Lifting the fog

I've had a few things to overcome these past few years.  I think the toughest part of being in a tough situation is that after a while, the situation beats you down.  You do well at first, but eventually, it saps your energy.  You know what you need to do to improve things.  You just can't muster the strength to do it.

Things started getting difficult for me in mid 2009, and I did pretty well, but some time in 2010, things got very difficult to manage.  The business was doing poorly and the daily stress was just destroying me.  By the time I folded up the business in 2012, I just didn't have any strength to keep fighting.  

Is it depression?  I'm not sure.  I'd say it's more like a fog that just sort of settles in.  I've lived a lot of my life in this fog.  Sort of like you can have functional alcoholics who still manage to hold down a job and pay their bills, I'm sort of a functional depressive.

I'm no fun to be around, but I can put one foot in front of the other and trudge along.  I may be barely holding it together at any given point in time, but I am holding it together.  I'm just sorta soldiering on until things get better.

I know that plodding along this way is not helping things to get better.  I could be doing more.  Life just isn't that way most of the time, though.  It's not an equation where 1 unit of effort always yields 1 unit of progress.  When a person is functioning well, they're putting forth effort knowing that in the aggregate, it's helping them succeed, but knowing that not necessarily every thing they do helps them immediately.

It's been a long time since I've been able to feel like trying to move forward.  I've had to adjust to a new life.  New condo, new job, new situation with my son.  It's been a lot.  In addition, unlike being in business for myself where a good month could square me up after several terrible months, I earn a wage, now.  So, there's not that ever present possibility of a huge payday.  

That's not all bad.  Obviously, if my business failed, those huge paydays didn't come along nearly often enough.  In fact, when I think of most of the measures of material success, I did much better working for others than I ever did working for myself.  Yes, I had years of huge income, but all in all, averaged out, I probably did just as well working a job.  

The predictability is the biggest benefit of a paycheck.  With a nice paycheck, my retirement savings grew.  My guitar collection grew.  My mortgage got paid.  That was easy.  It was much harder to manage my money when a good month meant making $50,000, but a bad month could mean losing $30,000, and having no idea what kind of month was coming 2 months from now.  

I really took it on the chin from 2010 through 2013.  In fact, at one point in 2011, I noticed that I had developed a stutter.  I think it was due to stress.  I generally have fancied myself as a person very comfortable talking in front of groups.  I have heard people say that public speaking is one of the most common phobias.  So, to have things feel so out of control that I truly had difficulty stringing together a sentence without stuttering was a pretty alarming development.  

Folks who visited me saw that my house was a shambles.  Part of it had a rational explanation:  I was halfway through renovating a fixer upper when the business died.  Though, all in all, there was really no excuse for it.  I lived like a hoarder with all my stuff just sorta strewn all over the house... and I have a lot of stuff.

It's just difficult knowing that you've got looming challenges, and you don't entirely know how you're going to get through them all.

Things have gotten a lot better these days, though.  I'm coming to accept the parts of my life I don't like:  separation from my son and a horrific commute.  My life is challenging, but there have been a few things I have known I need to do that I just couldn't muster the energy to get busy with.

The first is fitness.  I work on a military base, with access to gigantic gyms where I can work out and use all the facilities for free.  There is simply no excuse for me to be in what is probably the worst shape of my life.  I've started moving my weights from my detached garage into the condo where I will set up a weight room in my basement.  I've already started doing some simple workouts with dumbbells.  This week I'll start hitting the gym a few times every week while in Dayton and start fitting out the workout room downstairs for workouts on the weekend.

There's a Planet Fitness within walking distance of my condo, as well as the YMCA/JCC.  I'll give it some thought, but will probably join one or both of those, eventually.

Being in shape, physically, is one of those things where all the effects are tremendously positive.  Not only do you have more energy and look more attractive, but it helps fight depression.  It puts you in a virtuous cycle.

I'll see where this takes me, but I would love to get somewhere in the ballpark of the fitness level I had when I was turning 35.  At that point, I did 2 or 3 workouts a day, and no matter what I ate (usually involving massive amounts of ice cream 3 or 4 times a day), I could not keep on any body fat at all.

I'm still not sure what shape the workouts will take.  I think I want to do at least one weight workout a day.  Then, combine with a second workout of some type of cardio.  My favorites are stairclimber and rower.  If I can do it without ruining what's left of my knees and hips, I'd love to run again, too.

So, fitness is something that I'm getting back into in 2014.  For every possible reason, I just need to do it.  I'm taking the steps I've envisioned taking for months, now.

The other thing is music.  I have pretty boring evenings in Dayton, where I end up just surfing the internet.  That's sort of become the new equivalent to vegging out on a couch.  At the very least, I could be working on my guitar and/or keyboard playing.  I'm sorta keeping an eye peeled towards an inexpensive keyboard that I can get on sale.

In the mean time, I'm bringing the guitars upstairs.  I cleaned up my main player's guitar (a mexican strat) and restrung it.  This is one thing where I might never be as good as I was when I was in my mid 20s, but I could at least be good enough to play a little bit here and there.

Those two things were so simple:  getting some dumbbells into the condo, re-stringing an old guitar, but I just couldn't muster the energy until now.  Now, it's just coming together.  I want to do the things I used to enjoy doing.  

I bought another guitar.  That actually lifted my mood, too.  I got a really good tax refund.  It's been a long time since I've had a really, really nice guitar.  I have had collections of Les Pauls and Melancons.  I've had Gibson SGs, and Fender Strat Plusses.  Every last one of them got sold off when the business did poorly and I needed money to meet payroll.

I managed to salvage a smallish collection.  A couple of them are my son's.  I was able to save an acoustic guitar, a classical guitar and the mexi-strat for myself.  So, I had guitars I could play.

Having a new guitar, though... well... different people have to define success for themselves.  For me, there can never be anything depressing about your financial situation when you can afford to buy a guitar.  Silly?  Yes, but a nice guitar has been an icon to me ever since the days when I was a pre-teen and could not afford one.   

I've got a lot to look forward to this year as well.  I may be able to get an overseas assignment.  I'll get a promotion in August.  The tax refund will help me balance the books until then.  I am changing offices and I'm anxious to see where I'll be for the next 18 months.

So, if success were a physical location, like a town or something, I would not be standing in it at the moment.  However, for the past 4 years, forces beyond my control were taking me progressively farther and farther away from Successtown.  Last year, I held my ground.

This year, I can feel myself starting to move back towards it.  As long as I'm moving towards it, I'm happy.  I have a new guitar and all the bills are paid.  I have the best son I could ever hope for.  I have a job that's taking care of things.  

For the past 3 years, I just kept moving forward, not knowing exactly how I was going to get out of the doldrums.

Now, I still don't have much of a clear picture of the exact path I will take.  I can tell I'm still moving forward, though.  Things no longer suck.  They feel like they're going to get a lot better.

How to Retire Comfortably, or even Rich!

I feel a little foolish writing this blog post because the stuff I'm about to talk about is readily available information.  Countless articles are written on this all the time.  Despite this, time and time and time again, I run into folks who just haven't absorbed this.  I draw up a simple spreadsheet and show them some simple calculations and they are utterly stunned at what is possible with tools that are easily within their grasp.

So, if you're already on your way to being a millionaire or multi-millionaire, please forgive me.  If you aren't, or aren't sure, please read just a little bit farther.

I'm going to focus on one aspect of retirement / wealth accumulation:  retirement accounts.  By this, I mean 401(k), 403(b) or TSP, depending on which one your employer offers.  It is not uncommon for some employers to offer a match of some sort.  However, I'll provide some figures that don't involve a match just for the sake of illustration.

Let's take a typical mid-20-something who has finished school and embarked on a career.  Let's set their initial earnings low.  So, let's talk about a 25 year old who makes $25,000 a year.

For the sake of this model, we'll increase this person's earnings at about 4% per year for their entire career.  Yes, it's true that a lot of you don't get very good pay increases in your jobs.  However, generally speaking people's earnings go up over their lifetime.  Every now and then you change employers and get 15% more, or you get a promotion and get 10% more.  For the sake of simplicity, though, we'll set this person's annual increases at 4%.

This person will put 5% of their annual salary into their retirement account.  So, for instance, in year 1, they will contribute 1,250.  Now, bear in mind that this contribution is tax-deferred.  So, although $1,250 goes into the retirement account, it's going in as pre-tax dollars.  Basically, if they didn't make this contribution, they wouldn't get that $1,250 to spend.  They'd get whatever the after-tax amount would be.  So, what, maybe $1,000 or so.

I will also presume that this person invests their money into something like an S&P 500 indexed fund.  Over the long-term, we'll presume this person gets 10% annual return from their fund.  (Yes, I know this is a very controversial assumption, especially after the debacle we've seen in the stock market this century.  However, the historical rate of return of the Dow over a long enough time frame is about 10%.  So, I don't think that's an unreasonable assumption.)

Okay, so this person plugs away, always putting 5% of their pay into their retirement account.  And after 10 years, their account will equal about $25,000.

After 20 years, it equals over $100,000.

After 30 years, over $300,000.

After 40 years, when they are 65, it will be over $900,000.

When they reach full retirement age at 67, it will be over $1.1 million.

Now, this raises a few questions:

1.  Are these assumptions realistic?  

Well, if you ask me, this model is exceedingly conservative in terms of this person's lifetime earnings.  The only assumption that might be a stretch is the 10% return from the stock market.  I have no idea what the stock market will do over time.  I just know that people tend to innovate and create wealth over the long haul.  This results in stock prices tending to go up.  Over a long enough time frame, a broad-based index increases at roughly 10%.  So, that's why I use that number.

2.  Okay, $1.1 million in 42 years?  But what will that be worth after inflation?  

A reasonable answer there, in my opinion, is that inflation appears to be getting lower and lower over time.  But a reasonable historical rate of inflation would be, say, 3%.  You can use any presumption you want, but my gut feeling is that 3% is more than inflation will actually be over the next 42 years.  So, if we adjust for inflation, $1.1 million will have modern-day purchasing power of over $330,000.  So, basically, a million dollars will be a lot of money, even 42 years from now.

3.  $330,000 doesn't seem like that much of a secure retirement.  How can I feel good about that?  That's not much of a brass ring.

No, it's not a brass ring.  You won't be able to buy human slaves or a mansion.  But don't forget that you'll also likely be collecting social security.  The combination of the two will probably provide for a reasonable and secure retirement.  Don't believe folks who say social security won't be around.  That's alarmist and even the most dire predictions don't include a scenario where social security disappears.  The absolute, worst-case, Armageddon scenario I've ever heard of was where benefits were reduced by 30% and no serious government official has ever proposed that.

4.  No, seriously, that sounds like a pretty bad scenario to me.  What gives?

I can understand this perspective.  Just keep in mind that many of today's retirees would be doing back flips if they had $330,000 in the bank.

But if you want to improve your wealth at retirement, there are other things you can do:

a.  Work for an employer who will give you a match.  For instance, my employer matches the first 5% I contribute basically dollar for dollar.  When I owned a small company, I provided a company match for my employees that was pretty much the same.  The large employer I worked with before that matched my first 5% of contributions with an amount equal to another 4%.

So, let's jigger the formulas for an employer who throws another 4% in for us.  If you do that, this worker, when they turn 67, will have over $2 million with an inflation adjusted value of about $600,000.

b.  You don't have to put 5% of your pay into your retirement account.  You can put in 10%.

This has a similar impact to getting a match.  So, presuming an employee who gets 0% match, if you put in 10% of your pay, you end up with about $2.3 million at retirement or an inflation-adjusted $660,000 or so.

c.  Do both.  Put in 10% AND get a 4% match.

At this point, you're hitting on 6 cylinders.  You will end up with about $3 million overall and inflation adjusted, over $900,000.

So, the potential is there to accumulate tremendous wealth.  But even putting away 5% is enough to change your life.  Now, there are obviously other things you can do to make for an even better retirement.  You can work for an employer with a bigger match.  You can work in higher paying fields.  (Let's be frank, the $25,000 in the example isn't exactly what most college grads envision.)  You can try to work in a field that has a genuine pension.

Those are all things you can do without taking extraordinary risk by starting your own business or heading off to try and work in a Silicon Valley tech startup.

What if you're already halfway down that road?  Hey, you have to jigger the numbers for your particular circumstances.  Now, yes, there are ages where it probably is too late to start.  If you're in your late 50s, you really can't leverage time like a younger worker can.  But even with as few as 20 years left in your working life, it's easy enough to construct a scenario where you retire with a million in your retirement savings account.  You will probably have to lean heavily on earning more money and putting away a larger percentage of your pay.

Especially if you're young, though (and to me, "young" is pretty much anybody in their early 50s or younger), start saving now.  Don't despair.  The impact is real and you can retire very comfortably.