The Amateur Financier

I have a problem.  It seems that the Pennsylvania Unemployment Compensation Bureau is in the process of reviewing my claim to verify if it is legitimate.  While I remain confident that I will be getting unemployment benefits in the not too distant future, this is proving to be a bit of sticky situation, as I am not receiving any benefits during the review period (and may not receive anything, if they decide I’m ineligible).  I have been spending money as if the money I would be getting from unemployment was already in my account, not bothering to cut my spending to be more in line with my significantly reduced earnings.

In a nutshell, I’m running out of money.  My liquid savings are rapidly being depleted, as I dip further and further into the money I have in order to cover things like credit card bills, rent and regular spending.  While technically this is the whole point for this saved money (most of the cash I’ve been using had been explicitly set aside as my emergency fund), my spending has been much higher during the past two months than it really should have been, even taking the holiday season into account.  I will do everything in my power to cut down my spending, but unfortunately I have to deal with my spending over the past two months without the money I was expecting to receive.

This week’s report is surprisingly upbeat, given all of what I’ve just told you; in the next few weeks, as various bills and other expenses come due, the red ink will start to spread.  (Unless, of course, the issues with unemployment get resolved soon and in my favor, in which case I’ll have a lot more breathing room to get my financial boat in order.)  With that understood, let’s go to the table:

I realize that all of this not the sort of thing you expect (or hope) to hear from someone writing a personal finance blog, but I felt it was important to point out where I currently stand, financially.  Hopefully, if nothing else, there can be a learning experience from my troubles, and I can serve as an object lesson about what NOT to do when you are awaiting unemployment benefits.  In any event, thanks for reading, and I hope I can keep providing interesting, solid information here on the Amateur Financier.  Thanks for reading!

It’s been a long time since I put a Ben Stein and Phil DeMuth book through the patented Amateur Financier review process, but here we are, and it’s time to put them back through the wringer.  Yes, if you write a personal finance book, sooner or later you will find that yourself in my steely gaze, and if you write more than one book, expect to find yourself a repeated target.  Which brings us right back to the book in question.

Yes, You Can Still Retire Comfortably! is another investment book from this pair, written in much the same way: heavy on statistics and explanation, light on ‘one size fits all’ advice.  It’s a guide specifically aimed at older persons approaching (or at least preparing for) retirement and attempts to beat the Baby Boomer retirement crisis.  What suggestions do they have to that generation to keep them in the black?  Well, let’s check out and see what’s under the cover:

Summary

The book is divided into three main parts.  The first one, called Yes, You Can Still Retire Comfortably! (creative, no?), starts with 21 basic rules of retirement (including things like spending less than you earn and maxing out your retirement accounts) and a decade by decade guide to your financial life, providing advice for every age bracket from teenagers up to (and beyond) retirement.  Consider it a shorthand version of Yes, You Can Get a Financial Life! (the other book I’ve read from Stein and DeMuth).

The first official chapter of the book details the coming problems with retirement planning for Baby Boomers (and Generation X, and although we aren’t mentioned, Generation Y, as well): Social Security is running out of money and company pensions have all but disappeared, taking out two of the three traditional ‘legs’ supporting retirement.  The third and final leg, personal savings, is still around; the only problem is, most people aren’t saving enough to supplement these programs, to say nothing of saving enough to supply all of their retirement needs.  The second chapter covers the importance of saving in order to save yourself.  The book recommends several ways to cut down your spending, including eating out less, buying used  cars, and owning your own home.

The second part of the book (entitled How Much to Save and How Much to Spend) attempts to go into more depth on how to get your finances in order.  The third chapter provides a ‘back of the envelope’ (in the author’s terms) guide to how much you should be saving at each stage of your life, making a number of assumptions about your life, your investments, and your eventual age at retirement.  The fourth chapter is similar, allowing you to choose from a number of options, not only those above, but things like how much you expect to get from Social Security (if anything) and from a pension (again, if anything).  Once you know how much to save, the fifth chapter covers what to use as your investment.  (Stein and DeMuth recommend index funds, of equal parts Total US Stock market, Total Foreign stock market, Total US Bond market, and TIPS.)

Now that you have your portfolio set up, it’s time to let you in on the retiree’s paradox: if your portfolio is set up properly, you will have plenty of money later in your retirement, as long as you can live on relatively small portion in the beginning (when you’re the youngest and most eager to go crazy with your retirement funds).  The last two chapters in this section address two different methods of getting income in your retirement.  The first is by setting up an income portfolio, with REITs and high-yielding dividend stocks (or appropriate funds) in place of the stock index funds mentioned above.  The second is information on how to draw down a non-dividend fund, which provides information on safe withdraw rates at different time stretches until the end of your retirement and at different margins of safety.  It finishes with an interesting discussion of how the advantages of dollar-cost averaging while you are saving for retirement end up biting your rump due to negative dollar cost averaging during retirement, and suggest market timing as a possible solution (selling stocks when they are overpriced, and bonds when they aren’t).

The third part of the book is called If Everything You Have Isn’t Enough, and covers three possible contingencies to make your money stretch further.  The first option they bring up is immediate annuities, where you turn over a lump sum of money to an investment company and receive a regular payout in return.  The second is to relocate, either to a less expensive part of the country or to a less expensive country (they recommend several, including Mexico and Costa Rica).  The third option presented is to take out a reverse mortgage to draw down the equity in your house.  All have potential, although will require significant research before you can safely choose one (or more than one) to make your savings carry you through retirement.

The final part of the book covers 25 Big Truths of Retirement Planning (yes, the authors do seem to like their lists).  Then they go over about a half dozen different retirement withdraw methods that have been suggested, subjecting them to the economic conditions of the Great Depression (and the three decades that follow), to ensure how well a one million dollar portfolio would have performed during that time frame.  Their method of using a balanced portfolio, rebalancing yearly, and using the safe withdraw numbers they provided earlier was a success in this regard, although a few other methods had some promise (and many more simply crashed and burned).

Pros

-Easy To Personalize Advice: Of all the books I’ve read about investing and retirement, this is first one that’s essentially a financial planner in book form.  If you go through the worksheets provided at various points along the way, you’ll create a reasonable financial plan for yourself, without the need to bring in an expensive planner.  It’s one of the only books I’ve read that didn’t fall back on a single number when telling people how much to save for retirement (or even worse, just telling you to ‘save as much as you can’).

-Well Supported Information: The calculations and figures presented are well supported by research provided in the book, and the claims made by the authors are backed up, either by historical fact or repeated standardized testing protocols.  The level of backing provided by the authors for their arguments is rare in other books, and it helps to back their credentials as sources of information well worth giving a listen.

-Very Thorough: There aren’t many aspects of planning for retirement (or finding money in retirement if you didn’t start planning early enough) that aren’t covered in this book.  From creating a personalized investment and savings plan to drawing down your accumulated funds, there’s enough advice to help people gain a handle on their money.  From getting started investing to using your funds to provide for your retirement, there’s a wealth of information for all types of people.

Cons

-Conservative Leaning: I know I said this in my last review of a Stein/DeMuth book, but well, here it is again.  Although the conservative bias isn’t TOO noticeable after the first chapter (which details many of the ways the government has failed in the authors’ eyes, and also takes a crack at Al Gore), it does occasional tint the advice in the book.  Whether that is enough to make you skip this book is up to your individual politics, I suppose.

-Sometimes Confusing: As sometimes happens when trying to follow a rather complex train of thought, it’s possible, even likely that you’ll lose the thread of conversation or fail to completely understand the point.  Unfortunately, the book doesn’t make much effort to clarify or resolve the more complex issues it tackles, so it’s possible that you’ll end up missing something if you don’t have a decent monetary background.

-Occasionally Insulting: Besides the aforementioned conservative slant, there are some parts of the book that are simply insulting.  Negative comments about the lower class, lawyers, and the average worker (among others) are expressed, with varying levels of justification.  You might just find yourself (or someone in your family or circle of friends) being backhandedly insulted in the course of the book.

Overall

While it has a few flaws (due more to the authors’ politics than the book’s other contents), Yes, You Can Still Retire Comfortably! is an impressive store of personal finance planning knowledge.  Perhaps not the best gift for the devout leftist in your family, but a solid source of investing and saving information.  Whether you’re trying to create a saving and investment plan, checking to see that you’ll make your retirement goal, determining how fast to draw down your savings, or even figuring out how to stretch your retirement money further, this book will have some good suggestions.

Merry Christmas to you all!  I hope that you all had a wonderful holiday, and spent it with your family.  I thought that I would take a break from the personal finance information today, and instead tell you a little bit about one of my favorite Christmas rituals: my church’s Christmas Eve candlelight service.

Every Christmas Eve, there is a special service (actually two, one earlier in the night for those who have young children and another one later in the night).  The services are pretty similar to normal Sunday services, although given the time of year and the joy of the season, it’s generally a more festive atmosphere.  All of the hymns are more commonlC hristmas carols (From ‘Oh Come All Ye Faithful’ to open the service, to ‘Joy to the World’ as the recessional hymn; which I’m sure is not meant to a be a reflection of what people think as they are able to leave church).  The gospel passages are all part of the Christmas story.

The centerpiece of it all is  the candlelight service.  Everyone in the church has their own candle, and near the end of the service, the pastor lights candles for two ushers who move down the center aisle of the church.  Each person in the center of the aisle lights their candle, and then allows the person next to them to light their candle, until every candle is lit.  The lights are turned off, and then, we all sing ‘Silent Night’ in a darkened church, reading our hymns by candlelight.  At the last verse of the song, when the song talks of ‘radiance streaming, love’s true light’, everyone in the congregation takes their candles, lifting them above their heads, still singing, a hundred pin pricks of light burning through the darkness.

When that happens, I always, always look up, staring out over the congregation, seeing all lights shining out in the otherwise dark church.  This year as I did so, my mind started to wax philosophic, thinking of how all the lights came from the same initial flame, and that, no matter how many candles were lit from the initial one, the lights were not diminished.  Metaphorical thoughts of sharing knowledge flashed through my mind, and I ended up getting a little teary as I tend to do.  If I had to pick one single moment that I felt most clearly represented everything I love about Christmas, that moment would be it.

What’s your favorite part of the season, everyone?  I’m eager to learn what appeals to everyone about this side of the holidays.

By the time this post goes up, it will already be Christmas day in most of the world, and there will only be a few hours remaining before it will be Christmas for the rest of us, as well.  I thought, as a somewhat early Christmas present, that I would share a few ideas for ways to celebrate the holiday inexpensively, but still in a festive manner.  If you don’t already have plans for the day (hopefully plans that involve more than just opening all your presents and playing with your new toys, although that can be pretty fun), here are a few suggestions from The Amateur Financier:

1) Go to Church: Obviously, this is most practical if you are a Christian; although, even if you aren’t, going to your temple/synagogue/mosque could still be a good way to spend the day.  Besides helping to put all this gift giving, present unwrapping, and general merriness in perspective, you may have the chance to run into some people you haven’t seen in a while, or even get the opportunity to help someone in need.  What better way to spend your holiday?

2) Spend Time with Your Relatives: Holidays are meant to be shared with the people you love.  If you’ve already planned to meet with your family this holiday season, good on you.  If not, why not go and visit them, or give them a call if you are currently far away.  I’m sure they will appreciate knowing that you were thinking of them, and it’ll be the perfect chance for you to reconnect.  Enjoy the family togetherness, as well as the chance to celebrate the holidays with the ones you love (even if you are only talking together).

3) Play Outside (in the Snow): Being able to go outside and play is a wonderful way to celebrate the season, and if you happen to live in a snowy area, the fun of snowballs, snowmen, and snow angels could be just outside your front door.  If you live outside the snow belt (or in the Southern Hemisphere), you might have to be a bit more creative in your outdoor play (although, since you could go to the beach, you’re not going to get much sympathy from me).

4) Watch a Christmas Movie Together: There’s nothing more relaxing than gathering as a family and watching all the Christmas classics you have in your collection (or that will be filling the air waves).  A Christmas Story, Rudolph, Frosty, How the Grinch Stole Christmas (the animated classic, not the live-action one, for a really fun time), It’s a Wonderful Life, and any of the many, many versions of A Christmas Carol.  (My sisters and I have turned The Muppet Christmas Carol into an annual tradition.)  There are plenty of good movies to help you get in the Christmas spirit.

5) Play a Game with Your Loved Ones: A great way to break in your new board games is to open them up and play them while all the family is gathered around.  Just try to avoid getting too competitive (no need to start any family feuds over Monopoly) and you can have an excellent time enjoying each other’s company over a fun board game.

6) Bake Something: Cooking for Christmas is a wonderful idea, almost as much fun is eating what you cook.  Make a nice batch of Christmas cookies, a scrumptious Christmas ham, or maybe even some roast beast (another little How the Grinch Stole Christmas reference).  Just be sure that you have plenty to share with your family and friends; you don’t want to leave anyone without enough food.

7) Read a Christmas Story to Your Children: Probably my favorite thing to do in order to get in the holiday spirit, reading a nice Christmas story (particularly to a young child in your life) is a great way to celebrate and help to enrich the life of a child.  Choosing a good Christmas story (and there should be any number to choose from), get nice and cozy, and start the reading process.

There you are, several suggestions for how to have a wonderful, inexpensive Christmas celebration.  Happy Holidays everyone!