On the Radio with Lynnette Kalfani-Cox

I believe it was Einstein who suggested that “we cannot solve our problems with the same thinking we used to create them”. And with us today, we have a very special guest who has done what many of us might think impossible, taking something as abstract as credit and money and turning it into a reality that we can all relate to.

Lynnette Khalfani-Cox is known as The Money Coach® has done more than just expose the soft-underbelly of everything financial – she has performed surgery. Her efforts as a personal finance expert, television and radio personality, and the author of numerous books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom has created a wealth of information for those who face the incredible hurdle of mastering the income they earn. Lynnette once had $100,000 in credit card debt and in three years, did what many of us might consider impossible: paid it off.

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Paul Petillo of Target2025.com/BlueCollarDollar.com

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Does Your Retirement Plan Fit?

Last week on the Daily Show with Jon Stewart, Charles Barkley, basketball star turned sportscaster offered his thoughts on retirement. Granted, professional athletes are hardly the poster boys and girls of those seeking to retire. They have made huge sums of money in a relatively short amount of time and retirement usually means a second, perhaps third career managing that money, be it a car dealership or real estate investments or sportscaster.

So they aren't usually who writers such as me profile as "retirees". But he did make one comment that was noteworthy: "I was bored out of mind by the third month of retirement". (I'm paraphrasing of course but it was as close to the quote as I intend to get.) We spend so much of our time and mental effort focusing on the goal of retiring at whatever age we pick, that we seldom realize that for many of us, a whole lifetime may await us when we retire.

I know what you are already thinking: yes, you might live for an additional twenty or thirty years after retiring but they are hardly years of increasing quality. And as one well-to-do acquaintance recently suggested: "rich people never retire". So when I suggest that whole lifetime awaits you in retirement, the suggestion either falls on deaf ears or scares you more than you want to admit.

In reality, you will live at least an additional ten years after whatever date you pick to retire. While 75 or 80 doesn't seem to be that old, at least in the conversations I have overheard, it is. You are not the person you once were and the mechanized hum of that inner world of you is not humming along the way it did when you were forty. In fact, when you were forty you barely heard it. At sixty, your insides send you regular messages. At eighty, I imagine its a cacophony of sounds.

So have you asked yourself what retirement will really be like, beyond the dreams you may have harbored for most of your life? Have you equated what your body has told you about those dreams in some sort of altered wish? 

Probably not. What you may have thought would have been the ideal place to retire, the ideal lifestyle to live, may no longer be what you are capable of doing.

So you should try it on for size. First, the dream place. Warm climates attract your tired bones with thoughts of heat and sun and outdoor activities you may have enjoyed for week long vacations while you were working. Resort living is not the same as permanent residency. Many warmer, resort like climates offer an enticing postcard view of how you might end your days. But proximity to good medical care - even if you think you are healthy - should be a consideration.

Hawaii, for example is warm and tropical and part of the US. Medical care there is good. But the cost of living on the islands, and that includes medical, food and utilities, is almost twice the cost of living based on the whole of the contiguous US. Accumulate a month's worth of vacation and spend it in your dream locale before you retire. 

Many resort locations have rentals that are more residential and less beachfront. Families often seek these places out in the hopes of saving a few bucks. Compared to what it might cost to live there full-time, you will get a fairly accurate picture of the day-today expenses.

I have been an advocate for second careers for as long as I can remember. So try your second career out now. You may like where you live. It is close to friends and family, places you are familiar with and activities you enjoy. So take a month off and stay at home. Mr. Barkley said that by month three he was going crazy. And he had a good sum of money put away to indulge in whatever whim passed his way. You won't have that luxury - you'll be on a fixed income. A month should be enough on the average income to understand what you can do and what you can't afford to do. It will also give you the chance to work at career two.

Which brings me to the last part of my try it on for size. Your income will be fixed. Although in reality, it will be diminishing, which is fixed with minuses. Inflation, taxes and insurance will play a much more major role when it comes to your income. Yes it might be the same amount each month but each passing month will take a little piece of it. Try this concept on for size.

You could do a lot of positive things for yourself in 2012. But pretending to be retired, if only for a month, will give you some clear understanding of what retirement, at least the early years of it, will be like. Doing it while you are working gives you time to alter the course and embrace a new life while still living in your old one.

As we turn the calendar: Your retirement is in your hands - again!

This article written by Paul Petillo originally appeared at Target2025.com

Jimi Hendrix once wrote: "I used to live in a room full of mirrors; all I could see was me. I take my spirit and I crash my mirrors, now the whole world is here for me to see." When it comes to the reflection staring back at us, our retirement, like those images, are a search for imperfection. We don't look at ourselves to admire how good we look; we look for flaws. We don't imagine a future; we see the relics of past decisions.

If you consider yourself a Baby Boomer, the reflection in the mirror is an image that polarizes: we are comfortable in the what the future holds or we are worried. There is good reasons for this feeling of either hope or dispair, with no real middle ground. This group has seen the demise of the defined benefit plan (pensions) and the introduction of the defined contribution plan (401(k)). You have seen the greatest bull market in investing history and witnessed two major crashes that have rattled your confidence in the decade following. You are the first generation to realize that your future is in your hands and you were not ready for the responsibility.

If you are younger than a Boomer, you are the first  generation to have never seen any other opportunity to finance your future than with a 401(k). And you have come to realize that this is not the plan it was intended to be. 401(k) plans were not designed to be the one and only vehicle for retirement. We were sold a notion that this was the end-all-to-be-all plan that would afford us a better retirement than our parents only to find out that it hinged on two extremely volatile concepts: your ability to consistently earn money and your level of contribution. Your 401(k) became your anchor and your wings.

I imagine that many of you will look back on the highlights of 2011 and find yourself in either one or two camps: you were able to hold onto your job, pay your bills and put some money away for retirement or you will be looking back at a year of indecision, regret and the promise to do better in 2012. You may be celebrating simply getting through it or wishing it never happened. To that, I offer some simple resolutions to embrace in 2012.

One: Revisit your idea of retirement. You can promise to save more money for your future, increasing your contribution to your plan or perhaps, in the absence of a plan, begin one of your own using IRAs. But you do this without really looking at that future. Retirement will not be the same of any two of us. For some it will be a life of struggle, an ongoing effort to make ends meet when they may never  met while they were working. For some it will be the realization that the balance between the now and the future relies on a level of personal sacrifice we were smart enough to embrace while we were working. For others, it will simply be a resignation of sorts, a belief that it will never happen.

Retirement is three things: A time when we find new opportunities outside the confines of what we called a career, a place of unimaginable risk and/or a chance to take a breather. It is not a place of no work and all play. It is not a time spent waiting for the end to come. It is not what we imagine because, if we looked closely at that image we see flaws. So we don't look as closely at those who are retired, examine how they live and ask if this is what they had planned. In revisiting the idea of retirement, your concept of that future, consider looking closer. If you don't like what you see, resolve to change it. But don't look away.

Two: Don't reflect on what you've done. You made mistakes; we all have. Some of us took too much risk, some not enough. Some contributed as much to their retirement as their budgets allowed, others did not. Some of us made poor mortgage or credit decisions, others did not. No matter what you did or didn't do, looking back will not improve the look forward.

Looking forward doesn't mean turning your back on on any of those events. It means focusing all of your energy on fixing them. This is a twofold effort, the first being getting the budget you may not have in line with your paycheck and focusing on paying down your mortgage (keep in mind that even if your home is underwater - meaning your mortgage is greater than the value of the house itself - the interest you pay on than loan is eating away at your future invest-able or save-able dollars). Does this mean you should not put money away in a 401(k) plan and redirect every dollar to the day-to-day? Not at all. Keep in mind that a 5% contribution will, in almost every instance, not impact your take home pay.

Three: Don't over think the process. From every corner of the financial world you will hear: rebalance your 401(k). If you chose a minimum of four index funds spread across four sectors, or four ETFs that do the same thing, rebalancing is a waste of time. You diversify so you can capture ups in one market and downside moves in another and your contribution doesn't allow you to buy more when one market moves up and allows you to buy more when it goes down.

We want to think we are in control when in fact, the only thing you actually control is how much money you want to put in. Markets will do what they do best: move. It might be up one day and down the next. It doesn't really matter. What matters is that you do something and in 2012, it should be significantly more than you are doing now.

Four: Stop being selfless. One of the hurdles we are told, for women investors specifically, is their inability to put themselves before their family. This is a cause for concern of course but not  a disaster in the making. Take a good long and hard look at your family and ask yourself: could I spend my retirement years living with any of them? Do they want you to?

Five: Embrace the truth. Now there will be an increased amount of pressure from every financial professional to get advice on your investments. This educational effort will evolve in the next several years from long, drawn out seminars on how your 401(k) works to short, ADD friendly videos that last several minutes and offer key points on what to do. The truth still relies on your ability to put more money away. Five percent will net you 25% of your current take home in retirement. A ten percent contribution over the average working career will pay you about 50% of what you earn today in retirement. Fifteen percent contributed to a 401(k) plan with average (modest) historical returns will allow you to live on 75% of your current income. Can you handle that truth?

Six: Stop worrying about it. According to HealthGuidance.org, you are killing yourself with worry. Michael Thomas writes: "Worrying leads to stress and stress has been linked with a number of health problems. People who suffer from high levels of stress are much more prone to cardiovascular disease, gastrointestinal issues, weight problems and there has even been a link made between stress levels and certain cancers." Instead resolve to do more saving than you have ever done, spend less than you did last year and embrace the reality of what fixed income is. Retirement is fixed income. Resolve to live like that now.

Paul Petillo is the Managing Editor of BlueCollarDollar.com/Target2025.com