 1912 edition of Old Age: Its Cause and Prevention: The Story of an Old Body and Face Made Young., republished in 2003 by Kessinger Press, “At fifty, I was a physically old man. Many years of a too active business career had resulted in a general physical breakdown.” He continues by describing his state as “wrinkled, partially bald, cheeks sunken, face drawn and haggard, muscles atrophied and thirty years of chronic dyspepsia.” For those of you who may not know what dyspepsia is, the word was and still is a more medical term for upset stomach and acid indigestion. That, he says later caused him to develop a “catarrh” (kind of like a running nose in your gut – it just doesn’t sound very pleasant) “of the stomach”.


Bennett at age 50

But Bennett turned that physical deterioration around as he developed an exercise routine, researched dietary guidelines and wrote his experiences down if only to authenticate his health reversal. Like Metchnikoff, he spent a good deal of time studying the ill effects of aging and developed a way to fix what nature had wronged.


Bennett at age 72

He writes that he was unable to find adequate information about the subject largely because no one prior to him had experienced what he had. So he offered to the public what may have been the first self help book for health designed for the layman.

Retirement planning, like the claim made by Bennett, is not something that you have to accept at face value for what it is. If you focus on your health as an important attribute to a successful plan, the financial end of the equation may just fall right into place.

To answer your question: No. Being healthy will not make you financially savvy. That’s why you have me. But you cannot ignore the cost of poor health on your retirement. We are all aware of the pressures already being exerted on our health system and movement to push more and more of those costs and as well as the decisions of how that care should transpire back to the private citizen.

This will not be the last time we touch on the topic of health and the cost it tallies against your best retirement goals. Poor health almost acts like a tax on those savings, which is yet another important topic we will consider further along.

Retirement Planning and Louis Pasteur

I use a well-known quote from Louis Pasteur in the book: “Chance favors only the prepared mind.” Essentially, the man who debunked spontaneous regeneration, a belief in the notion that some things could automatically be created from inanimate objects, understood the importance of the experimental process. It is what he brought to that process that separated him from his fellow experimenters.

(For those of you who may not be aware of what spontaneous regeneration is, you can try this simple experiment at home: Take one large jar. Place one pair of sweaty underwear and some husks of wheat and if you did everything correctly, you will have a mouse in twenty-one days. Even when Italian physician Francesco Redi, using the first controlled experiment to debunk the myth in 1668, the general populous was not swayed.)

Pasteur (1822 – 1895), a chemist who was born in Dole, in the region of Jura, France said, “Imagination should give wings to our thoughts but we always need decisive experimental proof, and when the moment comes to draw conclusions and to interpret the gathered observations, imagination must be checked and documented by the factual results of the experiment.”

Philosopher Ernest Renan described Pasteur’s method of research as a “marvelous experimental method eliminates certain facts, brings forth others, interrogates nature, compels it to reply and stops only when the mind is fully satisfied. The charm of our studies, the enchantment of science, is that, everywhere and always, we can give the justification of our principles and the proof of our discoveries.”

Should our approach to retirement planning be any different? I don’t believe it should. Although I do lay some specific guidelines for how you should question your retirement plans, each individual query will be different for each of us. We have different experiences and obstacles, many of which are not of our making. While you can control some of the roadblocks that life places squarely in your path – such as debt, your own health – many are unforeseen.

Each event requires us to interrogate the nature of the obstacle. Can it be overcome? How long will it take? Is there a way to absorb the change into my retirement plan with out jeopardizing the goal? And if the setback is major, how will I adjust my plan to compensate?

Retirement Planning and Divorce

“After a divorce”, writes E. Mavis Hetherington, author of “For Better or Worse: Divorce Reconsidered” at the beginning of chapter two, “people often imagine that if only they could go back and make a tiny adjustment here of there in the past – not answering a particular phone call, say, or displaying an ounce more resolve in a weak moment – life would have turned out differently for them.”

The reason Ms. Hetherington gets a mention in the book is because of the way she categorizes people into six groups.

The enhancers are who we would all like to be: upbeat, learning from each mistake and turning it to our benefit. In a divorce this would be someone who feels release without regret. In retirement planning, this is someone who understands that things may not be exactly how they envision it but they are nonetheless excited about the prospects of entering a new and mysterious time. This person or couple would gladly downsize and do so without so much as a re-consideration. Free from the confines of work, this person(s) will explore art and gardening with a new or renewed passion. They will volunteer and become vibrant and active members of their community.

And yes, they will have managed this because they saved as much as possible, stuck to a plan and practiced retirement often while they were working. They did not live large even when they had the cash to do so. They did not take unnecessary financial or health risks and pretty much had that single goal in mind for quite a long time.

An enhancer could also be a competent loner. This person was never meant to be confined by marriage and probably will not allow retirement to hold them as well. They forge on without the help or encouragement of others. As the name implies, they do this with some skill.

The good enoughs are like most of us. We take a beating and step right back in, often making the same mistakes as we did previously. In a retirement plan, you will be the one who will be haunted by the missed or mishandled opportunities that may have come your way.

Regret is a mighty potent weight especially as you approach retirement age. Yet, while there is time, and it could take as little as ten years, any retirement plan can be turned around. To become an enhancer, you will need to embrace a sort of lifestyle change.

How little can you live on and not be completely miserable? Not an easy question to ask but look around the dinner table one night and picture yourself asking those kids of yours for a small loan to get by. You may love them but can you rely on them to do well enough to fund their own lives while helping you out as well?

The other direction for the good enoughs is less appealing. Perhaps you would become a seeker. This person stumbles along for most of their working lives and finds that when they no longer want to work, they can not stop. They may have gathered a small pension or tapped their Social Security benefit, but they are finding that life after work may be too expensive. These unprepared souls quickly become depressed.

The libertines actually make a brief appearance in the book as the couple that sold everything for the RV life only to be waylaid by a medical condition that forced them to return to their hometown. Without house and lacking the right kind of coverage (insurance) for the wife’s problem, they were forced to live a wholly different existence than they did when they were working.

In fact, looking back, the libertine might even find work a more desirable place to be. In Ms. Hetherington’s book – and I failed to give credit to her co-author John Kelly and do so here – the libertine rejoices at the idea of finally being free of the confines of a marriage only to find that the experience is fleeting.

And finally, the defeated. These are the hapless workers who labored at the bottom of the wrung and can expect a life of hardship for the foreseeable future. These are not just the hardscrabble people you might expect who end up among the ranks, but those who have had a simple turn of luck, a misfortune, and an I-didn’t-see-that-coming moment.

Can we learn something from divorce? Absolutely. It, all by its lonesome can derail a perfectly good retirement plan. For the woman, statistics prove that you will take the longest time to financially recover. For the man, the cost of recovering can be just as difficult on your health as your wallet. Avoiding a divorce would be the best method of retirement survival.

But the separation events described above apply nicely to the state of retirement. Will you blossom or wither? Will you become regretful or will your ability to survive be enhanced by your newfound lifestyle? You are making the choice right now.

Retirement Planning and Bernard Baruch

I will admit that when I chose a quote for the book by Bernard M. Baruch, I did so with numerous possibilities in mind. The American financier, economist, advisor to US presidents had a treasure trove of quips and notable quotes that would apply to just about any situation.

Video

I could have used “A speculator is a man who observes the future, and acts before it occurs.” Or perhaps “During my eighty-seven years I have witnessed a whole succession of technological revolutions. But none of them has done away with the need for character in the individual or the ability to think.” Might have served its purpose, allowing me to twist towards the ultimate goal of explaining how important what you do today is on how you will live tomorrow.

Mr. Baruch was a speculator who also said: “I made my money by selling too soon” and “I never lost money by turning a profit.” His thinking on how this was done is best explained in his wry observation of himself.

“If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong.”

Aside from the speculative nature of investing in the stock market – I do not pursue this as a method to good retirement planning except when the investment used is the mutual fund, he did believe that a good understanding of who you are and why you do things helps in your decision making process.

Asking yourself why could be at the center of how you approach your plan. Mr. Baruch suggested, “Millions saw the apple fall, but Newton was the one who asked why.” Do you ask why you continue to put off beginning your plan or do you ask yourself why you have under funded it? Chances are, you haven’t.

For this he observed, “In the last analysis, our only freedom is the freedom to discipline ourselves.” This will take some doing. At the key to all of our successes has been the ability to push ourselves forward, possibly even testing our boundaries.

“Only as you do know yourself can your brain serve you as a sharp and efficient tool. Know your own failings, passions, and prejudices so you can separate them from what you see.” That said, how do we do that? Nothing presents itself in stark contrast to what we perceive and what reality is than the task of creating a budget.

A budget outlines our failings, our passions and our prejudices in sharp detail. And in doing so, it allows us to see what our financial life looks like as compared to our financial futures.

Change is difficult. No one would ever argue that point. But it is important to make the change while you still can. Because there is always this prospect: “We grow neither better or worse as we get old, but more like ourselves.”

Retirement Plannning and the Tanabata

I will admit that when I chose a quote for the book by Bernard M. Baruch, I did so with numerous possibilities in mind. The American financier, economist, advisor to US presidents had a treasure trove of quips and notable quotes that would apply to just about any situation.

Video

I could have used “A speculator is a man who observes the future, and acts before it occurs.” Or perhaps “During my eighty-seven years I have witnessed a whole succession of technological revolutions. But none of them has done away with the need for character in the individual or the ability to think.” Might have served its purpose, allowing me to twist towards the ultimate goal of explaining how important what you do today is on how you will live tomorrow.

Mr. Baruch was a speculator who also said: “I made my money by selling too soon” and “I never lost money by turning a profit.” His thinking on how this was done is best explained in his wry observation of himself.

“If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong.”

Aside from the speculative nature of investing in the stock market – I do not pursue this as a method to good retirement planning except when the investment used is the mutual fund, he did believe that a good understanding of who you are and why you do things helps in your decision making process.

Asking yourself why could be at the center of how you approach your plan. Mr. Baruch suggested, “Millions saw the apple fall, but Newton was the one who asked why.” Do you ask why you continue to put off beginning your plan or do you ask yourself why you have under funded it? Chances are, you haven’t.

For this he observed, “In the last analysis, our only freedom is the freedom to discipline ourselves.” This will take some doing. At the key to all of our successes has been the ability to push ourselves forward, possibly even testing our boundaries.

“Only as you do know yourself can your brain serve you as a sharp and efficient tool. Know your own failings, passions, and prejudices so you can separate them from what you see.” That said, how do we do that? Nothing presents itself in stark contrast to what we perceive and what reality is than the task of creating a budget.

A budget outlines our failings, our passions and our prejudices in sharp detail. And in doing so, it allows us to see what our financial life looks like as compared to our financial futures.

Change is difficult. No one would ever argue that point. But it is important to make the change while you still can. Because there is always this prospect: “We grow neither better or worse as we get old, but more like ourselves.”

Retirement Planning and Risk, Uncertainty and Profit

Frank Knight, as I mention in the book, was an economist, who seeking out a subject to do his thesis on, choose profit. In today’s terms, this topic would have little significance. We all know what it is and how it is created. In its simplest form, it is the difference of price between the cost of making a good and the price a consumer is willing to pay for it.

But when Knight decided on profit, economists had yet to understand the nature of the corporation fully or its impact on what was about to become one of the most significant changes in economics. (The other was the development of economics as an exact science, one that shared the field with mathematics and physics – in other words, it was about to become abstract.) What Knight found was a system that, prior to the turn of the century, was built on the notion that someone could make money, but only if the capitalist was willing to take the risk.

The system was set up like this: Men used money that they had, hired workers as they needed them and paid rent for the land or buildings they used. They did borrow money to begin these enterprises but that seed cash was the result of sacrificing the financial and often, the managerial side of the business to the banker or trading company. Those two entities became the dominant partner and often one that stifled the very businesses they were funding.

But things were changing. Competition was beginning to exert a force on the business model. His book Risk, Uncertainty, and Profit was published in 1921 and changed the way we looked at randomness and why it was important in making risk work.

Knight suggested that a businessman’s paycheck was not profit but merely a contract interest. He writes that, “Even Adam Smith and his immediate followers recognized that profits normally contain an element which is not interest on capital.” One of the first recognizable references to this change came from a French author J. B. Say. In his fourth edition of Traité he noted that income was once the best way to reward risk-taking but because of shift away from what the capitalist had previously accrued, the reward was now the province of the entrepreneur.

There have been numerous instances where the subject of risk requires a definition. I can’t begin to tell you how often I alone have tried to explain the topic, using a wide variety of analogies to explain that some risk is good because it increases the likelihood of reward. It is almost as if the topic is fluid and cannot be contained by simple words.

I have explained that risk needs to account for inflation, taxes and a whole variety of other distractions including the most problematic element – which I describe in my “Investing for the Utterly Confused” book as the mental maniac inside all of us. But it persists in what it can provide for the investor – and take away and yet, we are all seeking the right level, the perfect balance, and the prize that awaits the person who can.

Mr. Knight also pointed out a flaw in the current thinking about work. Trying to look at how men act rationally, he pointed out that it was “superficially natural to assume that a man will work more – i.e., work harder and more hours per day – for a higher wage than for a lower one.” Calling this assumption incorrect, suggesting instead, that they will in fact divide their time “in such a way as to earn more money, indeed, but to work fewer hours.”

Encouraging risk taking among the youngest members of our society is unfortunately difficult. You can explain the rule of 72 (Divide 72 by the annual interest rate you are receiving on a simple account, and you will be able to pinpoint when that money will double – 72 divided by 6 percent=12 years. Other cool rules at the bottom.).

Risk comes from deduction, which is the use of probabilities to guess how things will turn out for a specific investment or induction, hat is commonly referred to as behavior. You know deductions as forecasts, something all of us make at one time or another based on what we know that could influence what might happen.

Induction is backward looking. How something performed might offer an indication of how it might perform in the future.

Risk can be, more or less quantified, understood or even predicted with a certain degree of accuracy. But behavior is what drives uncertainty both in the marketplace and in your retirement planning portfolio. We second guess ourselves despite knowing the consequences of doing so – lack of savings, inadequate retirement goals, etc. and that creates more uncertainty than is needed.

As I write in the book: “Risk provides the investor with innumerable opportunities. Problem is, we rely on the past to point the way.”


Suppose you want to calculate the inflation rate and the effect of that rate on that dollar in your pocket. This is important for two reasons, saving too little will create a gap in what your money was actually worth and what is actually is. For instance, suppose the inflation rate was 3%. (This is higher than the current rate.)

Your money will be worth half as much 23 years from now. So that dollar you stuffed under the mattress would only be worth 50 cents. To determine the time for money’s buying power to halve, we use the “Rule of 70” dividing 70 by the current inflation rate. See why that rate is so important to the Federal Reserve.

Fees play an important role in our financial decisions and it is important that we know how they impact our savings and investments. Fees usually come with investments such as mutual funds (which have both fees and expenses) and variable universal life insurance policies (loading and expense charges). To calculate the impact of those fees, divide 72 by the fee.

Simply divide the number 72 by the fee to determine when the policies value will be cut in half compared to an investment without fees.

You can use the “Rule of 72” provides a good approximation for annual compounding, and for compounding at typical rates but those approximations become less accurate at higher interest rates – above 10%.

Retirement Planning and Dennis Connor

Numerous people turn to books written by the highly successful among us trying to mine some keys to what makes them what they are, try to understand how they achieved what they have succeeded in doing and perhaps, take what they might be able to tell us and apply it to our daily struggles. This does not always mean, that just because you read one winner’s book, that you can become a winner as well. Emulation is no easy feat.

I threw a quote from renowned skipper and yachtsman Dennis Conner in the book as we begin the section on investing as an “Early Bird”, a title I give to the investor just beginning her or his journey. Mr. Conner won the America’s Cup four times, first in 1974, then again in 1980, 1987 and finally in 1988.

Now this race, won by Americans – super wealthy Americans I might add – for 132 years in a row, captured the imagination of the average citizen because, unlike previous challenges, Dennis Conner insisted on year round training of his crew. Prior to this, the challenge, which was offered as a goodwill gesture among nations, was the playground of the super rich. That winning streak was the longest in sports history (which Conner had the distinction of breaking when he lost in 1983 to Alan Bond of Australia).

Connor’s approach to the sport was based on what he liken to consistency rather than flash or brilliance. This is the cornerstone of what retirement planning should be even if you are just beginning to save. There are some schools of thought that suggest all out risk taking for the most youthful investor trying to build a retirement portfolio. I disagree.

There is a psychological element to losing that not all beginning investors share. There is the chance that once an investor feels the sting of an investment downturn, they might not see it for the opportunity that it presents. More than one financial writer, myself included, has suggested that starting young (in their twenties) will provide over twice the investing opportunities than if they waited until they were in their thirties. Compounding provides some of that proof. The other is given to investors via the markets.

No one can predict what the markets will do from day-to-day and it becomes even more difficult as you look at a month-to-month or quarter-to-quarter snapshot. What does become clear though is how the chance of your investment increases over longer time spans. But not many twenty year olds can see very far into the future.

Connor did write a book about his successes called the Art of Winning. In it he outlines what could be considered no-brainer ideas that have been repeated numerous times over numerous books. He suggests that attitude (envisioning success) performance (seeking to learn from the best in your field), teamwork (surrounding yourself with competent people who share your goals), competition (nothing like a little challenge to help you on the road to self improvement), and goals (knowing what you are capable of and how you plan on getting there) all play a role in who wins and who does not.

Retirement Planning and Control Theory

Control theory, as it applies to math reads like this: The mathematical study of how to manipulate the parameters affecting the behavior of a system to produce the desired or optimal outcome. As it applies to you and me, it means getting the most out of what we have to work with.

In math, the calculations involved in understanding control theory, as Eduardo D. Sontag suggested in his book “Mathematical Control Theory: Deterministic Finite Dimensional Systems” is “geared toward an audience of mathematically mature undergraduate and graduate students”. Mr. Sontag is a professor at Rutgers University.

In our quest to plan of retirement, some of the principles used to determine control theory are also necessary for what we are attempting to do. Every retirement plan should seek to have optimal control, be subject to dynamic feedback, and be observable and stable.

I mention Orville and Wilbur Wright in the book with good reason. These two early aviators, while often being credited with being the first ones to fly, actually were not. Instead, they sought to give flight some measure of control.

Otto Lilienthal and Octave Chanute were the ones who designed the wings that allowed flight to happen. The ability of these designs, giving man the opportunity to defy gravity and fly, or glide worked to stimulate the two brother’s imaginations. Lilienthal died during a flight when his craft crashed in 1896. Both men had been able to achieve short flights of thirty seconds.


Otto Lilienthal


Octave Chanute

But those short flights were usually straight and somewhat level. The Wright brothers believed that flight needed to be more than simply elevation over a period of time. And as history tells us, the control they developed for the wings (actually two sets of wings) allowed the pilot to do more than just sit there. The two sets of wings were necessary to allow for wing warping and an elevator in the front of the craft allowed the pilot to make adjustments for pitch, or angle. This created a three-axis control.

Retirement planning, especially for those of us who are just beyond our youth, becomes incredibly difficult. While there are numerous influences that seem to act as a roadblock, one of the greatest problems middle-aged investor face is diversity.

A good plan is the sum of its parts. One by one, you need to gain control over your life, which is why the book methodically looks at not only who you are but who around you is influencing your decisions. While every one of us hails from different socioeconomic places, differs in race and ethnicity, has perhaps chosen a different career, we are all on the same path.

Gaining control is essential in creating diversity in your investments. Without it, you may fall behind.

Retirement Planning and Déjà Vu

When I mention the word déjà vu at the beginning of Part Four: The Investment, I, like many people who have been surveyed about the event recall something pleasant, a sense of having already seen – which is what the French word translates into, a dream. Most people think nothing of it, but that wasn’t always so.

There was time in the not-so-distant past when such activity was associated with front lobe epilepsy and relegated to the world of the paranormal. Déjà vu was said to occur right before a patient would seize so you can imagine how it was easy is was for early researchers to make the association. Although we know much more about what goes on the brain than they did in the early 1800’s, the exact cause of why it happens has not been fully explained.

French scientist Emile Boirac, is credited with first coining the word déjà vu to describe the event even though literature has made numerous attempts. St. Augustine, even though he wrote about it in the early fifth century, named it “falsae memoriae” and further citing the Pythagoreans as observers a thousand years prior. They believed it was the transmigration of souls.

Sir Walter Scott, Proust and Tolstoy noted it with Dickens (in David Copperfield: “We have all some experience of a feeling, that comes over us occasionally, of what we are saying and doing having been said and done before, in a remote time – of our having been surrounded, dim ages ago, by the same faces, objects, and circumstances – of our knowing perfectly what will be said next, as if we suddenly remember it!”) introducing a form of it called déjà vécu.

Theories, as they often do, seeking to explain why it happens run the gamut from revisited memories implanted on the brain at birth to the sufferers being most likely to be strongly political or even religious zealots.

Travel may have an influence on the memory, giving the brain too much information at once and randomly filing away those memories for some time in the future, often when you least expect it. The brain, wired much the way a computer’s hard drive is, stores everything, dreams, good or bad, pleasant or anxious, memories, short-term and long, and emotions, often transferred during sleep between two known physical areas: the hippocampus and amygdala.

Emile Boirac was a French psychological researcher and president of the University of Genoble and Dijon University. Not only was Boirac credited with the naming of déjà vu, he also helped define ESP. His long out-of-print book L’Avenir des Sciences Psychiques explains how it all works, in French and even makes a stab at explaining clairvoyance, magnetism and spiritualism. You can read it here

Arthur Funkhouser broke Déjà vu into three different variations, déjà vécu (through sight), déjà visté (via some precognitive dream), and déjà senti (scent, taste or a certain feeling).

In the book however, these memory triggers, whatever they may actually be can be used to help you with retirement planning.

Retirement planning actually requires you to look in many different directions at once. You need to take into consideration all that has happened, all that could occur in the near future and make some educated decision about how it will all turn out in the future. No easy task for most of us.

What this boils down to is all about location. With all of those forces at play, you need to know exactly where you stand. You cannot change what has happened. But the next step should take into account where you have been. And unlike all of those disclaimers that accompany investment opportunities – “past performance is no guarantee of future results”, everything you did will determine where you will end up.

We will always be haunted by the investment choices we make but our past performance should make us more confident –even if you haven’t even begun to save enough for retirement – that the future will be much better.

Retirement Planning and Whaling

I begin chapter 15 with a story of Nantucket. While for many, the first thing that comes to mind are those bawdy limericks, the village in Massachusetts was once the third largest city in the state behind Salem and Boston.

Whaling was an important source of income for the city and as the video below shows, allowed the world to see after dark. Whale oil was a superior product. The quest for the riches it would provide to those willing to take the risk was often paid for with the lives of the men (and sometimes women disguised as men) who boarded the ships. But when the hunt was successful, everyone was entitled to a lay.

A lay was a fraction of the proceeds of the catch. In Nantucket, the average whaler would receive 1/175 of the proceeds. The Merriam-Webster Dictionary, in an entry dated 1590, describes the nouns as “terms of sale or employment : price b: share of profit (as on a whaling voyage) paid in lieu of wages”.

Elmo P. Hohman wrote an article for the “The Quarterly Journal of Economics” (Vol. 40, No. 4 Aug., 1926) titled “Wages, Risk, and Profits in the Whaling Industry” where he described the method of payment as singular to the whaling industry.

He wrote: “The whaleman was not paid by the day, week or month, nor was he allowed a certain sum for every barrel of oil or for every pound of bone captured. Instead, his earning consisted of a specified fraction share known as a lay, of the total net proceeds of a voyage.” The amount was determined by the skill and efficiency of the person hired.

This sort of partnership is at the heart of your retirement plan. Because of the structure of many defined contribution plans (your 401(k) is a defined contribution plan – you are responsible for making the deposits into the account for your future rather than receiving a set amount from a pension – a defined benefit plan). You are in it as a group, using a single captain – also known as, at least for the sake of this example, the mutual fund manager running your investment) to steer you towards profitability. In turn, each of the participants it entitled to his or her share depending on the amount they have invested.

This so-called partnership in the enterprise, according to John Randolph, who wrote The Story of the New England Whalers in 1909, this also extended to anyone involved in the ship including the boatbuilders, the blacksmiths and the coopers. Each man was working for himself and hoping that the captain was able to give them an adequate return for their efforts.

This may have been the first instance where “past performance, while not a guarantee of future success” was used as a guide to determine which vessel was the best one to sign on to.

I write in the book that like investing, “the seas can get rough, the catch can be nimble and sometimes scarce and worst of all, the world can be awfully unpredictable.”

Retirement Planning and the Social Science of C.W.Mills

Discussing C. Wright Mills is often controversial, always enlightening and somehow necessary. Including a quote from this distinguished social scientist was a risk worth taking. Even discussing social science with retirement planning can be a stroll through a minefield.

Mills, who was born in Texas (1916-1962), delved into topics that many in his field of thought considered out-of-bounds. He was gifted at separating smaller personal troubles from the much larger and more prominent public issues of his day.

Consider this: “When, in a city of 100,000, only one man is unemployed, that is his personal trouble, and for its relief we properly look to the character of the man, his skills, and his immediate opportunities. But when in a nation of 50 million employees, 15 million men are unemployed, that is an issue, and we may not hope to find its solution within the range of opportunities open to any one individual. (Mills 1959: 9)”

He was a radical. He interviewed Castro. He denounced American Imperialism. He attacked intellectuals for knowing enough to change the course of history but refusing to do so. He believed that knowledge could change the course of society and much of what he wrote (beautifully), read with great passion and has been accused of criticizing the same traits he exhibited. According to the Encyclopedia for Informal Education, “He was said to disguise his faults by admitting to even worse faults.”

He was, as his biographer Irving Louis Horowitz wrote in his profile of Mills titled American Utopian, “However much those who knew him firsthand differed about the quality of his work, they were unanimous about his personality.”

Mills did not address the topic of retirement planning specifically but instead sought to have a more open, well-discussed opportunity to choose. That is not present in our current retirement system.

Pension were, at there founding, a way of keeping workers with skill when their human capital, the cost of what they had to offer a fledgling enterprise by rewarding them in their later years with a degree of financial satisfaction. Focus on growing the business and we will focus on taking care of you in you golden years.

While that did not present choice, at least as we often define it, it did allow us to develop relationships with our families, grow intellectually if we so chose to do and give back to society when we had the opportunity. With the advent of self-directed retirements, we were given choices – that few understood and many still do not – and told that by doing so, our participation in the defined contribution plans would allow us to have much richer lives.

But that is not the way it worked out. Mills, who lived far in advance of this change in retirement thinking and worker contribution, would have been appalled. His many confrontations with the power of stratification in American society over the life of the individual would have gained new strength. His focus on the distinct levels of difference between who runs the country and who provides the labor would have risen to a boil. He was confrontational and by examining the stress of workers within the labor movement, in the situation of the middle class, in the elite strata of society, within the discipline or sociology or in his own personal life–there was a search for some path to achieve “the all-around growth of every member of society.”

The following four notes come from Mills’ book “The Power Elite” published by Oxford Press in 1956. Keep in mind several things as you read them. One, even though you are permitted to choose, there are boundaries already placed around you retirement choices and they were not open for discussion. Secondly, the cost of those choices was not democratically considered with the input of the largest group – the actual investor – who is almost completely ignored in the process of picking which plan administrator, is best for the whole. You have to accept the plans offered by your employer – if they offer any at all, limit your contributions based on legislation and exercise the so-called portability of many plans that often comes without good instruction on how to best create an alternative plan when the worker leaves her or his current employer.

Mills writes:

“I. In the democratic society of publics it was assumed, with John Locke, that the individual conscience was the ultimate seat of judgment and hence the final court of appeal. But this principle was challenged-as E. H. Carr has put it-when Rousseau ‘for the first time thought in terms of the sovereignty of the whole people, and faced the issue of mass democracy.’

“II. In the democratic society of publics it was assumed that among the individuals who composed it there was a natural and peaceful harmony of interests. But this essentially conservative doctrine gave way to the Utilitarian doctrine that such a harmony of interests had first to be created by reform before it could work, and later to the Marxian doctrine of class struggle, which surely was then, and certainly is now, closer to reality than any assumed harmony of interests.

“III. In the democratic society of publics it was assumed that before public action would be taken, there would be rational discussion between individuals which would determine the action and that, accordingly, the public opinion that resulted would be the infallible voice of reason. But this has been challenged not only (1) by the assumed need for experts to decide delicate and intricate issues, but (2) by the discovery-as by Freud-of the irrationality of the man in the street, and (3) by the discovery- as by Marx-of the socially conditioned nature of what was once assumed to be autonomous reason.

“IV. In the democratic society of publics it was assumed that after determining what is true and right and just, the public would act accordingly or see that its representatives did so. In the long run, public opinion will not only be right, but public opinion will prevail. This assumption has been upset by the great gap now existing between the underlying population and those who make decisions in its name, decisions of enormous consequence which the public often does not even know are being made until well after the fact.”

Retirement Planning and Observation

You will always be able to find two views. One comes from industry insiders who will be willing to signal the end of an era and the glorious advent of another. The other comes from the observer’s point of view, which is never given a voice, or more often than not, simply misunderstood.

Percy Hutchison, the late poetry editor of The New York Times once offered the following criticism: ““From one end of the book to the other there is not an idea that can vitally affect the mind; there is not a word that can arouse emotion. Hence, unpleasant as it is to record such a conclusion, the very remarkable work of Wallace Stevens cannot endure.” The comment was made about Mr. Stevens book Harmonium and was added because of a quote that was used in the book to illustrate a point.

Mr. Stevens suggested that, “accuracy of observation is the equivalent of accuracy of thinking.” And while Mr. Hutchison described poetry as “”stunts” in which rhythms, vowels and consonants were substituted for musical notes”, his work has endured. But that is not why he was given quote space in the book.

Stevens is not often the poet that comes to mind when greatness is discussed. And I’ll admit, he is not among my favorites. But the following piece, ripped from the heart of his work titled “Of Modern Poetry” offers a suggestion about what we hear and how we should think about the message that is being delivered.

“And, like an insatiable actor, slowly and
With meditation, speak words that in the ear,
In the delicatest ear of the mind, repeat,
Exactly, that which it wants to hear, at the sound
Of which, an invisible audience listens”

I offer harsh criticism for those who offer opinions about why pension plans (defined benefit plans) have fallen to the wayside in favor of the more corporate friendly defined contribution plan. I don’t believe that the majority of people who participate in them – and this may be a direct reflection on those that still do not – relish in the thought that making the kinds of decisions necessary so far in advance of actually having to use them.

And when folks like John Brennan, Vanguard chairman and CEO suggest that the “era of defined benefit plans is drawing to a close”, I wince. The original idea behind defined benefit plans was to encourage loyalty. And the fact that corporations rarely if ever, nurture the kind of commitment from their employees that pension plans once offered has made it easier to shift the burden of retirement to the worker.

That doesn’t make it better. It simply makes one believe that what is directly in front of you, what is presented to you as the best option, is not always as it seems.

J. Hillis Miller writes of Steven’s work Sunday Morning: “If the natural activity of the mind is to make unreal representations, these are still representations of the material world. So, in “Sunday Morning,” the lady’s experience of the dissolution of the gods leaves her living in a world of exquisite particulars, the physical realities of the new world: “Deer walk upon our mountains, and the quail / Whistle about us their spontaneous cries; / Sweet berries ripen in the wilderness.”

And as much as I am loath to admit it, the defined contribution plan is here to stay, a physical reality of the new world.

Retirement Planning and the Spoiler

Some people just itch to ruin the ending. Perhaps they are giving instructions for video game play “Look for snake juice”, “Get magic glow”, or my favorite “Bring the Princess out of the Poor Quarter” give new players an unfair advantage and frustrated players the courage to brave on. Some folks stick to sporting events focusing on saved stuff on your Tivo, often blurting out scores before you have had a chance to stop them.

Currently the blog, Real Clear Politics is calling Texas Congressman Ron Paul the spoiler in the Republican Presidential race. Most of you know Ralph Nader as the classic Democratic spoiler, garnishing votes that reside on the extreme left.

The most common scene of the spoil is movies (“Chigurh leaves the house and makes sure there’s no blood on his boots”). Movie reviewers walk a fine line, hoping to give you enough information about the film that will serve to make the reader a more educated filmgoer and do so by expressing their opinion about the work. Good or bad, a reviewer never tries to spoil the ending but as Nathan Lee, film critic for the Village Voice, readers should focus on specifics.

He writes, “It’s silly to insist that the critic never spoil. In practice, spoilers can be irresponsible, motivated by laziness, vindictiveness or snark, but if the ambition to inform the reader outweighs the need to protect them, then spoilers are warranted on principle. The integrity of the critic doesn’t revolve around whether or not they’re willing to spoil, but why they chose to do so.


One mustn’t criticize other people on grounds where he can’t stand perpendicular himself.

– Mark Twain “A Connecticut Yankee in King Arthur’s Court”

“Our obsession with spoilers has a diminishing effect, reducing popular criticism to a kind of glorified consumer reporting and the audience to babies. People outraged by spoilers should avoid all reviews before going to the movies or reading the book they’ve waited so long for, because the fact is all criticism spoils, no matter how scrupulous.”

But retirement planning is the true realm of the spoiler and I probably take as much pleasure in it as Mr. Lee. It is why I do it and like every good investment book, the when and how are what makes most people make the purchase.

So far the conversation has concerned itself with the numerous roadblocks in the way of an easy retirement plan. From kids to parents to your own disposition, to the way the industry courts you and leads you on to the role the government has in maintaining economic growth. Collecting taxes – enough to finance what they do without pushing any debt burden onto future generations – who, may just rebel if they find out how much of their tax dollars is funding a portion of our retirement years and we may still have to work to the composition of that defined contribution plan.

The spoiler: To get where you want to go, you need to start early. If you have not, you will need to account for those missteps and false starts and if you are close to the end of the road, you will need to account for not only when you began the journey but also how far you have come.

Most of us have come a nice distance but worry about how much road is still ahead. At this point in the book, we examine the only thing that will make your portfolio perform better than it has and at the same time, could injure what you have accomplished. It is the risk and reward. It is volatility.

Retirement Planning and (a very brief and incomplete) History of Medicine

History doesn’t so much repeat itself as it traps us inside repetitive motions, sentencing us to do the same kind of things over and over, whether it is the best method or not. Unfortunately, this foible of human existence is not just a hapless mistake when it comes to retirement planning, but also something that can take quite a few years to correct. When it comes to medicine, established thinking remained unchanged for thousands of years.

At the beginning of chapter seventeen, I discuss just such a history and the influence it had over two millennia of medicinal practice. The chapter opens with a conversation about humors, often referred to as the study of body fluids (not so appetizing of a subject) is important for two reasons. It gives us a chance to examine some of the notions that you might have about investing and how those ideas have affected your retirement plan.

To add credibility to a subject, you must first be famous, something that wasn’t invented with the advent of paparazzi and if that fame was because of your associations, even more truth-in-wisdom worship was heaped upon you. Plato’s success was largely due to his place in history, before Aristotle and after Socrates.

I mention Aristotle (who believed the every soul knew everything and that we simply forgot what we knew at birth, and for the rest of our lives, we try to reawaken that knowledge), Plato (a student of Aristotle who opened the Academy in Greece to discuss and engage students about ideas and ideals, how the world was created and what makes a man – matter and free will) and Socrates (a student of Plato who pretty much invented modern logic with his causes: “material cause or what something is made of, efficient cause or the motion or energy that changes matter, formal cause or the thing’s shape, form, or essence; its definition and lastly the final cause or its reason, its purpose, the intention behind it) because this is a study in how things get passed along from one person to another. It was what one taught the other that allowed the other to make discoveries, conclusions and eventually, hypothesis. One of those passed along ideas was Plato’s notion of elements.

The classical Greek version attaches each of these elements to a specific god: Zeus is Air, Hera is Earth, Hades is Fire and Nestis (Persephone) is Water. Aristotle basically drew the organic line between all of them, giving them form. As John Opsopaus of the Computer Sciences Department at the University of Tennessee Knoxville writes: “Earth is predominantly Dry, Water predominantly Cool, Air predominantly Moist, and Fire predominantly Warm.

The dominant Power is the one in a counterclockwise direction from the Element in the Square of Opposition; thus the arrow by each Element points to its dominant Power. The vertical axis represents the active Qualities (Warm, Cool), the horizontal represents the passive (Moist, Dry). The upper Elements (Air, Fire) are active, light and ascending, the lower (Water, Earth) are passive, heavy and descending. The Elements on the right are pure, extreme and absolutely light (Fire) or heavy (Earth); those on the left are mixed, intermediate and relatively light (Air) or heavy (Water). The absolute Elements exhibit unidirectional motion (ascending Fire, descending Earth), whereas the relative Elements (Air, Water) can also expand horizontally. The Organic Cycle (the cycle of the seasons) goes sunwise around the square.

When Hippocrates made the leap from observed sciences and gave these definitions of the elements to the human body, did we enter a dark age for medicine. Even as more and more new discoveries were being made in the subsequent centuries, many of those discoveries were shaped (almost hindered) by these ingrained notions that, if some fluid was involved, it pointed to a certain malady.

Much of what you know about retirement planning revolves around ideas that may be more antiquated than useful. Just as doctors, right up until the middle of this century associated these elements as precursors for their decisions, the way we focus on retirement has changed. None of what you may know, stocks to bonds protectionism, a balanced attack, shifting as we get older, is what we need in this day and age.

In the perfect retirement account, one that is not an investment but an investment in the future, I believe that stocks should always be held, right up until you retire and often beyond. But because the book doesn’t necessarily go beyond the point of retirement – if there is an actual definitive date for that event – the focus on what you should do up until that point is much different that what you have heard before.

Retirement Planning and “Under the Microscope”

The notion that seeing something up close, really up close was first championed by a relatively obscure scientist named Robert Hooke. Now seventeenth science was a sort of cutthroat business, with each new discovery lending itself to potential fame and fortune. Among Hooke’s contemporaries were Christian Huygens, Antony van Leeuwenhoek, Christopher Wren, Robert Boyle, and Isaac Newton. We’ll get to Mr. van Leeuwenhoek in a moment.



Hooke’s Microscope

Hooke set the stage in the early seventeenth century with his numerous accomplishments among which included the universal joint, the iris diaphragm, and an early prototype of the respirator. He is also credited with the invention of the anchor escapement (increased the accuracy of the pendulum and another mechanical clock function, the balance spring. Hooke also served as the Chief Surveyor helping to rebuild London after the Great Fire of 1666.



Anchor Escapement

Hooke pushed the theory of motors further along by working out the correct theory of combustion, devising “Hooke’s Law” to describe elasticity, worked with Boyle on the physics of gases and is also credited with the invention or improvement of a wide variety of meteorological instruments (barometer, anemometer, hygrometer)

But as I begin the conversation on annuitized retirement, it is Antony van Leeuwenhoek that best identifies with what the average man can accomplish. In retirement planning, we are all “everyperson”, mostly ordinary with hidden talents and skills that often are undeveloped or fully realized. Antony van Leeuwenhoek invention of the microscope, actually a well-developed and honed magnifying glass gave the world, which tended to look to the heavens for answers, a closer peak at the world around them.

According to history, “Leeuwenhoek’s skill at grinding lenses, together with his naturally acute eyesight and great care in adjusting the lighting where he worked, enabled him to build microscopes that magnified over 200 times, with clearer and brighter images than any of his colleagues could achieve.” Not bad for someone who sported no formal educational background and was largely without the fortune that many of his contemporaries were accustomed to using to further their studies.



Antony van Leeuwenhoek’s Microscope

Annuities demand that you understand one of the most complicated tools invented for the average person and their retirement plan. The instrument, part insurance, part mutual fund is hard to resist. It offers, to the unsuspecting, the opportunity to do two things: protect the ones you love and grow your money.

Unfortunately, this type of investment does not always perform as promised and those who believe it do often face a rude awakening when they try to exit. In this book we take our first hard look at annuities – there will be others in upcoming publications – since my first book, “Building Wealth in a Paycheck-to-Paycheck World”. Be warned: you may not like what you read.

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