Rules of thumb are an easy way to quickly see where you stand financially. Once you reach 25X your spending in liquid net worth (the 4% rule presented as a multiple of spending) you are assumed to have enough to retire under the 4% rule, regardless your age.
However, as we are seeing with the current market turmoil, the simple rule of thumb has one fatal flaw. If you reached your 25X goal a few months ago and decided this was the time to step away from traditional labor, you now face a withdrawal rate from your index funds a third higher than expected. This will reduce the account value early in the distribution phase, lowering the total amount you can get from the investment over your lifetime.
Another rule of thumb is to keep 6 months of spending in cash in case you become unemployed. Under a normal job loss or economic decline this would be a reasonable policy to follow. Unemployment insurance can provide additional cushion to the 6-month cash reserve.
Black Swan events (unexpected negative economic events such as the housing crisis or pandemic) throw the whole rule of thumb out the window. Black Swan events do not happen often, but they do occur every decade or so. Looking back at U.S. history, it seems something always happens every decade to knock the markets lower and slow economic activity. The 2010s are the only decade to avoid that fate and 2020 seems to be making up for the oversight.Read More
The stock market is down, reflecting the dim prospects for companies trying to turn a profit in a quickly declining economy. Decisions need to be made while you are under heavy duress. Should you sell an investment, or maybe buy? Is early retirement or collecting Social Security early a good move? How does your business survive if it has been deemed non-essential? The financial decisions you make today will have consequences for years to come.Read More
Two major tax increases are about to crush middle class Americans. The first tax increase has already been passed into law and will soon go into effect. The second massive tax increase is more sinister. The amount of the increase has yet to be determined, but we can get a good idea how much will be pried from your wallet if you don’t take steps to defend your wealth.
The Tax Cuts and Jobs Act of 2017 (TCJA) lowered taxes for the vast majority of individuals and regular corporations. There were a few losers. Taxpayers with high state and local taxes (SALT) found their deductions declining faster than rates fell causing a sharp pain behind their left eye on April 15th.
Other taxpayers feeling the pain of a tax increase include truckers, sales people, artists and others with work related expenses. Unreimbursed employee business expenses were eliminated. Truckers (and others) no longer can deduct their work expenses. The TCJA hurt a large number of hard working Americans. Even the mortgage interest deduction was slightly curtailed. Not as many felt that sting, but all the same, the TCJA was uneven in reducing taxpayer liabilities.
Regular corporations saw the biggest benefit. Corporations now have a flat 21% tax rate. Except for corporations with less than $50,000 in profits, this was a tax cut.Read More
In 1968 Nick Murray had to sell investments the hard way. He met most clients in their home. The tool of choice was the mutual fund. Most people he sat with were hard working people, but unsophisticated investors. Fee-based advisors were rare in those days for the small accounts families had. Fees were high and people were risk adverse. To top it off, the market was having bouts of volatility, suffering a noticeable decline even to those who didn’t follow the market on a regular basis.
It was in this environment Nick Murray had to convince his clients and potential clients the best course of action for them. Investing in mutual funds came at a steep cost. Loads (aka sales fees) were as high as 8.75%. 91.25% of your money went to work right out of the gate trying to get back to the even water mark.
Young families had to consider equities for at least a portion of their portfolio if they were ever to have enough money for a comfortable retirement, and Nick Murray knew it. The high fees were one issue; the market another. The question was always the same:
“Do you think the market will go up?”Read More
Perhaps the most important financial advice in the Bible comes from 1 Timothy 6:10:
For the love of money is the root of all evil. (KJV)
Money is not bad; greed is. Working to have money is of vital importance and God places money and wealth front and center. I see so many people suffering financially because they believe “money” is the root of all evil, when that is the furthest thing from the truth. It is the “love” of money that is the problem. Avoid that and you are golden.
There is so much more financial advice than that just in the four gospels and Proverbs. Of course, if you are serious about wealth, you might want to read the entire Bible as Living Literature. The stories still resonate and for good reason. They are archetypal stories dripping with significance. Virtually every bestselling novel and movie can be traced back to some story in the Bible. You just didn’t know it.
Money and wealth are important. And yes, God wants you to be rich. Really rich! Not just in financial terms, but in physical, mental and spiritual terms as well.Read More
Greed is frugality gone too far. We see this with bloggers preaching the good news of early retirement by extreme poverty. It becomes a sickness which frequently leads to envy. Greed goes too far when there is no room for charity. Greed goes too far when it comes at the expense of you and your family’s well-being.
We are all different. The virtue we most admire is one we might need to focus on. A through examination of our-self might reveal a vice harming us and those around us.
Benjamin Franklin worked on the virtues every day of his adult life. He would check off each virtue he held true to that day. He failed often and admitted it. Perfection was not the goal. Perfectionism is akin to pride. The goal was to improve each day and do so in an honest manner.Read More
The challenges facing women are far from complete. It is hard to balance the pay scale when we don’t have control. It is hard to balance the pay scale when women are different than men. Maternity leave is a major contributor to the pay gap. Mothers definitely are paid less than male and non-parent female counterparts. And neither you nor I can fix that problem in whole.
But there is an issue women do have control over. Sunday The Motley Fool had an article by Maurie Backman on the gap in male and female retirement savings. The difference is incredible, or “astounding”, using Backman’s word for the gap. While the same issues are in play — maternity leave, medical issues and family time — there is at least some control women can take to close this gap.Read More
Yes, you will miss the kids when they move out, but you will adjust to your new freedom. And odds are they will come back often, seeking your advice and for companionship.
However, you must insist the kids move out at a certain point or you will harm them, perhaps irreparably. They can’t truly grow up until they are on their own.
You bounce better when you are young. Struggle is a natural part of growing up, moving out and finding your way in the world. There will be scars. That is the natural order of things.
It hurts. Life hurts! You fought through the difficulties when you were young. It is how you got where you are. A bird never learns to fly sitting around in the nest.Read More