Follow by Email

Wednesday, June 16, 2021

Getting Comfortable Spending Down Your Retirement Savings

 About this time last year, I was anxiously awaiting the release of my book, Flipping a Switch. The words “flipped switch” are a metaphor for transitions that people face in the last third of life and the book describes 35 of them. Examples include creating a retirement “paycheck,” taking required minimum distributions (RMDs) from tax-deferred savings plans, health care transitions, downsizing and simplifying, and keeping busy.


The genesis of the book (and its title) is another key transition for older adults who amassed wealth during their working years: feeling comfortable spending down savings. At a 2018 American Savings Education Council (ASEC) meeting, a presentation described a subset of retirees with a unique “problem”: they saved their whole life, are not comfortable spending down any savings, and their assets keep growing.


The speaker noted that “we need to teach people how to ‘flip a switch’ from saving to spending in later life.”


Recently, I attended a webinar by the Employee Benefit Research Institute (EBRI) that presented research about retiree lifestyles using data from a survey of  2,000 households age 62-75 with less than $1 million in assets. A key take-away is that retirement is not a uniform experience for older adults with varying demographic characteristics.


Five distinct lifestyles were identified: Struggling (18%), Just Getting By (12%), Average (28%), Comfortable (22%), and Affluent (19%). Another key finding was that most retirees are reluctant to spend a significant portion of their financial assets, often due to fear of the unknown (e.g., long-term care expenses) or running out of money.


While it may be hard to view “too much savings” as a problem, given that so many Americans are struggling as a result of COVID-19, there are downsides including working longer than needed, unnecessarily restricting spending to less than what one can afford, and unnecessarily restricting gifts to family members and qualified charities.


What to do? Below are six suggestions from the EBRI webinar and my book Flipping a Switch:


¨     Calculate Your Net Worth- Tally up household debts and subtract them from household assets. The result is your net worth. Many people have no idea how much they have in total (e.g., savings accounts, investments, and property value). It is hard to know what to spend in later life if you don’t know what you have.


¨     Step Outside Your Comfort Zone- Practice spending on “big ticket” items. Expect that this will feel very uncomfortable “going against the grain” of long-standing habits such as buying items at deep discounts, bragging about frugal purchases, flying coach when you can afford business/first class, and gifting modestly.


¨     Start a Spending Diary- Keep a record of decisions that you make and emotions that you feel when you spend money. It is not uncommon for people to feel a psychological loss when they see their account balances decrease after making withdrawals from their savings.


¨     Answer Some Hard Questions- Why did you amass a lot of money if you do not plan to spend it or gift it? What are you waiting for? Will your health get better with age? Do you already have enough money to be “financially independent” (i.e., not dependent on a job for income)? If you don’t spend your savings, who will?


¨     Automate Savings Withdrawals- Seek out financial products that facilitate “spending down.” If making cash withdrawals from savings makes you anxious, “set it and forget it.” Options include purchasing a fixed annuity that pays monthly income, managed payout mutual funds that provide monthly payments, bond and certificate of deposit (CD) “ladders” (i.e., varying maturity dates), and automatic withdrawal options for mutual funds.


¨     Get Help With Financial Decisions- Try some online calculators to reassure yourself that it is okay to spend down your money. For example, Monte Carlo calculators estimate the probability that savings will last a certain time period, typically 30 years. Another helpful resource is a certified financial planner®. If you have accumulated enough money to “flip a switch,” spend a little on a few hours of a professional advisor’s time.


Wednesday, June 9, 2021

The Value of Simple Process Steps


Last fall, I blogged about COVID-19 “bounces,” which I described as quick progress that would otherwise take some time. I used the analogy of a personal colonoscopy prep from which I dropped three pounds overnight.


This is similar to “financial bounces” that some Americans experienced during COVID-19. With reduced discretionary expenses and commuting costs, they had an opportunity for increased savings and reduced debt.


In this post, I describe another “Barbservation” from my personal life and its implications for financial education (and learning in general) and for encouraging positive behavior change.


Banish “Click Here” Messages and Connect Dots for People


The Challenge: I was recently selected to do a 10-minute pre-recorded Ignite presentation about charitable gifting for a virtual professional conference. Think: a recorded TED talk where slides advance automatically while you are speaking. When I asked the sponsors exactly how to prepare the video recording, I was sent a “visit this web site” e-mail with multiple “click here” links to screen shots from both Zoom and PowerPoint.


The Frustration: Needless to say, I felt overwhelmed. Why? I didn’t know how or where to start. What I really needed to complete the task at hand was a one-pager with a consecutive series of simple and succinct “how to” process steps starting from adding timings to my slides through saving the presentation as a mp4 video file. Instead, what I got was pages and pages of not-very useful information from multiple sources. Ugh!


The Determination: I almost decided to bail on the conference presentation but, to paraphrase the famous feminist slogan, “Nevertheless, I persisted.” It took me about six hours to review and crosswalk information from the multiple links, determine process steps in chronological order, add slide automations, get set up to record in Zoom, do a couple of practice takes, and record, save, and upload the final Ignite presentation.


The Results: If you are interested in tax-advantaged charitable gifting, you can watch the presentation here. If you are interested in recording your own TED-talk like video presentation, here are the process steps that would have made my own video recording process so much easier had they been available. I wrote them down in case I need them again and am happy to save you the frustration and learning curve that I experienced.


The Personal Finance Analogy: I could not help but think that some people must feel as frustrated about personal finance topics as I did about creating the Ignite presentation. They need to understand where and how to start to take action (e.g., invest in a mutual fund) and they need process steps. People who don’t know how to do something often feel stupid and don’t ask questions. They are not stupid. They simply haven’t learned how to do something yet!


Thursday, June 3, 2021

Women and Money: Closing the Gender Gap


No matter how much women prefer to lean, to be protected and supported, nor how much men prefer to have them do so, they must make the voyage of life alone, and for safety in an emergency they must know something of the laws of navigation.

                                                                                        Elizabeth Cady Stanton, 1892


These words were uttered by one of America’s most prominent women’s rights leaders almost 130 years ago.  Yet they are as appropriate in 2021 as they were during the late 19th century. Lack of financial savvy can put women (and men) at a substantial disadvantage in navigating both everyday financial decisions and occasional big ones.


Statistics tell us that it is only a matter of time before most (85% to 90%) women will be on their own financially.  Some will never marry, some will see their marriages end in divorce, and many will outlive their husbands.


Women have unique financial needs for the following reasons:

Ø  They live longer than men, on average, so their money has to last longer.

Ø  They earn less, on average, than men do.

Ø  They may have gaps in their employment history that will impact future retirement benefits.

Ø  They are impacted more severely than most men are by events like widowhood and divorce.

Ø  Some married risk becoming a “displaced homemaker” if the relationship ends (e.g., death and divorce).

Ø  Some women lack financial experience because they were taught “the man is supposed to handle the money.”


I learned in a recent Next Gen Personal Finance webinar that the un-controlled gender pay gap is 82% (i.e., on average, women earn 82 cents for every dollar men do) and the controlled pay gap (using data for men and women with the same job and qualifications) is 98%. There are smaller gender gaps for younger than older workers as gender gaps are “career progressive” and widen over time with job level and age. There are also smaller gaps where salaries are fixed (e.g., salary schedules and union contracts) via those where managers have some latitude.


While a 2% pay gap does not sound like a big deal, it is. Invested at a 7% return over a career, it can add up to almost $200,000! COVID-19 has exacerbated gender pay gaps as women were more likely to work in affected industries and to care for children schooling at home. As we have seen,  people’s work lives and home lives are intertwined. Almost 2 million women who  dropped out of the labor force since April 2020 have not yet returned.


A key take-away from the NGPF webinar was the need to teach women how to negotiate a starting salary and promote themselves. Otherwise, they will be forever behind because future percentage raises (e.g., 4%) will be based on a lower initial starting point. The following three tips were suggested for women to overcome pay gaps:


¨      Talk About Salaries and Careers- Discuss salaries, jobs, and money with co-workers in a casual, general way. As you get more comfortable talking about finances, consider asking peers, especially males, what they make, even if it makes you uncomfortable. Use the “under/over” method described below to “soften” the ask.


¨      Avoid Exact Dollar Amounts- Avoid sounding too direct and off-putting by asking people to divulge their exact salary amount. Instead, ask questions like “Do you make over $X?” or “Do you make under $Y?” A recent article described a young female worker who significantly increased her pay by using this approach.


¨      Practice Negotiation Skills- Develop and rehearse a “script” that focuses on your education, skills, and recent accomplishments. Emphasize how you can add value to an employer and help it to accomplish its mission. Role play negotiations with family or friends to practice making proposals and counter-proposals.


A more contemporary twist on Ms. Stanton’s quote is “If it is to be, it is up to me.”  Today is the first day of the rest of your financial life.  Make the most of it. Learn one new thing every day about personal finance and never consider your financial education finished.

Thursday, May 27, 2021

Leveraging LinkedIn: Expert Tips and Personal Experiences


As I wrote in an earlier post about entrepreneurship during a pandemic, paying attention to social media can really pay off in making or solidifying valuable career contacts and obtaining job assignments. For people interested in making professional connections, LinkedIn is “the” place to be. No personal vacation photos here. It is all about business and is a “digital resume” for people to learn about your skills and past job experiences.


After a decade of scarcely paying attention to my LinkedIn account because I was happy at Rutgers University and constrained by state outside employment rules, I started posting regular LinkedIn content for the first time ever when I became a full-time entrepreneur in January 2020. This resulted in dozens of “people are watching you”  and “You appeared in “X” number of searches” notifications from LinkedIn, inquiries about my work, and projects with five new clients over the past 18 months.


According to a recent Next Gen Personal Finance (NGPF) webinar, LinkedIn is the most widely-used information search channel for job recruitment efforts (77%) followed by Facebook (63%). It has 738 million global users, 14 million job postings, and 3 people hired every minute via LinkedIn connections. It is estimated that up to 40% of employers may not interview you at all if they cannot find your LinkedIn profile.


LinkedIn allows people to “stand out from the crowd” and share information well beyond what is found in a standard paper resume. For example, photographs of professional achievements and links to websites, webinars, podcasts, blog posts, TED talks, and newspaper, magazine, radio and television interviews. Digital links to deliverables also show potential contacts or employers that you are both tech savvy and accomplished.


Below are five key things to know about using LinkedIn:


¨      Image is Everything- Three key parts to a LinkedIn user’s profile are 1. a professional high resolution head shot photo that is cropped appropriately to fit within a circle frame, 2. an eye-catching headline of up to 120 characters (this goes right under a person’s photo and name and is the first thing that people read), and 3. A well-written summary profile under the “About” section. The profile should succinctly describe an account holder’s skill set and accomplishments. A professional-looking background banner photo is also recommended.


¨      Connection Numbers Matter- According to an article that I read during the NGPF webinar, the more connections that someone has on LinkedIn (this is the professional equivalent to having Friends on Facebook and Followers on Twitter), the more likely you are to be found by colleagues, job recruiters, and people interested in your work. The “holy grail” is to have a notation of 500+ connections, which the maximum number that LinkedIn reports. Having 500+ connections indicates to others that you are a “serious player.”


¨      Connections Themselves Matter- The best connection requests come from people you know professionally or have worked with. Unless you have had “issues” in the past, this is an easy ask. The worst connection requests are “cold calls” from people you do not know who do not explain who they are, what they do, how they know you (e.g., from an article that you published), and why they want to connect with you. Generally speaking, seek out the former and avoid the later, especially if there is a “sales pitch” within their connection request.


¨      Customize Your LinkedIn URL- Experts recommend doing this so you are more easily searchable. The process is very easy. Simply click on “Edit public profile and URL” to the right of the header photo. You will be prompted to enter a customized URL that cannot include spaces, symbols, or special characters. If your URL is “taken,” you will be prompted to retry with a new name. Instead of a URL with random numbers, my new URL includes my name and company name (see


¨      Post Content Regularly- The article that I cited above suggests posting on LinkedIn at least 3 times per week. This includes sharing content by writing articles as well as engaging with other LinkedIn users through likes, comments, and shares. The objective is to be visible, add value by providing useful resources to your connections, and create an impression that you are an active and productive professional. In addition, follow cues from LinkedIn to keep adding details to your profile until you achieve an “All Star” rating.


Wednesday, May 19, 2021

2021 Charitable Gift Planning Opportunities


2020 tax season officially ended with the extended May 17 tax filing date so it is now time to turn our attention to 2021 taxes that will be due on or around April 15, 2022.  One way that people frequently do income tax planning is through charitable contributions. In addition to tax benefits, people recently came face-to-face with their mortality risk due to COVID-19, resulting in interest by many in increased philanthropy according to development professionals.


Only about 10% of taxpayers benefit from itemizing income tax deductions such as medical expenses, property taxes, and charitable contributions. For the other ~ 90%, taking the standard deduction saves more on taxes than itemizing. In 2021, the standard deduction is $12,550 for single tax filers and $25,100 for married couples filing jointly. Coupled with the $10,000 cap on state (income) and local (property) taxes (a.k.a., SALT) under the 2017 Tax Cuts and Jobs Act (TCJA), these are “high hurdles” to exceed, especially the standard deduction amount for couples.


So who still benefits from itemizing deductions?

o   People with high unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income (AGI)

o   Victims of a federally-declared disaster with an adjusted unreimbursed loss greater than 10% of AGI

o   Homeowners with high mortgage interest payments and/or home equity loan debt to buy/build/improve a home

o   Donors who make high charitable contributions, often in combination with their SALT tax write-offs


Of these four itemized deduction opportunities, the first two are associated with health issues and property losses and the third is likely associated with high property tax bills that cannot be fully deducted under the TCJA and/or high home maintenance costs. Charitable contributions, on the other hand, have been found in research studies, to be associated with positive things including lower blood pressure, less depression, lower stress levels, and increased self-esteem.


Tax benefits for charitable contributions exist both for donors who take the standard deduction and those who benefit from itemizing. For those who do not itemize, there is an “above-the-line” deduction (i.e., a deduction from gross income before calculating AGI) of $300 for single taxpayers and $600 for married couples filing jointly as a result of the second COVID-19 relief law (a.k.a., the “second stimulus”) signed into law in December 2020.


It is important to note that the $300/$600 tax write-offs apply to cash donations only and not to property donations such as items donated to a thrift shop. Since tax write-offs are limited, it may be useful to prioritize, budget for, and keep track of 2021 charitable donations using this Charitable Giving Budget Worksheet from Rutgers Cooperative Extension.


For those who benefit from itemizing, there is a special rule in place for 2021 to spur COVID-related contributions: a temporary suspension of the normal 60% of AGI cap on charitable deductions. In 2021, donors can deduct up to 100% of their AGI in contributions to qualified charities. However, the penalty for fraudulent overstatement of deductible donations also increased from 20% to 50% of the underpayment. Excess donations above 100% of AGI can be carried forward for 5 years, but the enhanced 100% of AGI annual deduction limit goes away after 2021.


People can make charitable gifts while they are alive or upon their death through bequests in a will or trust and beneficiary designations in life insurance policies and retirement savings accounts. There are five primary ways that people make tax-advantaged charitable gifts during their lifetime:

o   “Bunch up” several years of itemized deductions, including expenses for elective medical procedures, SALT taxes, and charitable donations, into one tax year to exceed the standard deduction amount and benefit from itemizing.


o   Make qualified charitable contributions (QCDs) directly from a traditional IRA to a charity after age 70 ½ to satisfy required minimum distribution (RMD) rules and remove the withdrawn amount from taxable income in later life.


o   Donate appreciated securities (e.g., stock or mutual fund shares) to a charity to avoid capital gains tax and to deduct the fair market value of the donated asset up to the IRS annual limit.


o   Set up a donor advised fund (DAF) with an investment company custodian, contribute tax-deductible cash or investments to the DAF, set up an asset allocation, and recommend grants to qualified U.S. charities as desired.


o   Set up a charitable trust with the advice and assistance of an attorney and retitle assets in the trust name. The tax deduction is based on the value of the stream of income to the charity. Two common types of trusts for charitable donations that vary as to when charities receive funds are charitable lead trusts and charitable remainder trusts.


What to do? Some financial experts advise making large contributions in 2021 to take advantage of the 100% of AGI limit. Others recommend waiting to see if higher tax rates go into effect in the future, especially for high net worth taxpayers. As always, consider your personal financial situation and reach out to a financial or legal advisor, if needed.

Getting Comfortable Spending Down Your Retirement Savings

  About this time last year, I was anxiously awaiting the release of my book, Flipping a Switch . The words “flipped switch” are a metaphor ...