I wrote another novel.  It's about the pain of being dispossessed, and the fulfillment of reclaiming some of the past--and a lot of other things.  Here's an idea of what to expect:

In her first job after college at the Washington, D.C. office of a Swiss bank, Sylvie hopes for stimulating and challenging work, the excitement and lifestyle opportunities of the nation’s capitol, and, last but not least, romantic adventure.  Orphaned in the Vietnam War and adopted by a couple in Kansas, Sylvie knew little about her Vietnamese birth parents and grew up feeling isolated and disconnected.  She seeks a fuller and richer life in Washington.  What she didn’t expect was a lecherous pig of a boss who gives her a mysterious assignment that takes her into a vortex of deception, fraud and murder.  Sylvie is new to Washington, and has no friends, mentors or allies to turn to.  However, when she is repeatedly threatened and harassed, Sylvie fights back with help from Frank, a burned out Vietnam vet, and stumbles upon hints of a very dark secret at the bank.  She pursues the clues, follows the money, and improbably discovers a profound connection to her birth parents, learning how dearly they loved her.

 

Please give it a read.

 

Available on Amazon at https://www.amazon.com/Unclaimed-Money-Leo-Wang-ebook/dp/B0B86TXDTW/ref=sr_1_1?crid=1YJ7YL9QNZVFM&keywords=unclaimed+money%2C+leo+wang&qid=1659505493&s=books&sprefix=unclaimed+money%2C+leo+wang%2Cstripbooks%2C50&sr=1-1.

 

Available on Apple Books.  You can find it in the Apple Books app (app pages have no www url so a link cannot be provided here).

 

Available on Kobo:  https://www.kobo.com/us/en/ebook/unclaimed-money.

 

Available on Smashwords:  https://www.smashwords.com/books/view/1158485.

Why Cryptocurrencies Won't Replace Fiat Currencies

 

Despite all the hype, mouth foaming, price rises and fascination with cryptocurrencies, there's a simple reason why they will never replace fiat currencies.  In times of economic stress, whether it's from asset bubbles bursting, pandemics, or whatever else, governments are expected to intervene and provide aid for the distressed, stimulus to the economy and central bank accommodation to the banking sector.  These interventions are done largely by printing fiat currencies.  By design, cryptocurrencies can't be printed by governments.  Thus, they are useless for government policy when times are hard.  

It's no longer optional for governments to step in and provide support when the economy nosedives.  We're way past the days when Herbert Hoover could credibly wax eloquent about sturdy American self-reliance and turn a cold shoulder toward pleas for federal assistance.  Government intervention is embedded as deeply in the economy as the banking system and the transportation system.  Fiat currencies are the primary weapon of government intervention.  Take away fiat currencies, and we're back to the days when gold and silver were the currencies of choice, economic downturns worked their cruel consequences, and Oliver Twist would have been nonfiction except for its happy ending.

Cryptocurrencies really aren't all that different from gold and silver.  It's no accident that the U.S.went off the gold standard in the 1930s and the Federal Reserve hasn't issued silver certificates (redeemable for silver at any federal reserve bank) in some 60 years. Tying government currencies to commodities like gold and silver prevented the kinds of interventions that can aid massive numbers of people. Fiat currencies, for all their flaws, have played a crucial role in government policies that have prevented a great deal of suffering and loss.  In hard times, if you're in need, don't hope for the holders of cryptocurrencies to give you a helping hand.  But you can expect the government to step in and provide cash, food assistance, health insurance coverage, housing subsidies, educational subsidies, unemployment comp, and more, because it can print the money it needs if all else fails.  Carefully managed, the money printing that is used for economic support and stimulus has not proven particularly inflationary.  While central banks must remain alert to the risks of inflation, experience has taught us that prudent money printing can be of great benefit.  

So invest in crypto, if you like.  It's a free country.  But don't think it's a substitute for the dollar.  When times are tough, the cavalry will ride to the rescue with their saddlebags full of greenbacks.

Mysteries of Social Security Benefits

How to become eligible for benefits. It's worth having a basic understanding of how Social Security works so that you'll know how to maximize your benefits. Our thumb nail sketch follows.  To become entitled to any retirement benefits at all, you have to earn 40 Social Security credits. You get a credit by having a minimum amount of earned income (or, net earned income if you're self-employed) per year. In 2021, the amount needed for one credit is $1,470. This amount will be adjusted upward in future years in line with general increases in wages. You can earn up to 4 credits per year. Accumulate 40 credits (which would take at least 10 years of working in jobs subject to Social Security taxes) and you'll cross the threshold for retirement benefits. After you have 40 credits, more credits won't affect your retirement benefits. 

How Your Benefits Are Calculated.  Social Security next looks to the 35 years of your life with the highest earnings. The amount of your benefits will be based on your earnings in those years. You can get an idea of how much your benefits will be from the annual statement you get from Social Security.  Or you can use the benefits calculators at Social Security's website (https://www.ssa.gov/OACT/anypia/index.html). Why does this matter? For people who have full careers of 30 or more years, it probably doesn't matter much. But understanding Social Security retirement benefits may be important for people who work substantially less than 30 years. Let's say you started working full-time in your 20's but then took a number of years off to raise children. If you have 32 credits, you're not entitled to any benefits. Understanding that you need to earn a modest amount of income for a couple of years to reach the threshold for benefits is now an important piece of information. With 40 credits, you could collect a few thousand dollars a year in benefits, even you've worked only ten or twelve years. That may not sound like much, but it could total many tens of thousands of dollars (or perhaps more than $100,000) over the course of your retirement.

Social Security calculates the amount of your retirement benefits based on the 35 years of your working life with the highest income.  You can often boost your benefits by working longer.  If you've worked a lifetime total of 10 years and have your required 40 credits, you also have 25 years of zero earnings that go into the calculation of your retirement benefits. Every additional year you work reduces the number of zero years and increases your benefits.

When to Start Collecting Social Security. The earliest you can start collecting retirement benefits is age 62. The amount with an early start will be less than what you'd get if you waited until your "full" Social Security retirement age. Your "full" Social Security retirement age depends on when you were born. If you were born any time from 1943 to 1954, your full retirement age is 66 (it's lower if you were born before 1943, but in that case you're probably already collecting benefits). If you were born in: (a) 1955, full retirement age is 66 and 2 months; (b) 1956, full retirement age is 66 and 4 months; (c) 1957, full retirement age is 66 and 6 months; (d) 1958, full retirement age is 66 and 8 months; (e) 1959, full retirement age is 66 and 10 months; and (f) 1960 or later, full retirement age is 67. 

The reduction of benefits from an early start depends on how early you start.  If your full retirement age is 66, the reduction in benefits: (a) at age 62 is about 25%; (b) at age 63 is about 20%; (c) at age 64 is about 13.3%; and (d) at age 65 is about 6.7%. If your full retirement age is 67, the reduction in benefits: (a) at age 62 is about 30%; (b) at age 63 is about 25%; (c) at age 64 is about 20%; (d) at age 65 is about 13.3%; and (e) at age 66 is about 6.7%. If your full retirement age is between 66 and 67, the reductions apparently are somewhere between the amounts for ages 66 and 67. It's important to understand that these reductions are permanent. If you start collecting benefits at age 62, they will always be about 25-30% less than the benefits you would have gotten if you had waited until your full retirement age. The fact that you are getting benefits sooner, and may be able to stop working at an earlier age, may make it worth your while to forego the higher benefits available at a later age. Just be sure you understand the cost. 

 If you delay taking benefits after your full retirement age, your benefits will increase even more. That's especially true if you continue to work. The amount of the increase will depend on whether or not you work, how long you work and how much you earn. For people born in 1943 or later, a boost of 8% per year is provided for each year of delay (and your benefits may be further increased if you keep working). So you might be able to leverage your benefits upwards as much as 24% or more over your full retirement age benefits if you wait until age 70. But start collecting them when you hit the big 7-0, because they don't increase with further delay. 

So, when should you start collecting retirement benefits? That depends on your personal situation. If your health is good and you think you have a long life expectancy, delay benefits as long as possible. That way, you'll have better protection for the last years of your life, when your savings may run low. The benefits you get by waiting until 70 can be 50% or more than the amount you'd get starting at age 62, so we're talking about some serious pocket change.  But be careful if you've stopped working. Without a job, how would you live for the years before you started to take Social Security? If you have a pension, you may be able to get by with that. But if you'd have to burn off a lot of your savings in order to delay benefits, you may be better off starting benefits earlier and conserving your savings. Retired people have a hard time replacing spent savings, so if your savings are modest, keep them warm and dry for big expenses like medical care. 

If your health is poor, consider taking benefits at age 62, especially if you are unable to work. That way, you'd get something back for all the Social Security taxes you paid. 

When to start collecting becomes a more complicated question if you are married. Your spouse is entitled at age 62 or older to collect Social Security benefits based on your record, and can collect up to half the amount of your benefits (but only when you start to collect). If the two of you are short of cash, and the total amount of your combined benefits would provide badly needed cash flow, it could make sense to start collecting earlier. However, the spousal benefit is less if your spouse begins collecting it before their full retirement age. Make sure the sacrifice is worthwhile. There may be many nuances to the question of when you should begin collecting Social Security retirement benefits, and you should research the question carefully.

Who receives benefits. You, naturally, receive benefits based on your employment history. Your spouse beginning at age 62 can also receive benefits based on your employment history, up to as much as half of your benefits. Like you, however, your spouse is receives reduced benefits if they start collecting benefits before their full Social Security retirement age. Conversely, you might be able to receive Social Security based on your spouse's employment history.  The amount you get will be the greater of your personal benefit or your spousal benefit. 

Divorced persons may be able to collect Social Security retirement benefits based on the employment history of their former spouse under some circumstances. They must have: (a) been married for at least 10 years; (b) reached the age of at least 62; (c) be currently unmarried; and (d) not be entitled to a larger benefit based on their own employment history. So not all is lost from the relationship. You can receive up to half of the amount of your ex's full retirement benefits if you wait until your full retirement age. Your spousal benefits from an ex will be permanently reduced if you start earlier. 

Benefits for Dependents. One little known fact about Social Security is that if you are entitled to retirement benefits and have dependent children or grandchildren, the kids under the age of 18 or who are disabled can start collecting benefits when you do. So late in life parents, and grandparents who are raising their grandkids, can get some help. This benefit is subject to limitations on much your family can collect in total (about 150% to 180% of the benefits you receive). If you are eligible for Social Security retirement benefits and are in need of cash to raise the young ones, here's some relief. If you don't need the money, save it up and use it as a college fund for the kids. 

Survivors Benefits. Social Security also provides life insurance of a sort, in the form of survivors benefits. Survivors can receive benefits, depending on the deceased person's employment history. A widow or widower can receive benefits as early as age 60, although they will be sharply reduced from what the widow or widower would receive at full retirement age. A divorced survivor who was married to the deceased for at least 10 years and remains unmarried may also be entitled to survivors benefits starting as early as 60. A widow or widower (or divorced survivor) of any age who is supporting dependent children under the age of 16 or disabled children (who themselves are entitled to a child's benefit) may also be able to get survivors benefits. Unmarried children under the age of 18 can receive benefits (and can get them up to age 19 if they are still attending primary school or high school). Even your dependent parents, if you are providing at least half their support, can collect benefits if they are at least 62. Survivors benefits are complex, and we have only touched the surface. You may need to do some careful research to understand your situation.

More Headaches. People receiving pensions from governments or nonprofit institutions may be subject to nasty reductions and offsets if they didn't pay Social Security taxes in those government or nonprofit jobs, even if they otherwise qualify for Social Security benefits from other jobs. Your painkiller budget will skyrocket if you ever have to deal with Social Security disability questions. But it's important to be familiar with Social Security. Over 55 million Americans receive retirement or related benefits of one type or another, and over 13 million receive disability benefits.  Social Security will probably benefit you and/or your family some day, so it's worth the effort to understand it.

Techniques For Retirement Saving

Technique matters a lot in tennis, golf, basketball and a host of other sports and activities. It also matters to investors. If middle income Americans approach investing--especially long term retirement saving--the right way, they can be hundreds of thousands of dollars, or even a million dollars, better off when receiving the retirement watch, compared to someone's whose technique is poor. Here are a few basic pointers that can take you a long way.  

Calculate your net worth regularly. Keeping score is essential. You have to know if you're making progress. You'll need to know when you're not making progress or losing ground, so you can take action to turn the tide. Knowledge can be painful in times of market downturns, but avoiding reality won't improve your retirement finances. You may or may not have a fixed saving goal. Having a goal is good, but not essential. It's essential to know where you stand. That knowledge alone will keep you focused on building wealth for the future. Calculate your net worth at least every three months.

Automate the saving process and use retirement accounts. Participate in any 401(k) or equivalent retirement plan your employer may offer. Maximize the amount you contribute. Some people think you might want to contribute only enough to get an employer match and then contribute to a Roth IRA; this isn't a bad idea but you have to be conscientious about the Roth contributions because they aren't necessarily automatic (read on for the solution to this problem). If you don't have access to an employer sponsored plan, open an IRA--or a Roth IRA if you think your future tax rates will be higher than today's--and arrange with your bank to have funds transferred every month (or every two weeks if you are paid on a biweekly basis) to the IRA. It's a good idea to use retirement accounts like 401(k)s and IRAs because they are separate from your regular bank and securities accounts, and the money in them is harder to spend before retirement.

Average returns take you to Lake Wobegon. Money managers (such as those at actively managed mutual funds) usually don't perform as well as market averages like the S&P 500. There are a number of reasons for this, including their higher trading costs and their compensation. But the bottom line is you are likely to end up with less. Focus on long term gains. Stick with index funds and other low cost investments. It's okay to invest in an actively managed fund with a good track record if the fund imposes low costs on you.  If you aim to get the market average for a return, you'll probably end up doing better than average.  

Keep it simple. Investing is, among other things, a sales transaction. A financial firm is the seller and you're the buyer. Complexity favors sellers and places you at a disadvantage. The seller will naturally know more about the product than you will. The law requires that sellers of financial products make a variety of disclosures to buyers. But even if those disclosures are made, the seller will probably still have a better understanding of the product than you will. So you may have trouble figuring out if the product is truly to your advantage. The complexity of some annuities and other insurance products, and some leveraged ETFs, is so great as to make them virtually opaque. Investing in opacity isn't a good idea. Complex products also tend to have higher costs for investors, which negatively impact investor returns. Stick to index funds and other low cost funds, and maybe some individual stocks and bonds. Plain old bank CDs aren't bad when the markets seem turbulent. If you don't understand a financial product, avoid it.  

The easiest budget of all--save a good percentage of your income (especially if you're self-employed). Budgeting sucks and it seems like every month something comes up that you didn't anticipate. Then, there are the "discussions" with your significant other about how much should be allocated to what expenses, and also last week's rampage off the budget. If you want a simple way to budget, don't focus on how much you spend, but instead on how much you save. Target a good-sized percentage of your monthly income (10% is good, 15% is much better, and 20% is a home run), and make sure that come hell or high water you save at least that much. If replacing your car's exhaust system one month prevents you from hitting your goal, then add enough more to savings the next month or two so that you backfill the deficit. The percentage-of-income-saved method allows you to avoid a lot of handwringing over lattes or not, and inter-spousal sniping, while meeting retirement goals. If you can consistently save 15% to 20% of your earnings over the course of a 30 to 40 year career, you could end up with enough to pretty much maintain your pre-retirement lifestyle during your golden years. If you're self-employed and have an uneven income, it's particularly important to save a good-sized percentage of your income because you can't easily automate the saving process.

Build your benefits. Even though private sector employers have abandoned pensions faster than New York high society abandoned the Trumps, just about everyone has the equivalent of a pension through the Social Security system. Although much maligned and stereotyped, Social Security is the port in the storm for tens of millions of Americans. The longer you work, the greater your benefits will be. Even though the level of Social Security benefits is subject to the whim and caprice of Congress, the tenure of members of Congress is subject to the whim and caprice of voters (including most of the tens of millions of Social Securities recipients). Whatever Congress may do in the future about Social Security benefits, it won't destroy the system and you'll be better off by working longer. If you're fortunate enough to have access to a pension, work as long as you can to boost your benefits. You'll sleep better, without having to buy a new mattress, if you can count on the automatic deposit of a monthly check.  

Attitude. Perhaps the most important factor, but the hardest one to control, is how you view money and saving. If you look at them the right way, you'll do fine. Understand that you have a finite stream of income during your life. If you spend your money, you can't save it. It's gone forever, and you're left with the now diminished remainder of your finite stream of lifetime income. Saving is a choice, not a sacrifice. Money saved now builds security for the future. Because your lifetime income is finite, you can economize now or economize later. Consider that eating dog food in your old age probably won't be a high point of your life. Remember that savings generate returns that can be compounded, so they may increase your finite lifetime income.  This isn't about being greedy in an unseemly way or living like a pauper during your working years. It's about common sense and living within your means. If you adopt the right attitude, you'll establish control over your finances and increase your equanimity.

How Much Do You Need For Retirement?

A pretty simple way to estimate how much money you need for retirement is: 

1. Calculate how much annual income you want (or need) in retirement, using current dollars. 

2. Subtract the amounts of Social Security benefits (including your spouse's benefits, if you're married), and pension income, if any, you (and your spouse, if married) expect. 

3. Multiply by 30; we'll call the result your nominal target. 

4. Adjust for inflation between now and your anticipated retirement age, by multiplying 1.03 by itself the number of times equal to the number of years until your retirement (i.e., 1.03 to the exponential power equal to the number of years until your retirement), and next multiplying the resulting number by the nominal target. The number you end up with is your inflation adjusted target.  (This calculation is based on a 3% inflation, which is roughly in line with the average since World War II.)

Here's an example. Let's say you'd like the inflation adjusted equivalent of $50,000 (in current dollars) a year for retirement. Your estimated Social Security benefits are $15,000 a year. You're lucky enough to have a pension that will pay $10,000 a year when you retire. Subtracting $15,000 and $10,000 from $50,000 leaves $25,000. Then multiply $25,000 by 30, getting $750,000.  We'll assume you have 20 years to go before retirement. Multiply 1.03 by itself 20 times (that would be 1.03 to the 20th power, exponentially speaking). The result is about 1.8061, which you multiply with $750,000, getting $1,354,500 as your approximate inflation adjusted target. 

 If you have no pension, which is the case for most Americans, you'd subtract your $15,000 Social Security benefits from $50,000, getting $35,000. That figure multiplied by 30 yields $1,050,000. Multiply by 1.8061 to account for inflation, and your target becomes $1,896,400. 

Note that your target number is in future inflation adjusted dollars. Since most people's incomes tend to increase in line with inflation, reaching the target isn't quite as hard as you might think. You can use this target without having to think about investment options or diversification strategies. Tired of stock market volatility? Slick financial advisers make you nervous? Don't want to invest in derivatives contracts or no money down real estate deals? That's okay. Save in CDs and money market accounts if you want. Work a second job, or drive the same car for 20 years. Don't splurge on a McMansion and learn the virtues of home cooked meals. Inherit the money, win the lottery, or get it any other way that's legal. It doesn't matter how you get the money, so long as you have enough. 

This formula is just an approximation, and is meant to give you a ballpark sense of where you need to go. We assume that you're retiring in your early 60s (most people do so around age 62). That's why we use a multiplier of 30--many financial advisers would use a multiplier of 25, but they're assuming retirement at age 65 or later. The multiplier of 30 also helps account for the fact that most pensions are not increased for inflation, so they lose value over time. We also assume that once you've accumulated the needed total, you'll invest it in a conservatively diversified portfolio during retirement, including some stocks and bonds. If you want to stick with all CDs in retirement, you should use a larger multiplier, like 35 or 40. 

Of course, this money isn't for your kids' college expenses or other non-retirement uses. That has to be saved in addition to your retirement money. It isn't easy to save for retirement. Then again, nothing worthwhile comes easily. Most people go through life and then retire on whatever they have when retirement time rolls around. Even if you can't imagine how you'd ever reach your target, starting to save is the only way you'll get there. If you don't start, you won't succeed.  Many folks would be happy to accumulate half their target. But they have to start saving to get there. The worst thing you can do is nothing.  Good luck.

How To Teach a Child To Manage Money and Save

The easiest way to build wealth is to start early and save often. A child who learns basic money management skills will spend sensibly and save as soon as they enter the adult work force. A person in their 20's who has the habit of saving and investing will benefit from a lifetime of good money habits. How do you teach a child to manage money? 

1. Give the child an allowance and a piggy bank. After the child has learned to count (at least up to 100), and is familiar with cash (coins and bills), give the child two things simultaneously. First is an allowance appropriate to the child's age. At age 7, 8 or thereabouts, something like $2 or $3 a week might be a good place to start. That's enough to buy a few little things, but not enough for the child to get into trouble. This allows the child to become familiar with money. Second is a piggy bank. It is important for the child to understand from the outset that money can be saved for future use and that saving some or all of the allowance will build up money for more expensive things. The child will learn very quickly to think about money as a resource that can be conserved and made to grow over time. It's important to give the child the allowance and the piggy bank at the same time. Receiving money and saving it should be associated in their mind from an early age. 

2. Hold the Line on the Allowance. If the child spends all of the allowance and then wants a supplement before next week's allowance, don't give in. Don't acclimate the child to borrowing against future income, or you'll create future debt problems for the child.  The child should learn that money is a limited resource and must be spent wisely. Increasing the allowance as the child grows older makes sense. But whatever the amount, don't supplement it. It's important for the young one to learn how to control the impulse to spend. 

3. Encourage Math Skills. All aspects of handling money--spending, saving and investing--require an understanding of math. Basic elementary school arithmetic--addition, subtraction, multiplication and division--is sufficient to handle most daily money problems. A middle school level understanding of decimals, exponents and how to read charts and graphs is helpful to understanding investments. Financial markets enthusiasts and Wall Street professionals often use more advanced math, such as statistics and differential equations. The more easily a child grasps mathematical concepts, the better prepared they will be to deal with money and investments. It helps if the child can do simple arithmetic in their head, without the need for a calculator. Make a game or contest of memorizing multiplication tables; your child will reap a lifetime of rewards from this bit of knowledge. 

 4. Have the Child Open a Savings Account During High School. Many parents give their kids credit cards (usually with a very small limit) at some point during high school. This isn't a bad idea, since it helps the child to learn about the modern financial system. But don't just give the young one the means to spend. Teach the child how to use the financial system to save and build wealth. Many banks offer special accounts for children that allow very small balances without any fees or charges. These accounts can sometimes be opened for as little as $25 or $50. Make sure your child has one, preferably during high school. Watching the balance grow and perhaps accrue a bit of interest will teach your child about the process of building wealth. This is something a young person should understand before going off into adulthood. 

5.  Show Your Child Their College Fund. It's a good idea to establish a college fund for your child.  A 529 account is an excellent choice, as it has tax advantages.  If you can open a college fund for your child, start as soon as possible.  The first year of the child's life is not too early.  The sooner you start, the more you take advantage of the compounding of earnings in the account (which can really boost the value of the account).  As the child approaches high school, or early in high school, show the account to your child.  By that age, the child will have a good idea of the importance of college and sufficient math skills to understand what happened in the account. You can use the account statements, or perhaps graph the contributions and value of the account using a program like Excel.  Explain how you opened the account and saved over the years, and how the account grew in value.  It's useful for the child to see periodic dips in the value of the account caused by stock market fluctuations, as that helps the child understand the vagaries of the stock market.  This is a valuable way to give your child an early lesson about saving and investing.

Tell your child how much college will cost (including tuition, fees, room and board, and whatever else), explaining the differences between in-state public universities, out of state public universities, and private colleges and universities.  Then discuss how much of the cost the college fund will likely cover and other sources of funding that may be needed.  If scholarships, grants and loans will probably be needed, be candid about discussing them.   If the child will need to work part-time in high school and/or college to pay for schooling, include that in the discussion. 

Showing the college fund to the child will likely be one of the first adult-level conversations the child has about money and finances.  The child will pay attention, because this very directly involves and affects them. Give your child this valuable learning experience.  Have this discussion at least once a year during the child's high school years, so the child can see how progress toward a big financial goal is achieved.  That will teach the child how to achieve big financial goals in their future, such as buying cars, homes, and college educations for your grandchildren.

6. Set a Good Example. Kids take after their parents.  Set a good example for your kids and be sensible about money yourself. You'll not only be rewarded with good finances, you'll have financially skillful children.  That's worth its weight in gold.

How To Make Your Retirement Money Last

 One of the most important problems facing a person at the cusp of retirement is how to survive financially during the golden years. A healthy 65-year old man will live about 19 more years, on average. A healthy 65-year old woman will live about 22 more years, on average. Those are just averages. Some won't make it that far. Others will live to their 90's. There's no simple answer to the problem of financing a long retirement. Much depends on the person's individual circumstances. Perhaps you, your parents, or your grandparents are facing this question. Here are a few thoughts. 

 1. Most retiring Americans will have less than $100,000 in savings and a house. They will be entitled to Social Security, and the lucky ones will get a pension. The pension will probably not be adjusted for inflation. A person or family in this situation should try to live on Social Security and any pension payments. Hold onto the savings and the house for the big expenses that may well be coming. Many health care costs (like assisted living) aren't covered by Medicare or Medicaid. Also, large purchases like a new car are best made with cash. When you're 70, you don't want to enrich banks with interest payments. 

2. For retirees with substantial savings, such as $500,000 or $1,000,000, the conventional wisdom is that if you retire around 65, have your money invested in a diversified portfolio and figure on living about 20 more years, you can withdraw about 4% of the savings the first year of retirement, and then adjust the amount of withdrawals for inflation each year thereafter. For example, if you start with $1,000,000, withdraw $40,000 in year one of your retirement. We'll assume that inflation remains at its historical average of about 3% per year. In year two, withdraw $41,200 (the original $40,000 plus $1,200 or 3%, for inflation). In year three, withdraw $42,436 ($41,200 plus $1236, or 3% more, for inflation). Remember that you'll also have Social Security and perhaps a pension, so the withdrawal probably won't be your only income. If your family has the longevity gene and you figure your retirement might last 30 years, start with a 3% withdrawal and adjust for inflation. To use our $1,000,000 example, withdraw $30,000 in the first year of your retirement, and adjust upwards for inflation in succeeding years. Where do these 3% and 4% numbers come from? A mathematical technique called a Monte Carlo simulation. It is a way of calculating probabilities--in this case, the probability that you might outlive your retirement savings. Is the Monte Carlo technique foolproof? Not more so than anything else that human beings have come up with.  The 4% concept has been criticized, but often as being too cautious.  So it's probably a reasonable approach.

4. Another approach to managing retirement savings is the time-honored rule of spending the earnings, but never touching the principal. One advantage to this approach is you will always have your principal. Your spending may fluctuate widely from year to year, especially if the stock market does one of its periodic belly flops. But your principal will remain. Its value will erode because of inflation. You can counteract the inflation by not spending all your income in good years. Set some aside and give your principal a boost. You'll be glad you did if, later on, you hit choppy water. Spending only investment earnings and preserving principal will mean that, on average, you'll probably spend less than the 4% initial level approach prescribed by the Monte Carlo approach. But if you get more peace of mind from never touching your principal, then don't touch your principal. Your retirement years should be as worry-free as possible. 

5. Some people advocate the use of annuities to make retirement savings last. There are many types of annuities, and most of them are suitable only for wealthy people. But if you have $500,000 or more, certain kinds of annuities might make sense. Ones that provide a predictable monthly payment (such as a lump sum immediate fixed annuity or a lump sum inflation adjusted annuity) might help you avoid spending the rest of your savings too fast. But remember that you lose the money you invest in the annuity if you die early. For example, if you are 65 and invest $200,000 in a lump sum immediate fixed annuity, and get hit by a truck the next month, you lose all $200,000. (There are annuities that mitigate this problem, but at the cost of lower monthly payments to you.) And there's also the risk that the insurance company that sells you the annuity may go out of business. If so, you could lose at least a large part of the money invested in the annuity. Annuities may be right for some people. But you have to think about them carefully.

 6. Work as long as possible to build up your Social Security credits, and your pension credits if you're entitled to a pension. The more continuing income you have, the less you'll need to tap into savings. To learn about how Social Security determines your credits, go to https://uncleleorumbles.blogspot.com/2007/05/mysteries-of-social-security-retirement.html. Also consider delaying the time when you start to collect Social Security benefits. That will increase the size of your monthly payment (until you reach age 70, when these increases stop and you should therefore start taking Social Security no matter what). See https://uncleleorumbles.blogpost.com/2007/05/mysteries-of-social-security-retirement_02.html.  

How you approach the problem of managing your retirement money is a matter of personal choice. Some want to live it up while they are still healthy. They travel a lot and get to know many maitre d's. They don't care about leaving an estate behind. Others want to make sure they don't run out of money and spend cautiously. They know it's hard to recover from financial setbacks when you're 75 or 80. Early spending in retirement is costly to your long term financial security, but it's not wrong. Whatever your choice, make sure you understand the consequences.  If all this makes you queasy, save some more before you retire.  Retirement's financial problems are always easier the more savings you have.

Unclaimed Money

There are billions of dollars worth of unclaimed assets in America. It's important to marshal your assets, particularly as you approach retirement. If you've been careful about your finances, chances are that you have everything that you're entitled to. But there are places you can check to make sure you haven't left any money on the table. Remember that you may have money coming to you directly, or perhaps from a deceased family member through inheritance. That means you should check under your name and the deceased person's name. And if your spouse is busy unloading the dishwasher, you may want to check for them as well.

Old bank accounts, shares of stock, insurance policy assets and payments, annuities, uncashed checks, unredeemed money orders or gift certificates, security deposits, contents of safe deposit boxes, customer overpayments, and other financial assets must be turned over to the state of the customer's last known address, if the customer has not made any contact or engaged in any activity for a period of time (such as a year or more). You can search at www.missingmoney.com. Also, you can go to www.unclaimed.org to get more search options (this site can link you to each state's treasurer, which allows you to search individual states). If you search individual states, make sure to check all states where you, your spouse, your kids, your late parent, or your deceased wealthy uncle, aunt, grandparent, cousin, sugar daddy, sugar mommy or other potential benefactor lived, as far back as you have information.

Remember that there is a chicken and egg problem with unclaimed property. You may have forgotten to cash a check. Maybe a small bank account slipped your mind when you moved some years ago. You may not know that you're a beneficiary of a will or insurance policy. Or you may not realize that your late parent, in the forgetfulness of old age, lost a number of checks without depositing them. You can't get what you've forgotten or never knew about in the first place. States, facing severe budgetary pressure, have become aggressive about getting these assets from insurance companies, corporations, banks, and so on. While the states are looking out for themselves, the consolidation of all this unclaimed property into the hands of state treasurers gives unknowing beneficiaries and claimants centralized places to look for assets to which they may be entitled. So don't be shy about poking around. You have nothing to lose.

You can check for an unclaimed federal income tax refund at www.irs.gov. Use the "Where's My Refund" feature on the front page. State tax agencies usually provide a way to check online for the status of a refund.

If you think you may have a claim to a matured U.S. Savings Bond, check at http://www.treasuryhunt.gov/.  You might locate bonds you bought yourself but forgot, and bonds that your parents, relatives or others bought for you.

If you worked 10 years or more for an employer with a pension plan, you may have earned the right to a pension, even if you no longer work there. You can check with the employer. If it has gone out of business, its pension may have been taken over by the Pension Benefit Guaranty Corp. This is a federal agency that guarantees pension benefits up to a limit (which varies depending on the type and terms of the pension). You can check at http://search.pbgc.gov/mp/ to see if you might have a pension claim. Even if your name doesn't appear in this search, you may want to find out if the pension plan is now being administered by the Pension Benefit Guaranty Corp. Search at www.pbgc.gov/workers-retirees/find-your-pension-plan/content/page676.html. There's always a chance your name is spelled differently in the government's records, so you should find out who's taken over the plan and then figure out how to establish any claim you may have. Another resource for finding or dealing with a pension plan would be a regional pension counseling project. These projects are listed by the Pension Rights Center, a nonprofit organization, at http://www.pensionrights.org/counseling-projects. You can also try the federal Employee Benefits Security Administration at 1-866-444-3272 or http://www.dol.gov/ebsa/. You can get the address and phone number of a local EBSA office where you could seek assistance. If you need help figuring out whether the amount of pension benefits your employer promises is correct, you can get four hours of free assistance from the American Academy of Actuaries. See https://www.actuary.org/content/pension-assistance-list-pal.

What if an old employer had a 401(k) plan, and you want to check to see if you have an account? Contact your old employer. If your old employer has gone out of business, you can search a Department of Labor website for information: www.askebsa.dol.gov/AbandonedPlanSearch.

Of course, keep track of your Social Security benefits. Use the resources available at www.ssa.gov. Remember that not only do you get benefits, but your spouse and perhaps even your dependent children may get benefits. This is something we discussed at uncleleorumbles.blogspot.com/2007/05/mysteries-of-social-security-retirement_03.html. Make sure everyone in your household gets the benefits to which they're entitled.

Veterans of limited financial means may be eligible for an income supplement called the Veterans Pension. This pension supplements other income you have to bring your total income up to levels prescribed by Congress. For those who served during the Vietnam War or earlier, benefits may be available if you had at least 90 days of active service, with at least 1 day during wartime. Veterans whose active duty service began on or after Sept. 7, 1980 need at least 24 months of active service (or the full time period for which they were called up for active duty). For more information, go to the Veterans Administration website at https://www.va.gov/pension/eligibility/. It's very important to note that veterans eligible for a basic veterans pension, who have serious health problems and need assistance from others for personal living tasks, or who have one or more disabilities, may also be eligible for Aid and Attendance or Housebound benefits, which are paid in addition to the basic veterans pension. For a vet facing nursing home expenses, or the costs of home health care, Aid and Attendance or Housebound benefits can make a difference.

For more information about Social Security, read our May 1, 2007 blog uncleleorumbles,blogspot.com/2007/05/mysteries-of-social-security-retirement.html, and May 2, 2007 blog, https://uncleleorumbles.blogspot.com/2007/05/mysteries-of-social-security-retirement_02.html.

To avoid having your money or property go unclaimed, see https://uncleleorumbles.blogspot.com/2008/08/how-to-avoid-having-unclaimed-property.html.

Hope For The Financially Lost

Some people have financial plans, but a lot of people don't.  Those who have plans sometimes find that the plan has been blown up by job loss, illness, elderly parents who need support, or bad investments. Some people simply can't save. Whatever the situation, there remains hope for the financially lost to have at least a decent retirement.  

Boost your benefits. Work as long as possible to build up your Social Security benefits and, if available, your pension benefits. This is especially important for those who can't save. Even if you aren't working, delay taking Social Security benefits as long as possible (until you're 70). Delaying Social Security increases benefits up to age 70. At that point, start taking benefits because delaying won't increase them any longer.  For more, see https://uncleleorumbles.blogspot.com/2007/05/mysteries-of-social-security-retirement_02.html.  

Stay together. Couples generally are better off than singles, because they can pool their resources. Even if their only resources are Social Security benefits, a couple are usually better off together than each would be individually. Of course, togetherness isn't always possible. When it is, there are financial, as well as other, benefits. For more, see https://uncleleorumbles.blogspot.com/2007/05/mysteries-of-social-security-retirement_03.html.  

Get a job with a pension. Government, law enforcement, military and educational jobs usually offer a pension or other retirement plan. Although retirement benefits in many state and municipal jobs are being adjusted to meet fiscal realities, they will still be better than nothing. Not everyone is cut out for these types of jobs. If you find a private sector job with a pension, then try to stay there long enough to accrue meaningful benefits. For those who can't save, a pension is golden. You just have to work long enough for the pension to vest. If you need assistance figuring out if the amount of pension benefits your employer promises is correct, contact the American Academy of Actuaries at https://www.actuary.org/content/pension-assistance-list-pal. They'll give you up to four hours of free help. If you think your benefits are too low, contact a regional pension counseling project for free assistance. http://pensionrights.org/find-help. 

 Buy a house and pay off the mortgage. Buy a house, pay off the mortgage, and don't borrow against the house. This strategy will build equity in a piece of real estate that you can add to your Social Security benefits (and pension benefits, if any).  In retirement, be cautious about borrowing against the house through a reverse mortgages because they can be very costly.  If you need to raise cash, consider selling the house and living somewhere else.  This can raise considerably more cash than a reverse mortgage, especially if the house is in a region with high housing prices.  Then, you can sell the house and move to a region with lower housing costs, and end up better off than with a reverse mortgage.  Also avoid home equity lines of credit.  If you have no savings and Social Security isn't enough, how will you repay the HELOC?  

Move to a lower cost region.  This can be somewhere in the U.S. or another country.  Latin America, Asia and some parts of Southern Europe offer significantly lower living costs in many locations.  However, moving can involve a number of tradeoffs.  Think carefully before deciding, especially about downsides like being without family and friends, having less access to advanced medical care, and how much you'll miss plain old American things like a soda served with a lot of ice (this doesn't happen much in the rest of the world).  Try taking a vacation in the location first to see if it seems like a fit.  Look into the legalities.  Getting permission to stay in a foreign country long term can sometimes involve a labyrinth of legal procedures.  Those who are adventurous and flexible can find living in a foreign country is tremendously rewarding.  But it's not for everyone.

None of these strategies will finance a yacht. Remember that it's never too late to save, even if you're living on just Social Security. Cash is sublime when times are tough.

The Simplest Financial Plan of All

 A very simple financial plan--the simplest of all, in fact--is to save a significant percentage of your income. If you save about 15% to 20% of your pretax earnings, work for 30 or more years, and invest in a reasonably well-diversified portfolio of stocks and bonds, you'll have a good chance of maintaining your pre-retirement standard of living during your golden years. It's not easy to save this much. But if you can, you'll probably build a good-sized portfolio while keeping your standard of living under control and sustainable in your golden years. If you save a smaller percentage of your pretax earnings, like 5% or 10%, you'll have to make some cutbacks in retirement (although you'd still be better off than most Americans). 

 One advantage of the percentage of earnings approach is that you won't need to fuss around with financial calculators that give you seemingly impossible retirement targets, which need to be revised every year or two to account for inflation. Any reasonable estimate of your needed retirement savings will be in the high hundreds of thousands or the millions of dollars. These numbers seem so intimidating and impossible that many people don't even bother to start saving. That's a mistake. Forget about the seemingly impossible dollar amount and instead focus on saving a percentage of this year's income, then next year's income, and so on. After a few years, saving becomes easier and your wealth will grow visibly. 

Another advantage of using a percentage of your earnings as a saving target is that you won't have to budget specific expenses. You can spend as much as you like on lattes, clothes, cars, vacations and whatever, so long as you save the requisite percentage of your earnings. You can still indulge and spoil yourself in some ways, maybe even excessively, as long as you maintain the targeted retirement savings level. No need to input each day's expenditures into your computer, or debate whether chocolate is an extravagance or a necessity. Anything goes, as long as you fund your retirement adequately. 

 Saving isn't easy. But a simple financial plan will make it easier.  You've already read enough to put this simple plan into action. If you want a more detailed explanation of why the percentage of earnings method works, keep reading. But . . . Trigger Warning: Math lurks below. The simplest financial plan of all is based on a straightforward idea: the more you save, the less you spend today and the less extravagant your current lifestyle. You'll save more and have a less expensive lifestyle to maintain in retirement.  In other words, by controlling your spending today, you leverage your ability to save for retirement without a loss of lifestyle. If you’re a really good saver, you’ll have the means to provide for a retirement that involves little or no reduction of lifestyle. 

Look at the numbers. If you’re spending 100% of your current income, you’ll save nothing for retirement, and have just Social Security benefits. Get used to eating dog food. If you spend 95% of your pre-tax earned income (we count taxes as spending because you don't save the taxes you pay), and save 5% in a 401(k) account—adjusting your contributions upward annually for inflation--you’ll have a decent sized nest egg after 30 years. If we assume annual investment gains of 7% compounded, you'll have enough at age 65 to start withdrawing an amount equal to about 19% of your average annual pre-retirement income. (This assumes you're drawing down 4% of the initial value of your retirement assets per year in retirement, which is about as much as you should withdraw if you don't want to outlive your money.) Adding 19% of your working years' annual income to your Social Security benefits may not sound like a lot, but it’s certainly better than zero. If you're middle class, Social Security could amount to about 30% of your pre-retirement income. With another 19%, you'd retire on a total of about 50% or so of your average annual pre-retirement income. 

If you save 10% of your earned income in a 401(k) account for 30 years and get 7% returns compounded annually—again adjusting your contributions annually for inflation—you’ll end up with enough in retirement assets to provide about 38% of your average annual pre-retirement earned income, starting at age 65 (assuming a similar 4% annual drawdown). But your standard of living will be based on 90% of your earned income, so you’d be withdrawing enough for 42% of your average annual pre-retirement living expenses. (This is because 38% of 90% is 42%.) In other words, a little restraint in your lifestyle today leverages your ability to save and to maintain your current lifestyle in retirement. Add the 30% or so that Social Security would provide if you're middle class, and you'd retire on about two-thirds of your average annual pre-retirement income. 

Using the same assumptions, if you save 15% of your earnings each year, then you'd be able to withdraw about 57% of your average annual pre-retirement income during your golden years. Because you'd have been living on 85% of your income, the withdrawal would approximate 67% of your average annual pre-retirement spending. If you're middle class, add 30% or so for Social Security, and you would be able to spend about as much each year in retirement as you did, on average, before retiring. If you can save 20% or 25% of your earned income per year, you could actually end up with more lifestyle in retirement than you had while working. Let the good times roll. 

It’s important to note that these numbers are for your average annual earnings over the course of your life. Your average annual income for your entire working life will probably be lower than the income levels you enjoy in your 40’s and 50’s, since many people start off with lower incomes early in their careers and see their incomes rise over time. If this has been true for you and you want to maintain the lifestyle to which you’ve become accustomed in your 40’s and 50’s, save a higher percentage. At least 20% of your earned income would be a good idea. We also don't count investment earnings saved and reinvested, since that is embodied in the compounding of earnings that leverages the growth of your savings. 

 What’s the right level of saving? That’s for you to decide. Each of us has a point where the trade-off between saving and current spending feels right. It won’t be the same for everyone. Pick a point along the continuum that makes you comfortable, and stick to the savings plan. Some people want or need to spend a lot now, and are willing to accept a modest retirement as the price. Others want to be prepared for the future as much as possible, and their personal sweet spot would be a more modest lifestyle now and a higher level of savings. If you want to avoid a drop in your lifestyle in retirement, and you have 30 years to build a retirement portfolio, save 20% or more of your current earnings. While 15% has a good chance of getting you there, 20% is a safer number in case investment gains are lower than historical averages during the next 30 years (which is quite possible since go-go years in the stock market--like the 2010's--are often followed by long periods of below average performance). Also, if you have fewer than 30 years to go before retiring, save 20% or more, if you want to avoid a drop in lifestyle during your shuffleboard years.

Good luck.