Sense to Save

Talking about money with my 3-year-old

My son Johnny is 3. He has had money on his mind lately, and it’s neat to see how his thinking works. Here’s some snippets from our recent conversations:

“I need to go to work tomorrow,” he told me.

“Why?”

“My money is all gone! I need to get some more money.”

“What will you do with your money?”

“Give it to the people.”

Ahh yes, “the people.” He’s talking about people at stores, I think, though I’m not sure.

“What will the people do with the money you give them?”

“They’ll look at it.” Yep, I guess they will.

He likes to have a coin or two in his pocket on the way to church so he can put it in the offering plate when it comes around. When he happens to find a coin on the ground or in my bathroom or bedroom, he wants to save it until Sunday so he can “give it to God.” Aww!

And the other day, he was talking about Shane and how he goes to work.

“Daddy went to work. He needs to get some more money.”

“Yep, he needs to get more so he can buy more groceries, and get more gas for the car, and buy you more clothes, and more toys…”

He interrupted me there.

“No, I don’t need more toys,” he told me. “We need some more crackers.”

He’s right! He doesn’t need more toys. He has plenty and he’s content with what he has. Yay! He did accept that we need more money so we can buy groceries, because he knows we never have enough crackers to suit him.

As my kids get older, I hope to teach them more about how money works — how it’s earned, how it’s taxed, how to spend less, how it can grow if invested…and on and on. I probably ought to switch to cash for some of my purchases, at least the purchases I make when my kids are along. I prefer debit for so many reasons, but I think they’ll have a better understanding of how money is finite if I use cash.

How do you want to spend your retirement years?

Here’s an important step when planning your retirement: Before crunching numbers or setting up investment accounts, let’s step back and look at the big picture. Why are we retiring? What do we hope to accomplish with our time?

Shane and I are 26. We don’t know what our lives will look like 10 years from now, much less 33 years when we’re 59. Still, we’re going to dream a little. Join me.

• When you retire, does that mean you want to leave the workforce? Or do you want to continue part-time? I expect we’ll want to be away from the paid workforce.
• How do you want to spend your day-to-day? Reading, light exercise, a cheap hobby. Spending time together, and with friends and family.
• What do you want your special activities to be? The day-to-day stuff sounds nice to me, but I think we’d also like to go on a few vacations per year. Cruises! We’d like to go out to eat at nice restaurants, and see a good theatre production.
• What is your projected lifespan? Our calculated results think we’ll hit our upper 90s. We’ll have to eat well and exercise and generally take care of ourselves now and forever so we can not only prolong our life, but our quality of life.

I think we will have stages of retirement. If we leave the workforce in our late 50s, early 60s, we should have the health and energy to really do what we envision as the golden years. Spending winters somewhere warmer, taking regular vacations, visiting the grandkids, spending time with friends and family.

As we get older, we might find that our energy levels are slowing down. Maybe we won’t want to travel as much. That’s ok! This season of life might be a little less expensive in terms of entertainment costs. But, it could be more expensive in terms of health care.

Shane and I would like to stay active as long as possible. That’ll give us more freedom with our choices, and hopefully less stress.

• We’d like to do volunteer work with charities and our church. We’ll still have a lot to contribute to society, and it will be rewarding for us and we’ll keep a solid purpose.
• Travel! We love traveling now, and we hope to continue traveling in retirement.
• Spending time helping and visiting our children and grandchildren. Perhaps we’ll live nearby, and if not, we’ll want to budget for travel expenses to see them.
• Going out to nice restaurants. We like it now and will forever.

Taken in Sitka, Alaska. Credit: SenseToSave.com

In a lot of ways, how we’re envisioning our retirement looks a lot like our ideal time off now. If Shane has vacation time, we like to visit family, go out to eat, take in a new museum, or travel. We don’t have time to volunteer right now, but perhaps as our kids get older we can get the whole family involved.

While we are spending our working  years saving for retirement, it would be best to make time for these same activities that we enjoy.

We are not guaranteed a chance at retirement. We cannot predict how long we will live. People get sick. People get injured. Death happens at any age, we all know.

So, save as much as you can for your older years now, while keeping a balance in your present. Like nice restaurants and vacations? Don’t wait until you’re 65 to do those things, if you can afford to do them now.

It would be a shame if we had big plans for our future, yet didn’t save enough money. What if we didn’t save enough for retirement? What if we chose our investments incorrectly? What if we never got to the point where we could leave the paid workforce?

It’s one thing to keep on working because you want to. It’s another to keep on working because you have to. We can’t guarantee that our health or interests will allow us to keep on working into our 70s and beyond. That’s why it’s so key to save now. If we’re 75 years old and want to keep on working, cool. Our investments will keep on growing and we can still take time off if we’d like.

Other things to consider:

• Do you want to live in the house you have now? Another house? Condo? Renting? We won’t want to stay where we are now. We have a two-story, with no bedrooms on the first floor. We’d be far better to downsize to a smaller one-story.
• Will you have a mortgage? I hope not! Pay off that mortgage before retiring if at all possible. It’s just too expensive to keep around. Consider refinancing if it makes sense, or make extra payments to ensure you won’t have a mortgage. You could also sell and pay cash for a cheaper home.
• Will you have a vacation home? It might be fun to join the snowbirds who head to Florida or Arizona or So. Cal (or wherever!) to get away from cold weather. Depending on your goals, you could buy or rent a property. If you bought something, you could rent it out to generate income.

From drugstore deals to retirement: Series intro

Many of you know how to use coupons to get toiletries and groceries for pennies on the dollar.

You know how to cut your expenses mercilessly, stretch a buck, and live frugally. You can come up with endless ways to entertain your children for free or almost free, feed your family on a few dollars a day, and make sacrifices on things that don’t matter to you (and sometimes, things that DO matter to you) to improve your family’s finances.

When it comes to large-scale money issues such as retirement, some of you are well on your way. Others are still figuring out the details.

A few years ago when I started working the drugstore deals, it was around the same time that we were starting our first retirement plans. I thought if we chose a few of the different 401k funds available to us, that we were properly “diversified.”

In reality, I picked the funds out of nowhere. “Small cap”? Ok, how about 30% to you. Nevermind that I had no idea what that meant. “Target Date”? Sounds important. Better make it 50%. And so on. I had NO idea how to choose an investment properly and I didn’t know what to do to figure it out.

Actually I can’t remember the exact investments we chose 4 years ago, or the percentages. We’ve long since made adjustments, but the above illustrates my past mindset with it all.

I’m convinced that if you can put together a complicated drugstore deal scenario, then yes you can absolutely find your way around an investment prospectus. You can select high quality, low fee investments. You can figure out how much you’ll need to retire, and take the steps needed to get there.

Even if drugstore deals aren’t your thing and you feel like you’re pretty new to this retirement stuff (or money stuff in general), you can do this.

If you are overwhelmed with retirement planning or simply don’t care, know this: Barring serious illness or a catastrophic accident, you’ll likely live into your 60s, 70s, and beyond. It’s a-comin’. Are you ready?

Unfortunately, many people cannot afford to leave the workforce, even though (or possibly because) they may not be in the best of health.

“More than three in five U.S. workers in their 50s and 60s plan on working past 65 — and 47% of that group say they’ll do so because they’ll need the money or health benefits, according to a 2011 study from the nonprofit Transamerica Center for Retirement Studies.” — For many seniors, there may be no retirement (Wall Street Journal, August 21, 2011).

Shocked? Scared? Could that be you? Does that statistic reflect what your parents will need to do?

The reality is, saving enough for retirement impacts more than just our self and our spouse. It impacts our children, and possibly even grandchildren.

You may never want to officially leave the workforce. Maybe you love your job, and never ever want to leave. But, you can’t know for sure what your health will be like in the future. Perhaps your job has changed, or your priorities are different. It’s better to save for retirement now, and choose to keep on working for the fun of it, than get to your 50s and realize you will either retire destitute, or will need to work until the day you die.

Yeah, I’m painting a bleak picture. But we’d be better off to shudder at the horrors of what might have been, had we not prepared — than have that be our real circumstances.

Here’s where I come in. I’m no expert, you all know this already. But, I’m going to do my best in the coming weeks to post about retirement in a way that is manageable and relevant to you. I’ll be linking heavily to people who know what they’re talking about, too.

Some of you are retired already. Some intend to retire in the next few years, maybe. Many of you are in your 20s and 30s and are just starting to get some momentum on building your investments.

I’m certain there are some of you who already have a solid grasp on retirement planning and I hope you’ll be active in the comments section to help us learn from you. Actually, I hope you’ll all participate in the comments section (and feel free to email me) to help guide where this series takes us.

The  majority of you who voted in my poll told me you wanted a blog series. Ok!

I’ll have a once-per-week posting schedule for retirement stuff, starting Wednesday (and running on Wednesdays thereafter). On other days, I’ll post more my usual topics. This series will likely take a few months. I thought I’d better do it that way rather than flood you with too much info too fast and make you mad and unsubscribe.

Topics will include:

• Determining how you want to spend your retirement (Wednesday’s post!)
• Figuring out how much that lifestyle will cost
• How much will you need to save, and how to evaluate retirement calculators
• Where to invest? And how to pick your investments?
• Asset allocation, expense ratios, and all that fun stuff
• Target-date funds
• How Social Security and pensions come into play
• Inflation
• Whatever else comes up, as spurred by your comments

I’m keeping links for the series, as well as additional info and resources on a new page called “Retirement Guide.” You can find it at the top in my navigation bar.

By the time I wrap up this series, I hope that you’ll have a better understanding of your financial situation. I hope you’ll feel confident with the lingo and how to make these important decisions for yourself.

My goal is that in the next few weeks, you’ll not only have your retirement accounts opened, but you’ll know exactly what investments you want, how much you want to contribute, and you’ll know how it will impact your future.

Ya with me?