Investing month has not been as fun as I thought it would be. For a few reasons:
- This month, the stock market decided to take a dive to levels lower than we’ve seen since early 2014. It’s a reminder of the volatility of the market, but also makes me feel weary about wholesale pulling out of the stock market at this time.
- I’m disappointed in the lack of potential of the “socially responsible” funds I looked at (based on our seemingly quirky values).
- I’ve spent a lot of extra time on the computer, trying to sort these things out. This is not good for my mental health.
It’s scary to be in the stock market. And it’s scary not to be in the stock market.
That’s what I’ve been telling people the past few weeks as I’ve discussed my dilemma with friends and family members. It’s scary to be in, because there is risk—and we don’t know what the economy will look like in 25 years. It’s scary not to be in, because it’s how we as a society save for retirement—for a secure future.
And therein lies the answer, I think. What is our definition of a secure future? In many cultures, it means having children that will take you in and support you in your old age. We have a child. She would take care of us. (I’ve already informed her that I’m moving in with her after she retires. We’ll be BFFs.)
But we want to be so independent. We want to make it on our own. As Bill McKibben writes in Deep Economy, we live in the age of hyper-individualism. Is this why we are so concerned about saving for retirement?
I’m not saying we shouldn’t save for the future. However, I think we can reduce the stress of it, if we take a look at the big picture:
- Retirement is an artificial discontinuation of paid work. It’s good for people who aren’t physically or mentally capable of continuing their work as they age. However, it’s been lifted up as this utopian existence that kicks in at age 65 (or 67 for me), whether you’re ready or not.
- Downsizing and owning your home can drastically cut down expenses. We’re planning to pay our home off within a decade and would downsize in a heartbeat if our financial reality required it.
- Adopting a simple lifestyle and not participating in our consumer culture also cuts down on expenses. You’re pretty much left with food, consumables (e.g. toothpaste, detergent, etc.), clothing, utilities, entertainment, transportation, sick care (can be a big expense, but I’ll talk more about that in a separate post!), and charitable donations.
- Having a community of people that take care of each other when times get tough can provide a great deal of security. This is an investment in time.
- We can’t take the money with us when we die.
My Stress-Free Retirement Plan
In order to reduce my stress over this whole thing, I created a retirement planning spreadsheet where I plugged in the probable sources of income at retirement:
- Permanent life insurance
- Deferred annuity (purchased this week—not the best timing, but it feels good to have extracted at least a portion of my IRA from the stock market)
- Social security (yes, yes, I know—don’t count on it. I’m an optimist.)
I also looked at our current monthly expenses, subtracted house payments and life insurance premiums, added quite a lot of cushion (for things like travel, gifts, and home maintenance), and then put it into an inflation calculator to see what that amount would be in 25 years when, in theory, I retire.
I calculated the difference and determined how much additional money we would need per month and determined how much principal we would need to have dividends/interest income to cover these expenses.
Finally, I plugged our current investment amounts into a compound interest calculator to see how much average growth we’d need to hit that number at our current savings levels (only contributing what we need to match employer’s contribution).
Less than five percent.
Of course, this assumes Todd and I will keep earning and saving until retirement, but at this point, we don’t see a reason why we wouldn’t. I may choose to work part-time and continue part-time work into retirement. Regardless, we should be able to keep saving at the same rate.
So what does this all mean for the “Don’t Give Money to Big (Bad) Business” project?
That, my friend, is a very good question. A few things:
- I’m moving my Traditional IRA and Roth IRA to Vanguard, which is an client-owned investment company, which means the expense ratio is way lower than many other funds. Vanguard is recommended in Your Money or Your Life and by others who have similar investment goals.
- For now, I will invest the Traditional IRA in a life-cycle fund that does not try to outperform the market (and rebalances automatically based on the target retirement year) and the Roth IRA in one of Vanguard’s LifeStrategy funds.
- I commit to moving 10% of this money out of the stock market each year. This will in part happen automatically, as the life-cycle fund rebalances for decreased risk as we get closer to retirement age.
- I will not put any new money in the stock market. Rather, for the foreseeable future, I will use spare dollars to pay off the house, invest in an MBA, invest in a hybrid car, and beef up the “Green Bank” (i.e. our savings account).
- Next year, I hope to either start or become part of a local investing club based on the Slow Money principles.
- Down the road, Todd and I hope to invest in local real estate projects that support creating affordable, sustainable housing in our region.
With the above approach, our retirement accounts will become pretty much hands-off at a very low cost. Thus, I can spend time on things that matter, such as evangelizing social and emotional learning in schools and organizing local projects to enhance our community’s resilience and sustainability.
A low-cost index fund is the most sensible equity investment for the great majority of investors. –Warren Buffet
I also want to point out something I read this week: “How much you decide to save matters far more than how you choose to invest it.”
I’m a saver. Always have been. I think we’ll be okay.
P.S. I’m off to work on taxes and apply for a new, more responsible credit card (now there’s an oxymoron for you). Stay tuned!
News and Events
- Started two Yoga Calm classes for youngsters in Decorah!
- Presenting my work with Yoga Calm to Food & Fitness resource contacts on January 23, 2016.
- Speaking at Westminster Presbyterian, Des Moines, IA on January 31, 2016.
Her Lost Year
I appreciate your support.