Attention all military members and veterans: assess your retirement plan for your 2017 New Year’s Resolutions. You served our country. You deserve to able to retire in it. Do not do yourself a disservice.
Like any military mission, planning for “Mission: Retirement” should include a sound strategy and a clear definition as to what success looks like.
Sure, saving as much money as possible seems to make sense. But, how much will you need? And what are some ways to grow your money? What is hand-to-hand combat like on the financial battlefield so you’ll be ready when the time comes?
While no short blog article can cover all that in major details, what follows below is an understanding of “Mission: Retirement” and financial allies that can help any military member or veteran as well any spouses or family members in between.
How do you plan for this Mission?
Yes, great question. We knew you’d ask. But it’s a number you are going to derive for yourself. Don’t worry, we’re going to help you right now in three steps.
Step 1: Determine How Much Money You Need Each Year in Retirement
Will it be $75,000? $100,000? Think long and hard about planning for retirement. Make a little list just like Santa would have. Ask yourself, “will the mortgage be gone? The cars paid off? Kids done with college? Will I be done settling my minor lawsuits?” (We were kidding on that one.)
On a serious note, realize that you are going to have a lot of time on your hands in retirement. Time to shop at Costco (at least the food samples are free), buy things off of QVC, you get the picture. The point is that you will spend more money than you think with extra spare time. Everyone always does.
So, do some serious thinking about your expenses and whether you plan to travel, etc. Worst-case is the annual need for your money from the expense list is totaling up. And don’t forget that you need to include some kind of healthcare costs depending on your length of military service. If you are looking for a great worksheet, we like this one from USAA Foundation.
Then, set that total annual expense number aside. We are going to use it in a moment in your retirement planning.
Step 2: Use this Retirement Equation
An equation! What equation? What the heck?! Is this homework or a blog article? For gosh sake…
Don’t worry, it’s easy math.
Where did that crazy 3% come from? What is going on here?
Okay, chill. A couple decades ago, the conventional financial wisdom was that you needed enough money where you could cash out roughly 7% a year and be able to live off of that amount for your annual expenses. And then that thinking essentially shot to crap.
Today’s wisdom is far more conservative for “Mission: Retirement.” Seven percent was too much. People were running out of money. Not pretty.
Hence (and we do not use that word lightly), the newer thinking is cashing out 3% per year instead of 7%. Whoa, that’s a lot lower you say. (We’ll save you the long explanation of how bonds outperformed stocks for nearly a decade, etc. But that is how the 7% got shot to crap.)
Just know that “Mission: Retirement” demands more in financial assets and being even stricter about how much you plan to cash out each year.
EASY EXAMPLE: If your financial assets are $1 Million, then expect to be able to withdraw $30,000 (3%) safely each year.
And for final clarity, the reason you do not want to withdraw too much is because you do not want to outlive your assets and what those liquid assets can ultimately deliver over time. Remember, humans live longer now.
So, just what are liquid assets? Financial thingys where you can get your money rather quickly when you need to. Examples: checking accounts, savings accounts, stocks, bonds, mutual funds. (You get the idea).
By the way, liquid assets are NOT your house, your car, your mortgage (this would actually be a liability, in fact), your overweight cat (it takes a long time to sell a fat cat.)
Step 3: Learn About Asset Types and What Can Help You Get to the Retirement Amount Needed
There is more than one asset type then just cold hard cash.
Because although cash is an asset type, stuffing cash in the mattress to save enough is just not going to work. Let’s just shoot that one down now. Here’s why.
Problem #1: Cash is “corroding” all the time. Just like certain metals that can rust.
Why use the word “corroding?”
Because inflation and taxes are always eating away at cash the way that rust eats up metal. For cash, it’s an invisible effect, and you do not see it on a daily basis. But corrosion is always there.
A dollar today is always worth more than that same dollar tomorrow, next week, or next year. Because someone is going to tax it or charge you more in the future for that same gallon of milk you always buy. Sad fact.
In fact, think of taxes and inflation like the virtual bed bugs in your mattress just eating away at the cash you stuffed in there. Okay, we realize that might have been creepy. But you will never forget it now.
Problem #2: You’re going to need more cash than what you earn over the years.
Unless, you have a job paying hundreds of thousands of dollars a year, which you may, a lot of those earnings are eaten up by life (i.e. home, food, the fat cat). So, you simply need to get that extra cash leftover out of the mattress, get it away from those corrosive virtual creepy bed bugs and put it to grow somewhere. So, let’s learn about places other than the mattress.
Here’s where it gets even more fun. StreetShares is not an investment management firm, and we do not have registered investment advisors. So, we are keeping this light and informative.1. Understand additional asset types – your financial allies.
Stocks = owning part of something (like a company). These can lose value. They also can grow in value. There’s always tons of fine print.
Bonds = owning the debt of something (like a company). These range in their ability to lose value also. Yep. Fine print.
Mutual funds = a collection of stocks or bonds. More fine print.
2. You’re going to need some of both financial allies. Stocks and bonds. Or mutual funds of both or either. Just get over it.
A lot of people quote their mix of these two as a split. Example: “Hi, I’m 60/40.” Meaning they have 60% of their assets in stocks (or mutual funds of) and the other 40% in bonds (or mutual funds of).
We are not going to address how to find the right mix of allies for you, or where to buy them. But we will mention an example of one of these allies that StreetShares offers. They are called Veteran Business Bonds.
With Veteran Business Bonds, any U.S. citizen can open an account with as little as $25 and up to $25,000. Over 12 months, Veteran Business Bonds earn 5%. StreetShares uses Veteran Business Bonds to make loans to veteran small business owners across the country. Click here to learn more.
We mention Veteran Business Bonds as an example of a financial ally.
Already Have a Retirement Account?
To save some great news for the end, let us not forget that many of our readers will have a military retirement benefit of some kind and perhaps even social security (to the degree it exists in the future).
Remember these when thinking about the calculation for assets needed in “Mission: Retirement.” Those may be able to kick an additional tens of thousands of dollars reducing the assets needed to support future expense needs. Or, treat them as further gravy if you want. Just more allies joining you in what is hopefully a successful retirement mission.