2856: Best Retirement Advice from Retirees: 8 Tips from an 80 Year Old Who Has More Savings Now than When He First Retired by Bud Hebeler

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[00:00:39] [SPEAKER_00]: This is Optimal Finance Daily, Best Retirement Advice from Retirees, 8 Tips from an 80 Year Old

[00:00:48] [SPEAKER_00]: Who Has More Savings Now than When He First Retired by Bud Hebeler with NewRetirement.com.

[00:00:55] [SPEAKER_00]: And I'm your host and personal finance enthusiast, Diana Merriam. We're going to jump right into

[00:01:01] [SPEAKER_00]: today's post as we optimize your life. Best Retirement Advice from Retirees, 8 Tips from an

[00:01:12] [SPEAKER_00]: 80 Year Old Who Has More Savings Now than When He First Retired by Bud Hebeler with NewRetirement.com.

[00:01:21] [SPEAKER_00]: Like many older people, I'm spending some time working on revising our wills.

[00:01:27] [SPEAKER_00]: Many find that what they thought would be left to errors has been depleted, and now they're

[00:01:32] [SPEAKER_00]: financially distressed. A smaller number find that they have more than projected in plans made much

[00:01:38] [SPEAKER_00]: earlier. We are one of the latter. Looking back, it's hard to believe that over these 27 years of

[00:01:46] [SPEAKER_00]: retirement, we've given away more than the savings we started with in retirement, bought all of our

[00:01:52] [SPEAKER_00]: high-cost goods with savings, and still have more than twice as much left. Einstein was right.

[00:01:59] [SPEAKER_00]: One of the great miracles is the power of compounding from saving. But we also have been

[00:02:05] [SPEAKER_00]: really lucky to have done the right things at the right times, both during most of our working

[00:02:11] [SPEAKER_00]: and retirement years. Here's some of my retirement advice, 8 Things We Did Right.

[00:02:18] [SPEAKER_00]: 1. Living Life Based on Lessons from the Great Depression

[00:02:23] [SPEAKER_00]: Being brought up in the Great Depression, followed by the war years where national

[00:02:28] [SPEAKER_00]: savings rates were almost five times current levels, taught us to live below our means,

[00:02:34] [SPEAKER_00]: something that seems to have escaped many today. Younger generations are truly living beyond their

[00:02:41] [SPEAKER_00]: means by relying on debt to finance almost everything they buy, in hopes that future

[00:02:48] [SPEAKER_00]: wages will be able to cover the debt costs. 2. Professional Advice Made a Difference

[00:02:55] [SPEAKER_00]: I give large credit to the professional retirement advice I had when still working with regards to

[00:03:02] [SPEAKER_00]: investments, specifically to buy low-cost index funds and actual bonds, not bond funds for our

[00:03:10] [SPEAKER_00]: fixed income allocations, and make a financial plan to determine how much we should save.

[00:03:17] [SPEAKER_00]: 3. Bonds and Bond Ladders Were Particularly Good Strategies

[00:03:24] [SPEAKER_00]: One of the odd things I did that was consistent with the professional retirement advice,

[00:03:29] [SPEAKER_00]: but not specifically recommended, was to buy savings bonds for much of the bond portion.

[00:03:35] [SPEAKER_00]: Back then, savings bonds were paying around 2-3% coupon plus whatever was the annual inflation rate.

[00:03:43] [SPEAKER_00]: And unlike other bonds, they benefited from both deferred taxes and inflation adjustments.

[00:03:50] [SPEAKER_00]: After I converted my company's 401k to a Roth IRA, I bought laddered treasury inflation protected

[00:03:58] [SPEAKER_00]: tips bonds so that our bonds would not have any tax and the laddering was such

[00:04:04] [SPEAKER_00]: that a bond matured every year of our retirement, as do our savings bonds.

[00:04:10] [SPEAKER_00]: 4. Less Conservative Stock Allocations Were a Good Idea

[00:04:16] [SPEAKER_00]: I chose to modify the common stock allocation rule when I was young.

[00:04:21] [SPEAKER_00]: Years ago, it was common to use a formula of 100 minus your age as the recommended percentage to

[00:04:27] [SPEAKER_00]: hold in equities, stock and investment real estate. It was recommended that the rest be in fixed income,

[00:04:35] [SPEAKER_00]: bonds, CDs, and money markets. I chose to modify the common stock allocation rule when I was young.

[00:04:43] [SPEAKER_00]: Instead, I used a target allocation percentage each year for our stock fund allocation of 105,

[00:04:50] [SPEAKER_00]: not the then traditional 100. Less my wife's age because she's younger. In the year when

[00:04:57] [SPEAKER_00]: she was 40, our stock allocation target was 65%, while at 70, it was 35%.

[00:05:04] [SPEAKER_00]: 5. Be Careful with Rebalancing

[00:05:09] [SPEAKER_00]: I also decided not to do any reallocation unless the allocation got more than 5% off target.

[00:05:16] [SPEAKER_00]: This really helped in the stock boom years and did not hurt me badly when prices fell.

[00:05:22] [SPEAKER_00]: Another plus was that I only had to rebalance about every other year.

[00:05:27] [SPEAKER_00]: I spend very little time working with investments.

[00:05:32] [SPEAKER_00]: 6. Allocations in Our 80s

[00:05:35] [SPEAKER_00]: Now that we're in our 80s, our allocation rule has changed to a constant target of 30%

[00:05:41] [SPEAKER_00]: plus or minus 5%. We still need to be conservative because my wife could live 20 more years,

[00:05:48] [SPEAKER_00]: considering that she's in good health and has long-lived ancestors. Further,

[00:05:54] [SPEAKER_00]: either of us could face expensive long-term care. I'm not optimistic about the economic future the

[00:06:01] [SPEAKER_00]: US faces considering the exponential growth of government debt exasperated by the aging of our

[00:06:08] [SPEAKER_00]: population with proportionately fewer workers to pay the growing healthcare costs of the elderly

[00:06:14] [SPEAKER_00]: on welfare. 7. Watch Inflation

[00:06:19] [SPEAKER_00]: Although the majority of our fixed income has inflation adjustments, I still expect that in

[00:06:25] [SPEAKER_00]: the long run, stocks should produce better returns than bonds in an inflationary environment.

[00:06:31] [SPEAKER_00]: And although dividends will be subject to ordinary income tax rates for the funds in

[00:06:36] [SPEAKER_00]: taxable accounts, the growth will benefit from lower capital gains rates. Better yet,

[00:06:43] [SPEAKER_00]: on death, their cost basis will be marked up to the values at death, so there will be no capital

[00:06:49] [SPEAKER_00]: gains tax. At the same time, our investments were growing due to compounding and lower tax rates.

[00:06:56] [SPEAKER_00]: Inflation was compounding too, so our investments are worth only half as much now as they were in

[00:07:02] [SPEAKER_00]: the year I retired if measured in dollar values at retirement. Mom and pop retirement planning

[00:07:09] [SPEAKER_00]: over the kitchen table often fails to recognize that inflation compounds and severely restricts

[00:07:15] [SPEAKER_00]: spending capability when you're in your golden years, a time when dental and medical bills grow

[00:07:21] [SPEAKER_00]: much larger. 8. Plan Seriously, Be Conservative, Stress-Free

[00:07:29] [SPEAKER_00]: I strongly urge people to do serious retirement financial planning with conservative inputs.

[00:07:35] [SPEAKER_00]: The future will not turn out the way we may expect because we don't know how long we will live,

[00:07:41] [SPEAKER_00]: much less what the rates will be for taxes, returns, and inflation. But the ability to

[00:07:47] [SPEAKER_00]: be financially stress-free in retirement may turn out to be one of the biggest blessings you can

[00:07:52] [SPEAKER_00]: have. You just listened to the post titled, Best Retirement Advice from Retirees, 8 Tips from an

[00:08:04] [SPEAKER_00]: 80-year-old who has more savings now than when he first retired by Bud Hebler with NewRetirement.com

[00:08:11] [SPEAKER_00]: and I'll be right back with my commentary. Buy low, sell high. Buy low, sell high. It's a simple

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[00:09:09] [SPEAKER_00]: at fundrise.com slash OFD. This is a paid advertisement. I thought all these tips were

[00:09:17] [SPEAKER_00]: great, but the most important is number one, live below your means. Specific tactics on how to

[00:09:25] [SPEAKER_00]: invest, determine an asset allocation, and draw down in retirement are incredibly important,

[00:09:32] [SPEAKER_00]: but they all hinge on your ability to create a gap between your income and expenses.

[00:09:38] [SPEAKER_00]: I had a conversation last weekend with a guy in his late 20s who was thinking seriously about

[00:09:44] [SPEAKER_00]: his investment strategy. He just started investing in real estate because he has a lot of friends who

[00:09:49] [SPEAKER_00]: do it, and he finds it easy to understand. But he asked me about investing in the stock market

[00:09:54] [SPEAKER_00]: as he hasn't been able to wrap his head around it. He sheepishly told me that he opened a Roth IRA,

[00:10:01] [SPEAKER_00]: but he wasn't sure what he chose to invest in or if that money was invested at all.

[00:10:07] [SPEAKER_00]: But then he also shared that he lives well below his means. He went through a period of time where

[00:10:13] [SPEAKER_00]: he learned to enjoy just $100 of discretionary spending per month, and he's carried that with

[00:10:19] [SPEAKER_00]: him as his income increased. He hasn't let lifestyle creep take hold of his money,

[00:10:25] [SPEAKER_00]: which from my perspective means he already won the game, and he should be very proud of that.

[00:10:31] [SPEAKER_00]: I pointed out to him that 90% of good money management and wealth building is learning to

[00:10:37] [SPEAKER_00]: live below your means and increase the gap between your income and expenses.

[00:10:42] [SPEAKER_00]: Yes, you need to deploy the gap through investing, but this is absolutely the easiest part. One or

[00:10:50] [SPEAKER_00]: two books solves this issue for most people, and I highly recommended that he read The Simple Path

[00:10:56] [SPEAKER_00]: to Wealth by JL Collins. And that will do it for today. Have a great day and start your weekend.

[00:11:02] [SPEAKER_00]: Thank you for listening, and I'll be back here reading to you tomorrow,

[00:11:06] [SPEAKER_00]: where your optimal life awaits.