Solid Financial News & Retirement Planning Information. Rule Number #1 Turn off the TV

In his book, The Black Swan Nassim Taleb recommends paying less attention to the news of the moment; rather reflect on more digested more journalized information.  I fully agree.  I do not watch or have on ever any television business news shows ever running in my office.  James Cramer gives me a huge headache.

Rather, I read the Wall Street Journal and the British newspaper Financial Times on a daily basis.  My weekends are television news free as well.  Rather I tend to catch up on the week by reading the Economist, which is delivered to my door by Thursday or Friday. I am not a complete Luddite, I bounce around from the print edition, to reading the Economist on my iPad, and listening to articles on the Economist audio edition on my iPhone, as it is blue toothed through my car’s stereo as I drive around on the weekend.

Beyond that, I tend to try to dig deeper into academic research when looking to hone my financial knowledge and skills, an effort I pursue incessantly.

For years, I have relied on the Center for Retirement Research at Boston College for substantive, yet approachable research regarding planning for retirement.  Research driven over profit driven, I recommend that folks looking for answers regarding financial issues surrounding retirement to check out CRR’s website at crr.bc.edu.  There you will find briefs, solid research and condensed pieces on Social Security, health/long-term care insurance, and financing retirement.  For those willing to dig even further, there are working papers on many salient retirement topics.

 

logo

 

So, what I have learned and what would I like to share?  A common question in retirement is, “Do I have enough to live on and how much can I spend?” A reasonable and fair question that can set the heads of even the most intelligent financial professionals and academics incessantly spinning.  There are lots of variables involved, expected return, future inflation, and how long the money will need to last are some of the key issues.  Of course how big the whole pot you are pulling from is a huge issue as well.

Academic research has focused on trying to optimize how much funds can be withdrawn from a portfolio.  Interestingly, the optimal amount comes doggone close to what the IRS recommends for IRA required minimum distributions (RMDs).

RMDs are a function of two variables; (1) the balance of the IRA was at the end of last year and (2) one’s age.  In years when your balance is up, your RMD goes up.  In years when your balance is down, your RMD goes down.  This rule buffers pulling out money during down years a bit, which really helps in the end.  As for the age variable, first of all RMDs do not start until you are 70 ½ so you have deferred withdrawals for quite a while. Beyond that, the IRS RMD rule pretty much works out to be that the older you are, the more money you have to pull out of your IRA.  The IRS what’s you to pay taxes on those withdrawals before your die.  It also works out, that you are pretty safe to pull out more money as you get closer to St. Peter’s gate, which makes sense on a common sense level.

Using this two variables to determine how much money you withdrawal on an annual basis come quite close to the statistical actuarial optimum you will likely be able to withdraw over the remainder of your life.  What you give up in timing you make up for having more money to spend in the end.

On that note, I will close and reiterate that you should check out crr.bc.edu. The Center for Retirement Research at Boston College has a solid Facebook page as well.  Sure you can find it!

Waste Not Want Not

While my degree is in Finance and I have been working in the Investments Industry for years, I was a professional chef in a past life.  Do I miss it?  I will say it is much more fun to be cooking dinner with family and friends on a Saturday night than standing behind a restaurant’s kitchen cooking line with orders backing up, the wait staff going ballistic, and too many things on the stove.

Merging my cooking background with finance, this post will focus on the economic and ethical aspects of not wasting food.  First of all let’s start with two raw facts from the USDA –

  • American Families throw out approximately 25 percent of the food and beverages they buy.
  • The average cost of wasted food for a family of four is around $2,000 annually.

Given that food costs have been rising at a higher rate than inflation over the past several years (from 2012 – 2016 the all-food CPI rose 6.1% while the overall CPI rose 4.5% annually according to the USDA), diligence regarding eating all the food a household purchases is increasingly important.  More important to me, however, are the ethical, moral and environmental reasons for not wasting food.

My parents were children of the Depression and our family was in the commercial avocado growing business so food was always taken seriously and not wasted. Interestingly, the avocados we grew which could not be sold to grocers were sold to dog food companies, so waste of our product from firm to market was quite efficient. Also avocados store for a long time at cooler temperatures so a smart grocer can control inventory well. Ok, we have all gotten that bad avocado which I myself quickly donate to my compost bin after a swear word or two.  Below is a New Yorker editorial cartoon touching upon a “lost” avocado 🙂

18033587_10154676405888869_224222960398403082_n

Not wasting food  is something I have been really focusing on in my home, with increased diligence, for the past few years. I have made some major improvements. Big Picture —

  • Buy less. Shop off a list made of what you need. Don’t impulse buy.
  • Eat what is in the fridge .
  • Bring the fridge and freezer down before getting more. Be creative with what you’ve got.

I find myself sometimes thinking that there is nothing to eat when the reality is that nothing that I want at that moment is in the house.  If I really think about it, there is always something around.  Is there some celery that needs to be used up?  Find that can of tuna and make a union.

IMG_7294

I focus on having all my meat, poultry  and seafood mostly stored frozen so that I can buy larger portions, while I always buy my produce fresh and in smaller portions so that my veggies and fruit will be eaten quickly and not sit in the fridge too long.

I sincerely let very little food waste in my kitchen.  That might mean I end up with a large salad for both lunch and dinner to get rid of all the lettuce before it gets limp.  I may have to cook the too many tomatoes I bought into a sauce.  Keep sliced bread in the freezer, it toasts up splendidly straight from the freezer. I guesstimate that my food waste well below 5%. I try to push that even further by not having any garbage disposal and taking all my food waste, peelings and scraps to my compost bin in my back yard so that nothing ultimately gets wasted.

Below is a sequence of roasting two whole organic chickens, separating the meat for later use and then making, stock and chicken soup.  No food was wasted.  All scraps, bones, onion skins, leafy celery, and carrot tops went into the stock.  Later the bones and veggies leftover from the stock were grinded in my Vitamix and fed to my worms in my backyard in-law compost pit…

Yes, the worms in my compost are pretty jacked up on coffee grounds I also dump into the compost pit as well. So be it!

What’s in My Wallet?

I thought a way for you to get to know me and a way for me possibly share some high-level personal finance ideas would be for me to crack open my wallet and share what is inside.

First of all I have my driver’s license, proof of both medical and auto insurance, a few of my business cards and those of others and some coupons for a car wash place I need to use up.

More in the financial nuts & bolts of it all, I probably have too many credit cards. However, my credit score is over 800 and there is a method to my madness. The cards on the left side of my wallet are all for my personal use and are set up to be downloaded to my personal Quicken account, which I do daily.  The cards on the right side of my wallet are all for my business’s use and are setup to download into my QuickBooks business accounting program.

Being a business owner it is important to keep my personal and business spending quite delineated.  Having cards specifically dedicated to each use helps.  Having them all setup to download into my respective personal spending and business software saves me a lot of data input time.

image1

A few big picture thoughts

  1. NEVER run a balance on your cards EVER.  Pay off your credit card IN FULL every month.  If you do have a credit card balance, it’s time to eat peanut butter sandwiches, wear what you’ve got, and stay away from the vacay.  In this instance  “Just do it” means “No New Nikes.”  Even the best credit card rates are usurious in nearly all circumstance.  Keep in mind advertised low rates are often teaser rates to suck you in and get you to run up a balance for higher rates down the road.
  1.  ALWAYS get something out of the card. I get United Frequent Flyer miles and great foreign exchange rates out of two cards. Five percent cash back from Target from one card and 5% cash back from Amazon on another. Four percent cash back on gas from my Costco Chase card.  Dig around find which Air Miles programs work best for you.  This guy is good: http://onemileatatime.boardingarea.com/.
  1. Put it ALL on the card. What?  First of all, you have no credit card balances since you ate peanut butter sandwiches all last year. Believe me I know.  I’ve done it.  Putting more on the credit card gets you more cash back or other benefits.  Tie your cards to your spending tracking software and you will have a better sense of how much you spend.  In addition, you will have various forms of purchase protection.  Last year I took four people to Hawaii using miles I had got on my credit card and the rental car that got a bit banged up when we went beyond the paved road was all covered by my Visa’s extended rental car insurance coverage.
  1. Put automatic payments on your credit card and NOT your bank account. I like to control my checking account balance.  Having automatic payments take money out when they want bugs me.  I’d rather have those payments hit the credit card where I can review them when I want, and better yet, pay them when I want as long as it is before the credit card’s due date.  This can push out when you have make the payment sometimes beyond a month.  Plus you get cash back, miles, or whatever benefit you have researched works best for you.

That’s it.  Out of habit, I pay off my credit card balance in full right when I get the statement.   That seems to improve your credit score for some reason.  Cash?  I usually keep the cash in my wallet pretty tight.  Although I always have cash on hand.  Don’t me a lame cashless cheapskate when out with friends.

One final thought is once you get the cards that work for you, be selective about canceling cards and switching to new ones.  I am not saying don’t ever do it.  I am saying be selective and intermittent.  This is especially true when looking to borrow money for a car or home. Having a few credit cards with a long credit history boosts the score.  Recently opened cards can push it down. Just be judicious and timely.

Some more personal financial thoughts down the road.