Are you WatFat? 5 Ways to Stop a Stuffed Wallet from Hurting (Financially & Physically).

“Put that thing away, you’re going to get us mugged, Anthony!”

If it was summer 1977 and sweltering, which means you could find Anthony and I burning hours navigating the trash, bums, and faded carnival infrastructures of Coney Island. And of course, the crinkle-cut fries at Nathan’s were a daily staple.

nathans

Anthony (he hated to be called Tony), always carried a wallet. I felt it strange for 13 year old chubby (deemed husky at the time) kids to carry wallets. I thought about it briefly but was happy to add money earned (paper route) to a dollar ball stuffed in the front pocket of my Levi’s.

Not that there was any cash in Anthony’s bulging backside pocket. His old man was going to trash this frayed leather black thing with the words “SWANK” stamped in gold letters on an inside fold, but instead tossed it to son for fun.

I don’t think Anthony Sr. knew what he started.

Not that there was cash in this wallet. It was loaded with baseball cards (I remember Rusty Staub in there), Wacky Package stickers (very popular at the time), and Partridge Family trading cards (embarrassing).

However, if you flashed a fat wallet in Coney Island you were screaming in public – “Rob me!”

capn crud  My favorite “Wacky Package” Sticker.

Somewhere along the way I channeled Anthony. It happened.

I admit: I was WatFat.

fat wallet

I suffered from the debilitating financial and physical effects of a bulgy, unsightly (fat) wallet.

It wasn’t just cash – although I am guilty of trashing ten bucks along with a bunch of ancient wallet-flap papers.

An endless explosion of receipts, photos, business cards, wrinkled cash.  It was too much.

And women? You suffer too. I’ve seen wallets extracted from purses that revival the weight of bricks.

If your wallet is unorganized, how is your money doing? Think about it.

Lighter wallet, lighter financial burden?

Random thoughts:

1). Take inventory now. Break out wallet contents; take inventory of your spending habits. Wallets bulging with store receipts, holding more than 2 credit cards, overflowing with retail reward punch cards that frequent purchases, have little cash, can be WatFat warning signs of excessive credit usage and overspending. Do a dive into the deep pockets of your debts. Add up recurring monthly debt including mortgage (principal, interest, insurance, taxes) and auto loan payments. Total gross monthly income. Calculate your household debt-to-income ratio using Bankrate’s online calculator. A ratio below 36 is considered favorable by lenders. I say it’s still too high. Work at a ratio closer to 25% which means a greater discipline to slim down spending and expenses.

2). Lighten the load. Carry less, spend less. First, ditch the empty wallet. It’s stressed and worn from carrying so much – like its owner, perhaps. Reduce WatFat with a light replacement. My favorite website for slim wallets is www.bellroy.com. Second, carry your best reward point credit card and a debit card. That’s it. With credit centralized to one card, you’ll gain discovery over spending weaknesses as you review the December credit card statement which aggregates and categorizes expenditures. Last, take the statement to an objective financial partner who can help you pinpoint areas for improvement.

3). Don’t fight the sleek. So, what should you carry? A form of identification like a driver’s license and medical insurance card. No receipts – most retailers will offer e-mail receipts; create a folder in your inbox. Still carry photos? Why? You have a smartphone for that. Cash can be neatly folded in a slim wallet. Do we even need to discuss coins? No we don’t. Carry coins in your pocket. At the end of each day, place them in a coin jar. Laughing at the coin jar? Read this – The Power of the Lowly Coin Jar. My coin jar is a 2 foot-tall 1966 plastic Batman bank. Make it fun.

4). Slim wallet, slimmer medical bills. Piriformis Syndrome or “Fat Wallet Syndrome” is the irritation of a strap-like muscle in the buttocks that may be occur when a person sits with a bulging wallet in a rear pocket for prolonged periods. Literally, it’s a pain or numbness in the butt or hip that requires medical attention. Treating my posterior like a file cabinet is not worth increased medical bills. What do you think?

5). Less wallet, better moods. People with a streamlined portable money system appear to have lighter attitudes and feel greater control over money. Through the years I’ve conducted joint “wallet-ectomies” with others who reported back an overwhelming feeling of relief. Spending had been examined, reduced and monitored successfully just from a reduction in wallet size.

Individuals tend to be less stressed by reducing clutter in their wallets and purses. Perhaps, it’s a small step to greater financial improvement and organization.

So, it’s ok to give in and confess to WatFat.

I’ve been there. The weight has obliterated many back pockets.

Fight WatFat and succeed.

Realize your household cash flow may increase in size.

And that’s weight you’ll be thankful for.

FYI – Anthony and I did get mugged. Thugs (grasping stiletto knives with growling orange tigers printed on the handles) near Spook-A-Rama horror attraction, snatched his wallet and demanded my cash ball. Guess I was stupid and revealed too much.

Shaken, we walked it off. Cops wouldn’t do anything. Flash a wallet, pay the consequences.

Eventually we found it:  Underneath the Coney Island beach boardwalk.

Tossed among the rocks, ripped apart, a gusset assault.

We accounted for almost everything.

The crooks took nothing although the Topps’ Keith Partridge trading card was missing.

Perhaps the waves took it.

Or criminals had a soft spot for David Cassidy.

It was too much to ponder for a 95 degree day.

Anthony was done with the wallet. Never looked back.

Cured of WatFat.

I bet he’s a fan of money clips now.

 

 

 

 

 

 

 

Four Words To Better Retirement Planning.

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As originally posted on http://www.nerdwallet.com. 

What are the obstacles that cause you to veer off course when it comes to retirement planning?

Increasing your odds of planning success shouldn’t be so complicated.

Solutions are obvious. There’s no magic.

Small changes in perspective or actions can lead to better results.

Hey, it’s never perfect either.

Remember the two main goals of the financial services industry:

1). To baffle you enough to sell you something you don’t need.

2). To force-feed you long-term bull market Kool-Aid to make you think stocks are a panacea (30% portfolio losses: Hey, no big deal. You have time on your side).

But you’re smarter than that, right?

Right? 

My former employer’s retirement simulation is so happy-go-lucky and optimistic (because every market is a bull market), it reminds me of Homer Simpson’s happy dream romp through chocolate town.

It’s toilet paper.

Don’t fall for the hype. Don’t even wipe with it: You’ll get a rash.

homer simpson chocolate dream

Maybe it comes down to simplicity.

Let’s start with four words.

Random Thoughts:

1). NO. Recall the habit of lending money to friends and relatives who rarely make efforts to repay. It’s time to make your retirement strategy a priority and use the word “no” often. You don’t need to explain. It’s an uncomfortable but necessary perspective. At the least, you’ll need to be selective, perhaps formal in your agreements going forward. The health of your retirement plan is at stake.

If you’re passionate about helping, consider the support provided, a gift. Set rules at first if saying “no” is difficult. For example, establish a specific dollar amount in the budget for purposes of lending. Never lend to the same borrower twice in the same year. Decrease the allotment by ten percent every year until eventually it’s so insignificant you’ll feel too embarrassed to say anything but “no.”

“No” is personal empowerment. Think of the word as a boundary – A verbal line in the sand that deepens the territory you’re clear won’t be crossed. “No” is a confidence builder. It allows greater focus on the “yes” you need to succeed.

Consider how postponing or decreasing saving for retirement by placing priority on education savings plans or by taking on excessive debt to assist children with college funding deserves a “no.”

Naturally, you want your children to prosper however, when the time comes to retire, there’s no loan, financial aid or scholarship opportunities available to you. The kids have options for funding. You don’t. A hardline “no” isn’t necessary; a change in perspective followed by action may be good enough.

Understanding when a “no” is necessary to avoid a derail of your plan is art and science.  A set of rules and setting expectations can help clarify when a “no” needs to surface. Perhaps you can partially subsidize education costs or seek compromise (a public, in-state option vs. the private university cost).

In eight out every ten plans I’ve designed, retirement is postponed by at least six years when parents decide to foot the entire education bill.  Saying “no” to full boat means your retirement boat floats sooner. I’ve witnessed retirement postponed a couple of years in most cases when compromises are made – a big improvement over waiting six years.

Mitch Anthony, author of the book “The New Retirementality” describes the modern retiree as trying to strike a perfect balance between vacation and vocation. In other words, maybe the perfect retirement plan is to say “no” to retirement. The traditional perception of retirement is indeed dying.

I work with a large number of part-time retirees who consult or are employed a few days a week to keep their minds active and say “yes” to continued contributions to the workforce. Meaningful engagement in a work environment is important to this group however, those retirees who do work are ready to say “no” at a moment’s notice if their employment situation grows unenjoyable or less meaningful. They have much to offer and their experiences and skills are valuable.

As best-selling author and good friend James Altucher told me:

“Never say no to something you love, so you never retire.”

His new book co-written with Claudia Azula Altucher, “The Power of No: Because One Little Word Can Bring Health, Abundance and Happiness,” will be necessary reading and provided to those I assist with retirement planning.

Ponder the “no” opportunities. Start with the actions you believe postpone or negatively affect what I call “retirement plan flow” which is anything that prevents your plan from firing on all cylinders.

A client recently said – “I even stand straighter when I say no. It makes me feel good.”

no

2). WAIT: The most common mistake I encounter are retirees who look to take Social Security retirement benefits before full retirement age when waiting as long as possible can add thousands in additional dollars to a retirement plan.

I’ve had to say “no” to clients seeking to retire at age 62. And I’m not ashamed. What’s three more years? It goes fast. And waiting can be lucrative. According to a 2008 study by T. Rowe Price, working three years longer, waiting until full retirement age, and saving 15% of your annual salary could increase annual income from an investment portfolio by 22%. If you can handle five more working years and save 25% of your annual salary through that period (takes some work), then expect a surprising 50% more income in retirement.

Delaying Social Security benefits from full retirement age to age 70 will result in an 8% increase plus cost-of-living adjustments. Where else can you gain a guaranteed 8% a year? Of course, nobody knows how long they’re going to live but if you’re healthy at 62 and there’s a history of longevity in the family, it’s worth the risk to wait until at least full retirement age.

3). SELL: Based on a recent paper written by Michael Kitces, publisher of The Kitces Report and Wade D. Pfau, professor of retirement income at the American College, reducing stock exposure at the beginning of retirement then increasing over time  is an effective strategy for reaching lifetime spending and portfolio survival goals.

The heart of the research is “Plan U” (for unorthodox in my opinion) — a “U-shaped” allocation where stocks are a greater share of the portfolio through the accumulation/increasing human capital stage (makes sense), decrease at the beginning of retirement, and then increase again throughout the retirement period.

The concept of reducing stock exposure early in retirement and increasing it later sounds highly counterintuitive – although from a market and emotional perspective it’s plausible, especially now.

First, be sensitive to your mindset as shifting from a portfolio accumulation to distribution strategy can be stressful. Focus on financial issues to allay uncertainty like (don’t let greater stock exposure add to stress), household cash flow and retirement portfolio withdrawal strategy. Gain and monitor progress with a financial partner or objective third party at least every quarter for validation and adjustment. The first year of retirement is an opportune time to step back from stocks especially as you feel uncertain and occupied with what I believe are more immediate concerns.

Second, stocks are not cheap based on several long-term price/earnings valuation metrics. Selling if you’re close to, or at retirement can be an effective strategy. Regardless, you may need to rebalance to free up enough cash to begin retirement account withdrawals by trimming profits in the face of lofty valuations.

Not a bad idea. Yes – sell, not buy.

As of the end of May, the P/E 10 which is based on the ten-year average of actual corporate earnings stands at 24.9. Since the historic P/E 10 average is 16.5, the current bull indicates an extreme overvalued condition.

Last, even though the key word is “sell” don’t forget to periodically add back to your stock allocation. Get the topic on your radar and continue the “U” formation after two years in retirement have passed. By then, you should have greater confidence in your overall plan and settled into a lifestyle pattern that suits your well-being.

4). SHIFT: Be open-minded and willing to alter plans as required. After two devastating stock market selloffs since 2000 and structural changes to employment including the permanent loss of jobs, we are growing accustomed to dealing with financial adversity – shifting our thinking to adjust to present conditions. Actions outside your control – poor interest rates on conservative vehicles like certificates of deposit, can disrupt retirement savings and cash flow. On average, the Great Recession has motivated out of necessity or fear, the desire for pre-retirees to work longer and continue to carefully monitor their debt burdens.

In addition, shift your thinking about continuing to save aggressively in retirement accounts as you get closer to retirement. If 80% or more of your investments are in tax-deferred plans, and you’re five years or less from your retirement date, I would consider meeting the employer match in retirement plans and saving the rest in taxable brokerage accounts. This strategy affords greater flexibility with tax planning during the withdrawal phase as generally, capital gains are taxed at lower rates than the ordinary income distributed from retirement accounts.

A qualified financial and tax professional can create a hybrid process where funds are withdrawn both from tax-deferred and after-tax assets. The goal is to gain tax control by not ending up in a situation where ultimately all distributions are in retirement accounts which will ostensibly be taxed as ordinary income. Your strategy requires close examination of how to blend all investment account distributions to minimize tax impact.

Shift your attitude about annuities. Look beyond the bad press and overarching negative generalizations you hear from financial personalities in the media – “Annuities are bad.” Are all annuities bad? No.

Several types of annuities exist. Some come with overwhelming add-on features and are difficult to understand.  You’ll know when to step away. Others are expensive and should be avoided. For example, variable annuities with layers of fees are a bad deal.  I find little benefit to them in retirement planning.

The greatest purpose of an annuity is to provide an income you cannot outlive. In its purest form, an income annuity whether immediate or deferred can be used to bolster the lifetime income from Social Security.

As you budget, total how much is required to meet household essential expenses, indexed for inflation: Rent, mortgage, utility bills, real estate taxes, food, gas, automobile payments (you get the picture). From there, work with an insurance representative (could be your financial partner), to calculate the investment required in a deferred income or immediate annuity to cover mandatory expenses along with Social Security.

An annuity investment takes over some of the burden of funding retirement; it shifts risk to an insurance company which increases the odds of portfolio longevity and or having the money you seek for fun stuff like travel and hobbies.

Retirement planning satisfaction can happen.

Occasionally, we create obstacles by accident.

Simple words can be powerful tools to cut away the confusion and settle your mind.

What other words will you consider?

Hey!

Not that one!

oh shit