Mike Kueber's Blog

October 7, 2014

Living for the moment

Filed under: Philosophy,Retirement — Mike Kueber @ 7:13 pm
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This past Sunday, my 59-year-old best friend took a hiatus from his retirement and returned to the workforce by taking a job as a contract employee for State Farm Insurance in Denver. The contract, which runs through December 31, 2014, pays extremely well, and State Farm has apparently decided that highly-paid, short-term contractors are more cost-effective than moderately-paid, long-term employees. But what was my best friend thinking?

Working overtime for more money is as American as apple pie. One of my sons recently went to work as an emergency-room doctor, which is essentially a shift position. Because of a shortage of these doctors, his employer often asks him to work an additional shift, and if my son has no important plans for that day, he will take the shift because he can use the extra money.

My 57-year-old brother in ND helps build planes, and because of a shortage of able-bodied manufacturing workers in ND, his employer is always asking and sometimes requiring him to work overtime. Because my brother is attempting to stockpile some money for his retirement, he will often volunteer for some additional hours, but not when he is feeling drained.

But my best friend is different. He already has more money than he will need for his retirement. He even has more money than he will need for his estate. His primary reason for returning to work, it seems to me, is because he doesn’t enjoy depleting an estate that he has spent his life building. That sentiment reminds me of something a Texas historian said many years ago about a cattle-drive cowboy – i.e., the cowboy was unable to empty his canteen of water that he had so mightily sought to preserve during the long cattle drive. (Damn, I wish I could remember who wrote that. Dobie? Webb?)

A secondary reason for my friend returning to work is that he hasn’t taken to retirement. Although that is a common problem with retirees, I am surprised that it has afflicted him. He is a Jesuit-educated Irish Catholic who prides himself on being reflective. Yet, in the end, he seems more influenced by the Protestant work ethic.  Talk about irony.

There is a lot of talk nowadays about impulse control or deferred gratification, but that is not what my friend is dealing with.  When a person reaches our age, we need to live each year, each month, and each day like it is our last, and I believe that my friend’s sojourn in Denver is just where he should be.

August 28, 2014

Sunday Book Review #145 – How to Retire Happy, Wild, and Free

Filed under: Book reviews,Retirement — Mike Kueber @ 12:34 am
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How to Retire Happy, Wild, and Free is subtitled, “Retirement wisdom that you won’t get from any financial advisor.” As I am halfway through my 6th year of retirement, I thought this book would be full of information or insights that might help me toward a more satisfying retirement. Sadly, it did not, but perhaps that is because my retirement is already at a good place.

A big part of Zelinski’s presentation is directed at people whose identity is tied up in their job or profession, and I agree that many, if not most, people have a hard time post-retirement with losing that identity. Fortunately, I didn’t have any trouble leaving behind the persona of an insurance lawyer; plus, I can still occasionally achieve some additional gravitas by saying I am a retired insurance attorney. For those retirees with an identity deficiency, Zelinski provides numerous ideas for developing new identities.

From a financial perspective, Zelinski’s advice is also something I already knew – i.e., the advice by so-called retirement experts that retirees need 80%-105% of their pre-retirement income is moronic.

Following a general discussion of retirement philosophy, Zelinski turns specific concerns:

  1. Chapter 4 – Health and taking care of yourself
  2. Chapter 5 – Education and continual learning
  3. Chapter 6 – Relationships and friends
  4. Chapter 7 – Travel
  5. Chapter 8 – Relocation

As I was reading those chapters, I detected a strong overlap with the four buckets from Matthew Kelly’s book, The Rhythm of Life – i.e., body, brain, relations, and spirit.    Zelinki’s book comes at it from a different, more specific perspective – that of a retiree – but from some reason it doesn’t have the same intensity as Kelly’s book.

March 27, 2014

Retirement

Filed under: Retirement — Mike Kueber @ 8:07 pm
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As I posted on my Facebook wall this morning, “Today marks five years of retirement bliss for me. They say that people rarely regret retiring too soon, and you can add my voice to that chorus.”

A similar sentiment was expressed by NY Times columnist David Brooks a couple of years ago based on his reading a few short autobiographies written by some people for their 50-year college reunion:

  • The most common lament in this collection is from people who worked at the same company all their lives and now realize how boring they must seem. These people passively let their lives happen to them. One man described his long, uneventful career at an insurance company and concluded, ‘Wish my self-profile was more exciting, but it’s a little late now.’”

Fortunately, I was not career obsessed after the age of 40. In fact, I remember discussing with another career lawyer the relative insignificance of getting that more promotion that might result in another $20,000 of income. I argued that the additional money might enable my family to a have little bit bigger house or a little bit nicer car, but in the grand scheme of things that was not important.

His comeback, however, was a good one. He said I could sock the money away and retire earlier. That made sense then, and it makes even more sense now.

July 28, 2012

My new investing strategy

Filed under: Investing,Retirement — Mike Kueber @ 6:05 pm
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As someone who is fascinated by investment strategies, I have read about a variety of techniques to minimize risk and maximize returns – e.g., dollar-cost averaging, ladder purchases, re-balancing of assets, and numerous diversifying techniques, including indexed mutual funds.  Because I believe the ups and downs of the stock market can’t be timed, I generally don’t focus on trying to buy low and sell high.  Instead, I’m a confirmed buy-and-hold guy.  And, as a young guy, I’m 100% in the market.

Last week, however, with the stock market returning to a relatively high level (and with me not being as young as I used to be), I decided to implement a strategy for moving some of my nest egg out of the market.  This strategy, which I invented, takes advantage of market swings, akin to the dollar-cost averaging strategy.  (Although I am claiming to be the inventor, I’m sure thousands or millions of other people have thought the same thing).   

My plan is to take 5% out of my stock-market nest egg and move it to cash.  Then whenever the market recoups that 5% withdrawal (on average, twice a year), I will take out 5% more.  Thus, I will be forever selling stock on an upswing, and my stock-market nest egg will stay at the same level, less inflation.  A $100k nest egg would periodically generate $5k into cash, and a $1 million nest egg (which seems to be the target for many white-collar workers) would periodically generate $50k into cash.     

The only weakness with this strategy that I can detect is if the market drops and doesn’t return to the earlier level for several years.  If such an event occurs, I hope that I will have pocketed enough earlier withdrawals to avoid selling during a downturn.  But if I have to sell during a downturn, I will be especially motivated to keep the withdrawal to the smallest amount necessary (less than 5%).

A lot of investment advice must be tailored to an investor’s comfort level with risk.  In the past, I was comfortable with all of my savings in the stock market.  Whether the market went up or down, I knew that it had almost no effect on my lifestyle.  My co-workers and I called it paper loss (or paper gain).  Now that I have retired and am spending my savings, the ups and downs of the market are real, not abstract. 

When I sell 5% of my stock on Monday and move it to cash, I am going to feel a lot better knowing that I have cash to live on for a long time and won’t have to sell any additional stocks unless the market continues its upward march (in which case, I will have another 5% cash to live on for a long time times two).  The ups-and-downs of the market will once again be relatively abstract.

Because of my skin in the game, I have been rooting for President Obama’s success for the past three and a half years.  That is also one of several reasons why I am rooting for Mitt Romney to win in November.

February 27, 2012

Retirement – three years later

Filed under: Philosophy,Retirement — Mike Kueber @ 12:33 pm
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Three years ago today, at the age of 55, I took early retirement from USAA after almost 22 years of devoted service.  In return for those years of service, USAA provided me with a pension and, almost as importantly, lifetime health insurance.  Without USAA-provided health insurance, retirement probably would not have been financially feasible for me. 

So what do I think about retirement, three years later?  Even without financial stresses (the stock market has almost doubled since March of 2009), the problems of life do not disappear.  (That reminds me of Lonesome Dove’s Gus McCrae telling Miss Lorena that life in her imaginary San Francisco is still just life.)  In fact, I sometimes think that the obligations of work keep a person distracted and preoccupied from personal-relationship issues, and those personal relationships are what make the world go round.  As Barbara Bush famously said in a 1990 commencement speech at Wellesley College:

  • And as you set off from Wellesley, I hope that many of you will consider making three very special choices.
    • The first is to believe in something larger than yourself, to get involved in some of the big ideas of our time. I chose literacy because I honestly believe that if more people could read, write, and comprehend, we would be that much closer to solving so many of the problems that plague our nation and our society.
    • And early on I made another choice, which I hope you’ll make as well. Whether you are talking about education, career, or service, you’re talking about life — and life really must have joy. It’s supposed to be fun.
    • The third choice that must not be missed is to cherish your human connections: your relationships with family and friends. For several years, you’ve had impressed upon you the importance to your career of dedication and hard work. And, of course, that’s true. But as important as your obligations as a doctor, a lawyer, a business leader will be, you are a human being first. And those human connections — with spouses, with children, with friends — are the most important investments you will ever make.  At the end of your life, you will never regret not having passed one more test, winning one more verdict, or not closing one more deal. You will regret time not spent with a husband, a child, a friend, or a parent.”

All three of Bush’s choices are sterling solid separately, and when combined they form the basis of an excellent life.  And most importantly, they continue to operate throughout life.  They remain just as valid for someone retiring from a career as they do to someone graduating from college.

Recently, I have been thinking about the third choice – human connections – and I blogged about that as some of my New Year’s resolutions.  Emotional intelligence and personal relations have never been a forte of mine.  After high school, I focused on academics and then got married shortly after law school.  In 2007 I got divorced, and since then I have struggled to develop and maintain satisfying relationships.  Let’s hope that understanding the problem is the biggest step toward solving it.  

A final thought on the timing of retirement – NY Time columnist David Brooks recently wrote about a survey of retirees.  One of their biggest regrets was staying in their principal career too long.  From my perspective, that is exactly correct.  You only live once, so why spend so many years doing the same thing.  Although I enjoyed me time in the insurance industry and at USAA, I’m glad that I left as soon as I could afford it.  A life is enriched by variety.

May 16, 2011

Federal-employee pensions

A recent article in the Washington Post reported that VP Biden’s deficit-reduction talks with Congress are looking at federal-employee pensions.   Although these pensions aren’t as generous as pensions for state & local government employees (such as those in rebellion-state Wisconsin), they are extravagant when compared to those few private-employee pensions that still exist in America. 

The group headed by Biden is exploring the possibility of increasing the amount that employees contribute toward their pension.  Currently they pay 0.8% of their salary toward their pension, whereas the Biden group is considering increasing the employee contribution to 6.0%. 

Opponents of the proposal claim that this would be equivalent to a 5.2% pay cut and would make federal careers less attractive.  I agree.  No employee would be happy about a significant put cut, and most employees decline a generous pension if they have to pay for it.

I think a different approach to reforming federal pensions would better serve the interests of employees and the federal government.  Employees don’t want to have their pay effectively cut, so leave their pay alone.  The federal government wants to rein in its pension costs, so do that by modifying the age at which an employee is entitled to a full pension, which is the real extravagance, if not an outrage.

Currently, federal employees can retire with a full pension at age 50 if they have 25 years of service and at age 55 if they have 20 years of service.  I think that is outrageous.  Such employees will likely receive a full pension for more years than they worked.  Can you imagine if Social Security included a similar benefits formula?  Working for the federal government should not be a financial nirvana. 

Speaking of financial nirvana, the Texas legislature is continuing to flounder with its budget shortfall as it approaches crunch time for its 140-day session, but I have not heard a peep about reforming our generous state-employee pensions.  Perhaps that is because the legislators are beneficiaries under that system, and it provides them with the lion’s share of their compensation.  Although they are supposed to be part-time citizen-legislators who are paid only $600 a month, plus a per diem of $150 a day during the session, the legislators have finagled the system to give them the same pension as a district judge, whose annual pay is $125,000.  Thus, a 20-year, part-time citizen-legislator can receive a pension of almost $60,000 a year at age 50.  Talk about financial nirvana.

Getting legislators to reform their pension is like getting them to vote for term limits.  In many states, these problems could be addressed through an initiative, but the Texas form of government, unfortunately, does not authorize this type of direct democracy.  I am left hoping that a grassroots uprising like the Tea Party or talk radio adopts the issue.

March 24, 2011

Do defined-benefits pension plans deserve to die?

Earlier this morning, I heard a FOX News opinionator suggest that defined-benefits pension plans (DB plan) have no place in America.  Because his position seemed a bit extreme (I have a DB plan from USAA), I wasn’t entirely focused when he explained that the economic status of virtually everyone is affected by the ups and downs of the economy, so why should retirees be any different.  As the morning went on, however, I kept returning to his explanation and found it persuasive.

For those who don’t recall the difference between the two major types of pension, a defined-contribution pension plan (DC plan) is like a 401k.  A defined amount of money (a percentage of an employee’s salary) is put into the plan, but the amount coming out to a retiree depends on how well the money is invested.  If the money is invested conservatively, it will probably have a small positive return of 2-5% annually.  If it is invested aggressively, it might have a negative return or a positive return of more than 10% annually. 

By contrast, a defined-benefits pension plan (DB plan) pays a pension amount that can be calculated by multiplying an employee’s salary times years of service times a pre-determined multiplier.  For example, an employee with a $100k salary and 40 years of service and a 2% multiplier would receive an annual pension of $80k ($100k x 40 x 2%).  Common variations with the salary calculation include whether only the final year is counted, the highest year, or the highest three or five consecutive years.  Public employers tend toward a shorter term, while private employers tend toward a longer term.  When employers base their calculation on a single year, there is a tendency to load up on overtime pay in that year.  Public employers also tend toward a higher multiplier.  Some employers further limit the years of service to a maximum of 30 years. 

My former employer USAA had a pension plan based on the average of the highest five years of salary, with a 30-year maximum and a 1.5 multiplier.  Thus, using the same example as above, a USAA employee’s pension could be reduced by almost half – i.e. $40,500 ($90k x 30 x 1.5%).      

Perhaps the greatest variation in a DB plan is the age of retirement.  A DB plan can provide full benefits at age 65, like Social Security does.  My previous employer USAA gave full benefits at age 62.  Most government employers give full benefits at a much earlier age – either at age 55 or after 30 years of service.  This variation is so expensive because government employees can easily draw retirement for more years than they worked.

Although employees may contribute some of their salary toward a DB plan, the employer is responsible for putting away enough money to satisfy its pension obligations (unlike the federal government and Social Security).  When the business and investments are going good, an employer is more able to pay into its pension fund; when the economy is bad, those payments are difficult.

Public v. private pensions

The verdict of private employers is in, and they have eliminated their DB plans and shifted to DC plans, including USAA which discontinued its pension several years ago.  Ironically, DB plans have survived in the public sector even though the public-sector plans have traditionally been much more generous.  In fact, I went bike-riding this past weekend with a state employee from Colorado who told me that their multiplier (2.5%) was even more generous than Texas’s (2.3%). 

One could argue that public employees are significantly sheltered from the economic cycle during their employment and thus continuing this shelter during their retirement is appropriate.  I disagree.  As my old boss at USAA used to say during his employee meetings, the company works better when everyone realizes how interdependent we are on each other.  We don’t want public employees thinking, “I got mine, Jack.  What’s your problem?” 

Social Security is the grand-daddy of all defined-benefits plans, and George W. Bush was soundly rebuffed when he tried to convert part of Social Security away from defined benefits and toward defined contribution.  Although that part of Social Security that serves as a safety net should remain a defined benefit, the other part should be converted to a defined contribution.  I remain optimistic that good ideas like that will eventually be accepted by Americans.