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Overview
Money management is one of our most practical survival skills—and also one we've convinced ourselves we're either born with or not. In reality, financial planning can be learned, like anything else. Part financial memoir and part research-based guide to attaining lifelong security, This Is the Year I Put My Financial Life in Order is the book that everyone who has never wanted to read a preachy financial guide has been waiting for.
John Schwartz and his wife, Jeanne, are pre-retirement workers of an economic class well above the poverty line, but well below the one percent. Sharing his own alternately harrowing and hilarious stories—from his brush with financial ruin and bankruptcy in his thirties to his short-lived budgeted diet of cafeteria french fries and gravy—John will walk you through his own journey to financial literacy, which he admittedly started a bit late. He covers everything from investments to retirement and insurance to wills (at fifty-eight, he didn't have one!), medical directives and more. Whether you're a college grad wanting to start out on the right foot or you're approaching retirement age and still wondering what a 401(K) is, This Is the Year I Put My Financial Life in Order will help you become your own best financial adviser.
Product Details
| ISBN-13: | 9780399576829 |
|---|---|
| Publisher: | Penguin Publishing Group |
| Publication date: | 04/03/2018 |
| Sold by: | Penguin Group |
| Format: | eBook |
| Pages: | 320 |
| File size: | 2 MB |
About the Author
Read an Excerpt
1
The Project
This project began with my realization that it was time to finally figure out whether we were going to be comfortable in retirement or miserable.
Going into it, I knew that we were pretty fortunate compared with many Americans. As I've said, I have always worked for companies that pay reasonably well and that provide pensions. Those pensions have been fully funded, at least within the legal definition. Those companies have also sponsored retirement plans for employees and encouraged them to build 401(k) accounts with matching contributions, and I have done that. Also, I've been able to hold on to jobs over the years in a business that's seen plenty of layoffs. Our household budgets have been tight, but aside from that ill-fated apartment purchase in our 30s, our family hasn't suffered the kind of financial setback or catastrophic illness that destroy many a family's nest egg.
We knew we had something tucked away. But was that something enough? Thanks to the recent sale of a house we had lived in for 15 years, we had some financial breathing room, at least for a while. But I had no idea where we stood in terms of being able to retire someday. I'd all but stopped looking at the envelopes from Vanguard after 2007, when my funds lost about 40 percent of their value-not an outrageous dip in the context of the broader economic crisis and recession, but a searing one for me. As a sometime financial reporter, I knew enough to not sell stocks during a sell-off, so I didn't compound the damage with a panic sale. Besides, I've always found it easy not to do anything; sloth comes naturally to me.
I figured that the accounts had bounced back to some extent, but hadn't been tracking them closely. And I had no idea how long such funds would last once I stopped getting a paycheck. A gnawing feeling in my gut convinced me at last that this was the year to get our finances together. Maybe past time, if the numbers didn't come out right. And while I hope to have good years of productive work ahead, I also have to think about retirement and plan for it-to look at whether I'm on the right track, and to begin addressing some of the other issues that I'd been avoiding all these years.
Where to start? With an industry built around retirement planning, I was faced with the paralysis of too much choice and too little knowledge. How do I find a retirement consultant? Those who work on commission might be tempted to sell financial products that increase their incomes, not mine. And those who charge a flat fee might try to keep things quick and easy (for them) to ensure that their time is efficiently used. I had no intention of being a quick hit on somebody's conveyor belt.
As it happens, the 401(k) accounts I built up at the three publications I have worked for over the last 30 years are all under the same roof, the mutual funds giant Vanguard. That promised to make things relatively easy, and the company offers free counseling from a certified financial planner to clients of employer-sponsored plans who are over 55.
So one evening in January, I made the call to Vanguard's 800 number. After navigating the voice-command system, I ended up talking to an upbeat guy named Jeff, who told me that I could either set up an appointment for a phone session with one of their certified financial planners, or I could get a more thorough counseling session by first filling out an online questionnaire that would give the planner a "more holistic view" of my financial picture before our conversation. The result, he said, would be a "personalized financial plan."
Filling out the document "takes about 45 minutes," he said.
As I hung up, Jeanne, sitting across the living room on the couch, asked, "Any luck?"
I told her about the 45-minute questionnaire and said, "We can fill it out together."
"Thrilling," she said.
The very first question stumped me. It asked the age I plan to retire.
Well, see, this is part of the problem. That is precisely the kind of question I've been avoiding all these years. Jeanne and I had never discussed it. I love my job-journalism is a career that calls for hard work, but it rarely feels like work. So we were starting with a big, big question. (Jeanne has worked part-time for years, so her decision would have less impact on our retirement picture.)
We knew that Social Security has traditionally kicked in at 62, but that you could earn more if you hold out longer-say, until 66. Medicare begins at 65. And after hunting around online, it appeared that sticking with gainful employment until 70 would lead to the biggest Social Security benefit. Jeanne, a pragmatist, noted ominously, "Your retirement isn't under your control, entirely." My employer has a lot to say about it. But we could project a best case, and decided that sticking it out to 70 would be the likeliest course to set us up in terms of our investments, Social Security, and pensions. Besides, even if I got booted out of one job, I could probably still find a way to keep earning; many of my friends at the Times had moved on to fulfilling careers on the outside. Seventy it would be.
Okay. So we had an answer! Success!
"So that was question number one?" Jeanne asked. Yes, I said.
She laughed. "That was more than 45 minutes."
Okay, it was going to be a long night. The first answer had taken so long that the Vanguard website had logged me out for inactivity. I went back in, entered the answer. And soon came to an ever more difficult question: How long do you expect to live?
Well, holy guacamole. Let me check my appointment book! We had moved abruptly from economics to metaphysics, or at least actuarial science.
Here, too, however, we decided to plan for a good outcome while understanding that the slings and arrows of outrageous fortune could make best estimates meaningless. Our four parents were still going strong in their 80s and 90s. My father, at 91, was still working as a lobbyist in the 2016 session of the Texas legislature. He'd laugh at the idea of quitting at 70. So we again filled in some rather optimistic estimates and then marched on through questions that were pretty obviously intended to measure my tolerance for investment risk: whether I was likely to sell stocks in a market downturn (no), whether I would invest in a fund based on a casual conversation or tip (heck, no), and suchlike.
Then came another stumper: What percentage of our income would we hope to receive in retirement? Searching through financial websites, I found that many people look for about 70 or 80 percent of their working income in retirement. The assumption is that retirees will live less expensively than they did in their more active years. So once again, I plugged in yet another guess, based on yet another rule of thumb that I hadn't known moments before.
As Jeanne and I discussed these things, I realized we had never really talked about whatever passed for my investment strategy. I offered to describe mine, such as it is. But she cut me off, saying, "My strategy is not to know your strategy."
I was gratified by her level of trust in me but wondered whether it was justified. And whether she was just trying to shut me up. Still, I did my best to express my amorphous thoughts on investing. I explained that I'd been skeptical of financial advice programs about hardcore investing by gurus like Jim Cramer. I never felt that I was the kind of guy who could beat the market. That's how I came up with my laissez-faire approach. I had a hard time remembering how much of my income I had assigned to the funds 14 years before, when I came to the Times. (After doing some research, I discovered that it was 10 percent, the same portion of my income I'd maintained during my years at Newsweek and The Washington Post.)
Jeanne said, "I approve." Which, after more than 40 years together, is nice to hear.
Proceeding through the questionnaire, I then had to track down what we could expect to receive from Social Security each month at age 70-a pretty easy figure to find from ssa.gov-and what my various pensions might bring in. That process could not be handled from my easy chair, as I had to ask former employers to come up with estimates. One would answer during the course of a single phone call; the other took weeks to calculate an estimate and send it by mail. Anticipating a slog, I decided I'd had enough for the night.
When I shut my laptop, four hours had passed from the time I had started the survey, and I was far from done. But we were thinking about the right questions at last.
The next day, Jeanne sent me an email mentioning a conversation she'd had with a coworker who had asked "a quality-of-life question." If you wait until you are 70 to retire, you might get a bigger payout, but will you be in any condition to enjoy it?
I responded: "An excellent question. If 70 is the new 50, yes. If 70 is the old 70, no."
Our parents, as I said, had been very young 70-year-olds. It seemed like a safe bet. But I decided to ask the counselor to look at the numbers under a couple of different retirement ages.
Over the next few days, I gathered the final bits of information about what my pensions from various employers would amount to and finished the form. Soon after that, Vanguard came back with a report generated from my answers. It said I should be more heavily invested in bonds; considering my age, the report stated, I had too much money in stocks. Vanguard's quarterly mailings had been telling me that for a while, so this advice was no surprise. But then I saw words that seemed to levitate off the page:
You're on track to meet your retirement goals.
It was a beautiful thing. If we continued the way we were going, if the financial markets didn't collapse, if the magical fairies that govern employment and health were good to us, we would make it. I was, frankly, surprised. Jeanne was exultant. She said, "We won't be eating cat food!"
But, of course, there were uncertainties. The document from Vanguard presented three scenarios for my portfolio over time, based on past U.S. market performance: best, average, and worst. The worst-case scenario left us with $800,000, well below what we'd need for a comfortable draw-down from our 401(k) in retirement. The best-case was ridiculously high: nearly $4 million. The average scenario put us at about $2 million, which should make for a comfortable retirement. But which will it be? There's no way to tell. It's still a game of if, if, if.
A week later, I had the conversation with the financial adviser, an upbeat guy named Greg. We discussed how to get on what he somewhat ominously called the "glide path" to a more balanced portfolio for retirement.
He explained that the allocation between stocks and bonds mentioned in the report was actually a big deal-"the most important one you make as an investor," even bigger than deciding what funds we invest in, since bonds help cushion your investments against stock market drops. "When things are bad, your drops are not as extreme. So your recovery doesn't have to be as extreme," he said. I didn't have a lot of my money in bonds; the recommended percentage at my age (and considering my aptitude for risk from the questions I'd answered) was about 35 percent in bonds and 65 percent in stocks. I told him that I'd take a hard look at shifting the balance toward more bonds.
He also wanted to talk about some of the mutual funds I'd been invested in since starting to save 30 years before, and noted that several of them were funds run by fund managers and based on research in the markets, with higher rates than I would pay if I put more of my assets into so-called index funds, which are based on market indexes like the Standard & Poor 500. While much of my portfolio was already in such an index fund, he explained that I could make more money by putting more of my assets into lower-fee index funds. The report from Vanguard had recommended a number of index funds the company offers that focus on large companies, midsize companies, and international companies. It all went by pretty fast, but I caught most of it.
He didn't push me on any of these proposed changes-he told me that I could shift the assets myself, when I was ready, from my home computer. The report that Vanguard had generated recommended some of those funds, and I could use those or find others, he said. Most important, changing funds within Vanguard would cost me nothing-"no asset-transfer fees," he said. Sweet!
He also explained what we could expect if I wanted to shorten my time working and retire in my 60s. His estimates put us a little closer to the margins-less travel, buying cheaper cuts of meat-but he suggested that our current portfolio could, barring ill fortune, deliver us to comfort if not prosperity.
It felt good to be done.
But we weren't, of course. This was only the beginning. We plugged a bunch of hypothetical numbers into a model and got a nice picture back. Much was still left to chance. Every decision led to others, and opening one door led to even more doors. I would have to make decisions about whether to buy more bonds and whether to move more of our assets into index funds. And beyond our retirement planning, we still had so much to do to be able to say we'd gotten our financial life in order. We still did not have a will. I still needed to look at my level of life insurance to make sure the family would be covered if that bus found me. And there were things like medical directives: if either of us became incapacitated, under what circumstances would we want someone to pull the plug, and then what to do with our potentially useful organs? And more and more. Answering the next questions wasn't going to give us control over the future, either, but it might offer a buffer against misfortune.
The project wasn't over. But then nothing ever is, until everything is.
Table of Contents
Introduction ix
1 The Project 1
2 Starting Out 18
3 Your Investing Primer 43
4 Getting Advice 87
5 Houses 111
6 Bankruptcy 148
7 The Kids 157
8 Medical Disasters 178
9 Debt 200
10 Life Insurance 214
11 Writing a Will 228
12 Older Age 242
13 The End 254
Acknowledgments 261
Notes 263
Index 295