There are two broad classes of income – earned and unearned. You must exert effort to achieve earned income. The better option is unearned, or passive, income from investments, which keeps appearing in your mailbox each month all by itself. Regardless of the economic system under which you operate, when your passive income is sufficient to cover your living expenses, you’ve achieved financial freedom.
Investments rely on the concept of compounding, which should be of vital interest to those who have quite a few years to go before retirement. Time is a friend that should be embraced for the power it brings. If you’re close to retirement age, however, you should have read this column about 30 years ago.
Everyone is interested in money, especially if the money happens to be in your account. So, be careful out there and consult an independent financial expert before you commit the family savings to anything other than a two-page display ad in this magazine.
With that caveat, I invite you to join me in exploring that morass we call the Web to retrieve practical, zero-cost, noncommercial, registration-free Web resources for plant professionals thinking about retirement, early or otherwise. One Web site gets several mentions this month. If content is king, this one wears the crown. It’s not a matter of bias. Remember, we search the Web so you don't have to.
Can it pay?
The Industrial Revolution decreased the importance of the family farm as the source of old-age security.
Able-bodied rural people migrated to the cities where the paychecks came regularly, as long as one remained young and able-bodied. Patiently, Destitution sat on the sidelines waiting to pounce on workers who lost or gave up that source of income. That made for an unhappy populace, which was part of the motivation for FDR to sign the Social Security Act into law in the mid-1930s. Initially, the ratio of active workers paying in to former workers drawing benefits was large. Now, the ratio is low because there are so many retirees living longer and fewer workers, thanks to automation. So, if you want your share of what you paid in, you’d better know how the system works and how to work the system. To that end, I’d suggest paying a visit to www.ssa.gov/retire2 to take advantage of the “Plan Your Retirement” page. Here’s where you find benefit calculators, facts about eligibility, information about what to do if you’re near retirement, online benefits application, a Social Security FAQ and other resources you’ll need when you lose or give up your source of earned income.
Taking a gamble
For the moment, let’s assume that Social Security benefits actually will exist when we decide to get our share. As you’re aware, those who have spent a lifetime paying into this imaginary trust fund have the option of retiring early, a move that prompts our hired hands in Washington to send us smaller monthly checks. On the other hand, working beyond what is considered a normal retirement age results in a larger-than-normal check. The monetary tradeoff is obvious. You can have either more years of retirement fun with a thinner pocketbook or fewer, perhaps less vibrant, retirement years with more money. If you opt out early and then live for a lot longer than you expected, you will have passed the breakeven point and come out behind financially. Such is the thesis behind an article titled “A retirement mistake Boomers should avoid” by Jeanne Sahadi, a senior writer for CNNMoney.com. The breakeven calculator cited in the article requires you to enter data from the official benefits form the Social Security Administration sends you every few years. So, get your paperwork and pay a visit to http://money.cnn.com, where you should enter the author’s name in the search box in the upper right corner. Be sure it’s configured to search the entire site. When I searched, the article was the 20th entry down.
Neatly aligned ducks
You’ll never get out of this world alive. And, no, you really can’t take it with you. And, you never know when. That single transfer of enormous wealth (relative to the rest of the world) you’re ultimately going to make in the future runs the risk of incurring the rabid interest of the good folks at the Internal Revenue Service. That’s one bulldog you’re not going to shake too easily. So, you might as well start properly arranging things. Only your effective estate planning can protect your worthy heirs from a fiscal onslaught from that most rapacious branch of government. The topic is a bit too complex for a capsule summary here. You’re going to need to see it for yourself at http://money.cnn.com, where you click on “Money 101” that appears in the drop-down menu under “Personal Finance” near the top center of the page. Then, zero in on lesson 21, Estate Planning, a multipart article that strengthens your vault.
While you’re on the site, check out the rest of the retirement section that you can access through the pull-down menu under “Personal Finance” near the top of the home page. I’m not even going to try to highlight the interesting material here. There’s too much to discuss and you’re better off exploring on your own.
Not just for geezers
If you hang around long enough in this society, you learn two things - life is not a dress rehearsal and whatever you’ve saved for retirement isn’t going to be enough. Maximizing your returns from compound interest requires a dwindling asset – time. So, you’d better start building that nest egg sooner, rather than later; younger, rather than older. Speaking of older, consider checking out the financial wisdom coming from the quintessential advocate for seniors, the American Association of Retired Persons (AARP).
Knowing the target allows you to back-calculate your own situation to determine what assets you need to have in place. If that sounds appealing, wheel your decrepit mouse over to www.aarp.org/money/financial_planning to learn what AARP advises about building a plan, checking accounts, budgeting and recordkeeping, saving money, insurance issues, investing, retirement planning and identifying who can help you. Assuming, of course, that you want to retire in the glorious splendor portrayed in so many contemporary advertising images.
Being Foolish pays
You’ve got to love any organization that espouses audacious goals. Try this one on for size: To educate, enrich, and amuse individual investors around the world. Such is the mission of The Motley Fool, an international multimedia endeavor based in Alexandria, Va. This outfit is interested in demystifying all things financial that might affect the workers of the world, regardless of the stage of life or career.
Obviously, retirement questions are part of the mix. For example, you might be interested in one offering, “How to Retire in Style.” This multipart lesson covers retirement timing, tax implications, stocks versus bonds, Social Security, second careers, residential issues, inheritance, insurance and other topics. It doesn’t provide concrete answers, but it sure raises a lot of questions you should be asking yourself long before you pull the plug and ride off into the sunset with all that undocumented plant-specific maintenance knowledge you’ve accumulated during a lifetime of work. You’d be a fool, not a Fool, if you didn’t go to www.fool.com/Retirement, where the links you want are down, on the right side. Then, explore the rest of the site.
After that adventure, you should know about Scott Carr, who established his SaveWealth Web site to help in defining financial goals, planning for retirement and developing estate and tax plans. Carr’s site provides news, tax tips, free special reports, and useful money and lifestyle information. Two of his topics - retirement and estate planning - are germane to this month’s column. The retirement option addresses annuities, savings and CDs, modified endowment contracts and the Roth IRA. The estate planning option addresses wills, living trusts and durable/medical power of attorney. Both are accessed on www.savewealth.com/planning/estate from the link list at the left of the page.
Retirement planning blog
A blog is a Web site that allows an author to post rants, raves, diary entries and sometimes even cogent essays so the rest of the world can read and comment via e-mail. An effective blog is, thus, an interactive entity, that’s for sure. With your Web world now infused with more than 70 million blogs, according to Technorati, a blog search engine, it should come of no surprise that some of these grass-roots efforts would focus on retirement planning. One such blog, “Your Guide to Retirement Planning,” is a product of Jenny McKinney, a consultant specializing in retirement coaching, and Patrick McKinney, an auditor for a major insurance company. Every few days, starting in June, 2003, the pair has posted something. Send your trusty desk rodent to http://retireplan.about.com/b/archives.htm, where it will find the pair’s archive. The list of topics they cover includes the four best employment benefits, evaluating a reverse mortgage, divorce and retirement benefits plus other items too numerous to list here. If you go there, be sure to comment on their musings. You should probably comment on every other blog you encounter in your wanderings, especially the new Plant Services blog at http://www.plantservices.com/plantperformance.
Free education
Schumacher Publishing, Inc., Costa Mesa, Calif., has been publishing retirement and estate planning educational information since 1988. It appears that financial planners distribute the products as handouts to clients and prospects. Nevertheless, the relevant content on this site includes three directories - estate planners, professionals who have free educational content on their Web sites, and links to articles by estate planning professionals. Most of the educational articles are generally good and many reveal potential, sometimes obscure and illogical, stumbling blocks to the financial independence that you seek. Some articles warn you about problems and issues, but aren’t very good about revealing precise, cookbook solutions or offering solid advice. These articles strongly suggest that you contact a financial planner. That’s probably good advice. Anyway, pay a visit to www.estateplanning.com, where you’re going to click on the left-hand image to access the half of the site dedicated to individuals.
No conflict of interest
So, you decide to find a financial planner. There’s plenty around. It’s easy to locate those who will assist you for free, as long as you agree to invest your grubstake with their brokerage house. It’s easy to identify financial planners who can claim to be independent, but require you to process your investment transactions through their home office. It’s almost like they’re operating a franchise. Finally, there are the fee-only financial consultants. These have no allegiance to anyone except you, which provides flexibility in tailoring your portfolio to your specific goals. But, you’ll probably need to make your own trades. If this appeals to your frugal instincts, save a penny and pitch a slug over to www.napfa.org [no hyphens] to enter the world of the National Association of Personal Financial Planners, Arlington Heights, Ill. Please excuse me for steering you to a site that requires you to register your identity to access the list of consultants. I think the trade off between anonymity and conflict avoidance is justified.
E-mail Executive Editor Russ Kratowicz, P.E., CMRP, at [email protected].