Secret #45 Keep Learning About Finances


A recent survey suggests that financial literacy is lower than even most people might expect. Fidelity asked more than 2000 people — half who were between the ages of 55 and 65 and not retired — questions in eight different retirement categories. The average that people got right was a mere 30 percent. Absolutely nobody got all the questions correct and the highest overall grade was 79 percent. Can you do better?

One way to improve your financial literacy is to create a detailed retirement plan and run many different scenarios. While few retirement calculators are comprehensive enough to really help you learn, the New Retirement retirement planning calculator is. 

This easy to use system is completely comprehensive. Here are more than 15 different things to try with your plans. Here are a few and visit the link for the rest.

  1. Run Scenarios on Your Longevity

There is a big difference between how much you need to retire securely if you live until age 75 vs. living until age 95 or longer.

However, most comprehensive retirement calculators use average life expectancy and don’t let you deviate from that at all even though the average life expectancy is essentially meaningless to most of us.  Half of us will live longer than average and half of us will not live that long.

When planning your retirement, you should probably use your best case longevity age — the longest you think you might live. You could also try a longevity calculator to get a more personalized estimate.

  1. Run Scenarios on Inheritance Goals

Most retirees hope to leave something behind for heirs.  A good retirement calculator will help you see what might be a reasonable expectation and let you set goals for an inheritance.

  1. Try Different Options for Your Social Security Start Age

Most people don’t realize just how valuable waiting to start Social Security is to their retirement security.

If you have not already started your benefits, you should definitely look up how much you will get at different ages and plug those numbers into a comprehensive retirement planner.  Most people are really surprised by how much the delay can positively impact your financial wellbeing throughout retirement.

And, if you are married, try different starting ages for both yourself and your spouse.  Additionally, you will want to look at what happens to your plan if the higher earner defers the start of benefits as long as possible up until the maximum retirement age of 70. Don’t focus on who is older. Or, who retires first. The key is to make sure the highest earner grabs the highest possible payout.  This is probably the single smartest retirement decision married couples can make.

  1. Run Scenarios on Retirement Age and Work Income

Most retirement calculators ask you to enter your “retirement date.”

However, retirement age just doesn’t mean that much anymore.  The reality for most of us is that we either transition toward retirement by going part time or we retire and then get some kind of retirement job.  Others take a break from work and then resume in some capacity a year or two later.

Instead of entering a retirement date, look for a retirement calculator that allows you to set different levels of work income for different periods of your life and play with those variables.

If not yet retired, you should also see what happens if you were to unexpectedly lose your job or not be able to work due to a health issue — both of which are fairly common scenarios.

  1. Experiment with Investment Returns and Annuity Purchases

Investment returns is something many retirees are pretty worried about. Why not use a retirement calculator that lets you set returns for each account that you actually have?  You should probably also play with different configurations.

What would happen to your overall plan if you were to:

Construct a bucket approach with one account invested aggressively for long term growth, another more conservatively and a third very conservatively.

Purchase a lifetime annuity to cover the difference between your guaranteed retirement income and your expenses.

Earn high rates of returns or low.  (The NewRetirement tool enables you to set optimistic and pessimistic rates of return for each account.  Be sure to try different ranges.)

  1. Run Scenarios on Savings Rates

If you are not yet retired, it can be really motivating to model saving even just a bit more each year.

The New Retirement system lets you set different savings rates for different periods of time.  It can be interesting to experiment with when you might get a raise and adding all of that extra income or just a portion of it to your savings.  

Or, can you increase your savings rate by a certain percentage each year?

You can also experiment with saving to after tax or pre tax savings.

Be sure to also enter any times when you might be able to add a lump sum one time contribution to your retirement savings.  Will you get a tax refund? Expecting an inheritance?

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