Category Archives: Financial Planning

Funding Retirement with the Bucket Approach

Have you ever considered separating the money that you plan on drawing down during your retirement based on the phases of your retirement?  A common approach is to allocate different piles of money in separate buckets based on when you plan on using the money.  The Bucket Approach was made popular by Raymond J. Lucia, CFP as the result of his book Buckets of Money.  The theory is based on building a diversified portfolio and spreading the risk out across different buckets of money.

A common approach is to use three buckets, however, more buckets can be used:

Bucket A – Money that will be used for the first few years of retirement (years 2 – 5)

Bucket B – Money that will be used for the second period of retirement (years 3  – 10)

Bucket C – Money that will be used to fund the remaining years of retirement (years 11 – 25 and beyond)

Asset Allocation for Each Bucket

Since Bucket A is going to be the first source of retirement funding, it is suggested that this portion of the asset allocation be ultra conservative.  That is to prevent a major stock market sell-off or recession to deplete the money that will be used to cover the first 2 – 5 years of retirement expenses.  In this bucket, the assets should be invested in CD’s, money market accounts, short-term bonds, or FDIC insured savings accounts.  By always having between 2 – 5 years worth of expenses in liquid assets that are easy to access, it helps from having to sell-off stocks when they have gone down in value.

Bucket B is going to be constructed of a more moderate asset allocation than Bucket A.  This bucket is designed to produce higher returns than Bucket A.  This bucket should have an asset allocation of around 65% in bonds and 35% in stocks.  The bonds are a low-risk investment that provides higher income than short-term holdings.  The stock portion is used to fuel growth and stay ahead of inflation.  The bond allocation could be made up of both an intermediate-term bond fund and a TIPS fund.  A large-cap index fund or large-cap dividend fund are good options for the stock portion of Bucket B.

Bucket C is going to have a more aggressive asset allocation than Bucket A and B.  This bucket of money will be used for long-term growth.  It will be made up of an asset allocation of 75% in stocks and 25% in bonds.  By keeping a portion in bonds, an investor can rebalance annually.  This practice of buying low and selling high improves the long-term performance and reduces the risk of this asset allocation.  For the bond allocation, a total bond market fund is a good option.  For the stock allocation, a more diversified mix of large-cap, small-cap, and international stock funds are used in this portion of the bucket for aggressive growth.

Refilling the Buckets

With a more traditional approach to asset allocation, a portfolio is viewed as a whole and not fragmented into different categories based on when the money will be needed.  For example, a balanced portfolio might be made up of 40% in bonds and 60% in stocks.  If stocks have a good year and the new asset allocation is 65% stocks and 35% bonds, the investor simply sells the stocks high and rebalances back to the desired asset allocation.

With the bucket approach, there is rebalancing within each bucket as well as replenishing between buckets.  Bucket A has 2- 5 years worth of living expenses.  When Bucket A has 1 years worth of living expenses drawn down, the difference will be replenished from Bucket B.  The same process applies between Bucket B and Bucket C.  When money is moved from Bucket B to Bucket A, Bucket B must be replenished from Bucket C.

Buckets vs Systematic Drawdown

Some financial advisors favor the buckets approach for the psychological benefits it provides investors.  When an investor is faced with a major market decline, they feel more confident because they know they have 5 years of living expenses in cash.  That financial cushion helps to prevent investors from selling stocks when they are at or near the bottom of a market.  Bucket A provides a level of comfort during good times and bad.

Other financial advisors prefer a systematic drawdown approach.  It is viewed as an easy approach for investors to understand and apply.  They feel that it is less complicated for an investor to view their portfolio as a whole and to use a safe withdrawal rate of 3 – 4% from a conservative portfolio of 50% in stocks and 50% in fixed assets.

There are more similarities between these two approaches than there are differences.  Even though there are three different asset allocations, in the three different buckets, when they are added together, they still can simply add up to the same mix of 50% in stocks and 50% bonds in the portfolio that is applied in a systematic drawdown approach.  It is just a different way of mentally accounting for assets during retirement.

Implementing the Buckets Approach

The buckets approach should be considered by people who are planning on retiring early.  Many people save up substantial resources in their 401K, but cannot access their money until age 60.  The buckets approach can be an alternative to a Roth conversion.  This approach just has to be planned years in advance because it requires an investor to build up substantial savings in their taxable account along with their tax-deferred accounts.

For this example, let’s assume that a person wants to retire at age 50, requires $50,000 per year for living expenses, and has $500,000 of their $1.5 million-dollar portfolio in taxable savings.  This scenario would be ideal for the buckets approach:

Bucket A – $250,000 in taxable savings (age 50-55)

Bucket B – $250,000 in a taxable account (tax-free bonds, age 56-60), the remaining mix of assets in an IRA or 401K to be drawn down after age 60

Bucket C – All in an IRA or 401K


The buckets approach is slightly more complex than a systematic drawdown strategy.  The main benefit is that it helps to keep the mind of the investor more at ease during all market conditions.  If managed correctly, the theory is that an investor will always feel secure because they always have 2 – 5 years of cash to fund the next few years of expenses.

The buckets approach is customizable to your unique situation.  The three buckets approach is the most common strategy.  It is the most ideal for a retiree who has at least 25 years of living expenses in savings.

More buckets can be added.  For example, if you have more than 25 years worth of projected living expenses in savings, you can add more buckets to extend your savings further out into the future. You also must take into consideration if you have a taxable account, a 401K with RMD’s (Required Minimum Distributions) at age 70, a Roth IRA account that does not require RMD’s, and Health Savings Account (HSA) to cover future medical bills.

If you are looking at establishing a conservative drawdown strategy, a buckets approach is worth considering.  It requires a little more work than a standard systematic strategy.  However, if you enjoy the mental accounting, the extra work might add to your peace of mind.  Just as when you were working towards building your wealth, the best plan is the one that you can follow.

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Impacts of the 2018 Tax Reform Law

After what seemed like many months of debate, tax reform has been passed into law for 2018.  This is not a political blog, so I will not be sharing my opinion on any of these changes.  The purpose of this post is to just share some of the highlights that will be useful for people who are interested in reaching financial independence.

This post does not cover every change.  The bill is more than 1,000 pages, so that would be impossible.  Plus, I am not an Accountant.  Trying to read the whole 2018 Tax Reform Law would be as painfully difficult as trying to read Ulysses by James Joyce.  This post just covers some of the main changes that have the greatest impact.

Tax Rates

The marginal tax rates have been lowered.  There was much debate on reducing the number of tax brackets.  In the end, seven tax brackets remained.  The lowest tax bracket is 10% and 37% is the new highest tax bracket.

Rate Single Married Filing Jointly
10% Up to $9,525 Up to $19,050
12% $9,526 to $38,700 $19,051 to $77,400
22% $38,701 to $82,500 $77,401 to $165,000
24% $82,501 to $$157,500 $165,001 to $315,000
32% $157,501 to $200,000 $315,001 to $400,000
35% $200,001 to $500,000 $400,001 to $600,000
37% Over $500,000 Over $600,000

Standard Deduction

The standard deduction was increased.  Individual/married filing separately is $6,350 in 2017 and will be raised to 12,000 in 2018.  For those who are married filing jointly or are a surviving spouse, the standard deduction is $12,700 in 2017 and will increase to $24,000 in 2018.  Head of household will increase to $18,000 from $9,350 in 2017.

There are additional deductions for those over age 65, blind, or disabled.  The deduction is $13,000 per individual if married.  The deduction is $16,000 per individual if unmarried.

The personal exemption of $4,150 has been eliminated for 2018. The Child tax credit, however, was increased to $2,000.  The tax credit is $500 for non-child dependents.


The State and local tax (SALT) deductions are capped at $10,000.  This drastically impacts homeowners in states with high state and local taxes.  States like New York, New Jersey, and Connecticut will be impacted the most.  It might be a good time for those living in these states to make like Mr. and Mrs. Groovy and move to North Carolina.


The Alternative Minimum Tax changes reduce the likelihood of paying AMT.  The income threshold was raised.  It has been raised to $1,000,000 from $$160,900 for joint filers.  For single filers, it has been increased to $500,000 from $120,700.  The number of families who paid the AMT will be drastically reduced to 200,000 from more than 5,000,000.

Roth Conversions

The ability to re-characterize a TIRA was removed (Roth Conversion).  Contributions can still be re-characterized.  This eliminates the horse race strategy of Roth conversions.  On the bright side, the ability to do “backdoor Roth contributions” has been retained.

Mortgage Interest

Mortgage interest deductions are now limited to newly originated loans up to $750,000.  The previous limit was $1,000,000.  Mortgages that were taken out before December 15, 2017, can continue to deduct the higher amount.

Home equity loan deductions have been eliminated.  That Is for both new and existing loans.  There is not a grandfathering provision for any current home equity loans.  There is no longer a tax benefit for taking a home equity loan to purchase a vehicle like some people used to do.

Medical Expenses

Medical expenses can still be deducted, but changes are coming.  Medical expenses above 7.5% of AGI for 2017 and 2018 can be included in itemized deductions. This reverts to 10% in 2019.

ACA Mandate

The Affordable Care Act (ACA) mandate has been eliminated in 2019.  There will no longer be a penalty for not having health insurance.  This does not go into effect for two years.  Please remember that having health insurance is still a vital part of your financial plan.

AGI Deduction

The 2% AGI deduction will be eliminated in 2018.  Investors can no longer deduct investment fees and expenses.  The ability to deduct the convenience fees to pay taxes with a credit card has also been eliminated.

The Surtax of 3.8% does not change.  There is an indirect change, however.  As stated earlier, the 2% floor for investment expenses will no longer be deductible.

Estate Tax

The estate tax exemption has been doubled.  The new limit is roughly $11,000,000 for individuals and $22,000,000 for those who are married.  This provision remains in effect until the end of 2025.  Please note that these changes do not affect state-level estate taxes.

529 Plan

The new tax law helps people save on school costs.  Up to $10,000 can be distributed annually from a 529 plan to cover the cost of sending a child to a public, private, or religious elementary or secondary school.  More than 30 states offer income tax deductions for 529 plan contributions.

Kiddie Tax

Kiddie tax (i.e. unearned income by a child under age 19 or a full-time student under age 24) is now subject to trust tax rates instead of their parents’ tax rate.  In the past, the kiddie tax applied to earnings that were taxed at the parents’ tax rate.  In 2018, the rate that applies to the parent does not matter.  Moving forward, investment earnings that exceed $2,100 will be taxed at the rates that apply to trusts and estates:

  • Up to $2,550 = 10%
  • $2,550 to $9,150 = 24%
  • $9,150 to $12,500 = 35%
  • More than $12,500 = 37%

Charitable Contributions

Charitable contribution deductions can be impacted.  Since the standard deduction has doubled from $12,000 to $24,000 for married couples, it is expected that fewer filers will itemize in the future.  This can cause charities to take a hit in 2018 because most Americans will have less incentive to give.

Electric Vehicles

There is still a justification to buy a Tesla Model S other than the cars impressive zero to sixty time. The tax credit for electric vehicles has been retained.  The $7,500 tax credits are available for the first 200,000 electric vehicles that a manufacturer sells.  Once that quota is met, the incentive stays in place until that calendar quarter ends.  After that, it is reduced by 50% every six months until it is ultimately eliminated.

Medicare Surtax

The Medicare surtax of 0.9% on earned income has been retained.  This only applies to employees who earn more than $200,000.  That includes wages, income from those who are self-employed, and railroad retirement compensation (RRTA).  The threshold is $250,000 for those who are married and filing jointly.


Again, this is not a comprehensive review of the 2018 Tax Reform Bill.  It is more of a quick and dirty overview.  These are just some of the highlights that I found important for myself and for other people who are working to reach financial independence.  Understanding the tax laws might be boring unless you are a CPA.  However, creating an optimized tax strategy will greatly impact your financial plan.  Everyone who is planning on reaching financial independence should at least be aware of the basics.

Always be sure to check with a financial professional before you make any financial decisions and be sure to read the Disclaimer page.

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Fire Your Financial Adviser

I have been on the journey toward financial independence for a long time.  I started saving and investing to reach financial independence at age 20.  When I decided that I wanted to become wealthy, I knew that I needed to be educated on how to turn this goal into a reality.

While at college, I studied Business Management.  Even though I tried to take as many finance classes as possible, I did not learn much about personal finance.  Sure, I studied financial analysis and other classes, but the content was mostly geared towards learning how to dissect financial statements.  It was taught more from the standpoint of learning how to become an administrator.  Those classes have helped me during my career, but not so much as an individual investor.

My goal was to learn how to invest to receive optimal returns.  There are many mixed messages when it comes to investing.  My focus was to learn how to become a successful investor.  In order to do that, I had to learn how to sift through the noise and to find the most practical content to help me learn how to manage my finances.

Since 1997, I have read almost 100 investing books.  Over the years, I have subscribed to many different personal finance magazines and journals.  Most of the time that I spend online has been reading investing articles, forums, or blogs.

I have read many great financial journalists, bloggers, and random forum posts that have helped me with my financial planning.  There has been one person, however, who I have always enjoyed reading.  That person is Doctor James Dahle.  Before I knew him by his actual name, I knew him as The White Coat Investor.

The first time that I came across The White Coat Investor was in 2007.  This was a very volatile time for investors.  The Great Recession was on the horizon.  There were many posts on the forum from The White Coat Investor that helped me to stay the course, tune out the noise, and to focus on investing for the long-term.  I am thankful for those posts by The White Coast Investor and grateful that I followed his advice.

The White Coat Investor’s target audience is primarily Medical Doctors and other high-income folks.  Most of what The White Coat Investor writes about, however, transcends profession and tax brackets.  His financial advice can be applied to anyone who is working, saving, and investing to reach financial independence.

To help Doctor’s and other high-income professionals reach financial independence, The White Coat Investor has recently launched a new course.  The focus of this online course is to teach high earners how to create a financial plan that is tailored to their unique financial needs.  It is a step-by-step course for creating and implementing a financial plan without having to use a financial advisor.

The course is based on 12 learning modules.  I have reviewed the content.  It is truly a bargain for only $499.

There is a reason why this course is titled Fire Your Financial Advisor.  After you complete this comprehensive course, you will no longer have to pay a financial advisor for their services.  You will be prepared to manage all of your finances by yourself.

This class goes a step beyond what a financial advisor traditionally helps with.  Fire Your Financial Advisor is not just another way to promote passive investing in index funds.  It is tailored to the needs of physicians and other high-income professionals.  After finishing the course, you will be more confident on how to manage your student loans, insurance, taxes, estate planning, legal protection from lawsuits, as well as everything you need to know about managing your investments.

As part of the 12 modules, you are provided with 7 hours of lectures, videos, and screenshots that you can refer to at any time.  As you advance through the material, there are pre-tests, quizzes for each section, and a final exam.  Upon completion, the course is set up to ensure that you have total mastery of the material.

It would take hundreds of hours of independent research to learn what The White Coat Investor provides in Fire Your Financial Advisor.  As a busy professional, do you have the time to read 30 or 40 books on these subjects?  Even if you do, you will not find many where the content has been written by a physician who understands your unique situation.  The White Coat Investor does all the heavy lifting for you.  He provides you with what you only need to know.  There is zero waste in this course.

Another great feature about the Fire Your Financial Advisor course is that there is not any risk.  Buy it and check it out.  If you find that it does not provide you with what you need to optimize your finances, there is a 7 day, risk-free, guarantee to return it.  It would be difficult if not impossible to hire a financial advisor who offers a money back guarantee.

The White Coat Investor is one of the good guys in the world of personal finance.  If you are a doctor and want to take control of your finances, check out Fire Your Financial Advisor.  You truly have nothing to lose other than $10,000 or more in annual fees that your financial advisor will charge you for what you can be doing yourself for free.

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Individual vs. Institutional Investing

As an individual investor, it is important to know where you stand.  To succeed, you need to know your goals.  For most individual investors, their goal is to be able to fund their retirement expenses or even to be able to retire early.  Other goals might be paying for a child’s education, starting a business, or building a dream house.

To reach those goals, there is a simple path for an investor to follow:

  •       Earn a reasonably priced college degree that will lead to a high paying profession
  •       Limit debt
  •       Live below your means
  •       Max out your 401K and Roth IRA
  •       Invest in low-cost mutual funds that meet your age and risk tolerance

That is the basic formula for an individual investor to succeed.  It is easy, however, for an individual investor to stray from these simple steps.  It does not just occur.  The marketers who work for the financial industry muddy this simple message.  They tell you that being average is for losers.  To succeed as an investor, you must do hours of research and trade like a professional stock picker.  If that message sounds too overwhelming, the next best thing that they can offer you is a commission based financial advisor who will sell you overpriced mutual funds or an annuity that will more than likely underperform the S&P 500.

Know Your Competition

Despite most people having a 401K that holds stock and bond mutual funds, individual investors do not control the stock market.  As recently as the 1970’s the majority of trades were conducted by individual investors.  People would follow the performance of their stocks by reading the investing section of the newspaper and call in trades to their stockbroker.

Those days are long gone.  People no longer track their investments in the newspaper.  They now use online investing platforms.  They also no longer control the volume of trades.  Today, almost 95% of the trades are performed by institutional investors.


If an individual decides to try to invest as an institution does, they are trying to compete with institutional investors.  Individual investors do not possess the resources that institutions possess.  Individual investors lack the scale that institutional investors have.  They have access to investments that non-accredited investors do not have.  Large institutions such as Pension funds, university endowments, foundations, and fund managers have billions of dollars in assets under management.

Institutional investors employ teams of professional investors who have attended the best Ivy League Universities and business schools.  Only the best and the brightest are hired to manage these large pools of assets.  They hire teams of professional investors who are experts in specific markets.  It is beyond a David vs Goliath comparison to compare the resources of an individual investor to an institutional investor.  The individual investor is simply out of their league.


When an individual investor buys shares of a security, that purchase is not just an exchange of money for shares of a publicly traded company.  It is a statement.  The trade can be interrupted to mean that the investor knows that the stock is undervalued.  It is not correctly priced in relation to the market.  It is a vote of confidence that they know more than what the entire financial industry knows about that stock.  The individual investor knows that the company has the management, financials, and potential for revenue that nobody else is aware of at that moment.

Odds are, the individual investor does not know anything that the whole world already does not know.  Individual investors are actually the last ones to know.  The first ones to obtain the facts about management, financial statements, and the potential for growth of a company are the industry experts, insiders, professional analysts, and then the financial media.  Unless you have insider information, you are getting your information from the financial media.  At that point, the price of the security is priced based on its business fundamentals and potential for growth.


The stock market is efficient over the long term.  Yes, an individual investor can occasionally find an undervalued stock.  When that does occur, it is more than likely the result of luck than analysis.

Most individual investors do not have the education or analytical training to properly research securities.  They also do not have the time if they already have a full-time job.  Yes, the commercials for trading platforms state that anyone can do it, but it is just not true.  If it were true, individual investors would not underperform the market the way that they generally do.

When there are rare buying opportunities like the fall of 2008, most individual investors do not take advantage of this buying opportunity when almost the whole stock market goes on sale.  Rarely do individual investors have the courage to go against the grain and buy when the world is selling.  When these opportunities do become available, most individuals are selling low and waiting on the sideline to buy when the prices increase.

It is a better practice for individual investors to let professional financial analysts try to analyze hundreds of companies to find the best stocks to invest in.  They get paid to try to outperform the S&P 500.  Over the long haul, most of them fail too.  If institutional investors with almost unlimited resources and talent cannot consistently beat the market, what chance does an individual investor have?


For an individual to be a successful investor, they must invest for the long term.  Dollar-cost-averaging, rebalancing, and compound interest are the tools that will drive the success for the individual investor.  By dollar-cost-averaging a fixed amount into a 401K, an investor will get to purchase stocks when they are priced both high and low and capture the average price and return.  That along with holding those stocks for decades will allow for compound interest to work.

For example, let’s examine the performance of a portfolio composed of 60% in the S&P 500 and 40% in The Total Bond Fund that was rebalanced annually.  How did this portfolio perform 1996 to 2016?   If an individual investor invested $500 per month into this balanced portfolio that portfolio would have averaged a return of 7.4% per year.  That portfolio would have grown to $192,000.

This is where the individual investor has an advantage over the institutional investor.  The institutional investor must work to beat the S&P 500 or whatever benchmark they are compared to depending on the type of securities they invest in.  The advantage that the individual investor has is that they just have to capture the market average that the index produces.  The fund manager is highly compensated for short-term performance.  If the fund manager does not perform, they will be replaced.  If the fund continues to underperform, they normally merge with another fund.  It is getting harder and harder for professional investors to beat the market due to the Shrinking Alpha.  Based on the data provided by SPIVA, Over the past 10 and 15 years, only 18% of domestic funds outperformed the S&P 500.

By focusing on being average, time is the ally of the individual investor.  The individual investor does not have to get bogged down with quarterly earnings reports or making a second career out of managing their investment portfolio.  There will be positive and negative quarters.  When there are negative quarters, it is a time to buy low.  When there is a positive quarter, it is still a time to buy, but also a time to watch those low-priced shares that were purchased grow in value.


Be true to yourself.  Know your strengths and limitations.  If you are not David Swenson, Bill Gross, Peter Lynch, or Bill Miller, you should not try to replicate how they invest.  How they invest is not useful to you.

Establish your goals.  Write a financial plan.  Identify what you want to achieve and experience.  What are you saving for?  How do you plan on using your money to improve your life and the lives of others?

If you are not a professional investor, stop pretending.  Stop trying to time the market.  You are just buying high and selling low.  You are wasting time, energy, and money.

Stick to the basics.  Establish what your risk tolerance is as an investor.  How much of a loss can you tolerate before you sell low? When will you need the money that you are saving/investing?  A good place to start is with a balanced portfolio of stocks and bonds.  If you are in your 20’s, you might want to allocate more in stocks.  If you are in your 50’s, you should probably consider holding less in stocks if you are retiring soon.  After that, let dollar-cost-averaging, rebalancing, and compound interest work for you.

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Always consult with a financial professional before making an investment decision.

Please be sure to read the Disclaimer Page.


Planning on working until age 70?

Should you plan on working until age 70?  This suggestion has been surfacing in the mainstream financial media.  It is perfectly fine to work until age 70 or beyond.  It should not, however, be the age that your retirement planning is based upon.

Some people like to work.  It gives them purpose.  Work adds structure to the day.  For many people, it is their identity.  Their job is who they are.

Even if you truly enjoy your job, it is practical to have exit strategy in place.  Life happens, and changes occur on many different levels.  It is prudent to have a plan that enables you to exit the workforce sooner rather than later.

There are many reasons why a person should not set their target retirement age to 70.  Planning on working at such an advanced age is difficult because there are too many variables.  Below are some of the concerns that I have with planning on working until such an advanced age:

Financial Planning

If you set your target retirement date for your 70th birthday, it will have a negative impact on how you manage your finances.  It might even prevent you from creating a financial plan.  Savings will not be a priority.  Without an ambitious goal of retiring at a young age, the temptation to spend most of your money will win out every time.   The motivation to save a large percentage of your earnings for retirement will not be a priority while you are working.  It can easily lead to the mindset of thinking that retirement will never occur, you only live once, enjoy it while you are young, and other poor money management theories.

This mindset can easily lead to a financial disaster.  It would also be much easier to take on debt.  Spending leads to more spending.  If you must work forever, you might as well have a nice car, house, and other stuff to show for it.  You will be stressed from all that work, so two or three expensive vacations would provide just enough rest and relaxation to keep you motivated.


Unless there is a major medical discovery, our time on this planet is finite.  Nothing lasts forever and that includes our ability to work.  As time goes by, we break down.  Everybody is different, but it happens to the best of us.  If you have a physical job like a construction worker, your ability to perform your job is shorter than if you have an office job.

Even though Office work is not physically demanding, it is not healthy.  Some say that sitting in front of a computer all day is as bad for your health as smoking.  In other words, sitting also breaks down the body from lack of exercise.  Along with our bodies, our minds are not able to manage stress and deadlines the way it did when we were young.  Our egos might not like to accept these facts, but it is just part of being human.


As life goes on, our family obligations change.  Parents age and require more of our attention.  They might even require us to become their primary caregiver.

Children require attention past the age of 18.  Grandchildren are born and need to be cared for.  Daycare is expensive.  Your children might ask you to watch their children, so they can go to work and earn a living.  There are many family situations that could require a person to have to stop working much sooner than age 70.

Job Loss

What will you do if you get laid off in your 50’s, but your financial situation requires you to work until a much later age?  Recessions occur about every 10 years as part of the business cycle.  Some companies go out of business.  Some companies survive by cutting labor expenses to remain profitable.

Unless you have a tenured position, in many cases, the first employees to get laid-off are middle managers or older employees.  Loyalty is a thing of the past.  Just because you were loyal to an employer, it does not mean that they will be loyal to you.  Just because you want to retain your position, it does not mean that they will retain you.

Age Discrimination

Age discrimination is a real issue.  Under Title VII of the Civil Rights Act of 1964, an employer cannot discriminate based on age.  The protected age under Title VII is 40 and older.

Even though it is illegal to discriminate based on age, unfortunately, it occurs.  I have had to coach hiring managers and executives many times about this law and practice.  They do not set out discriminate.  They just tend to see younger prospects as being more budget-friendly and motivated than mature workers.

Just because you want to keep working, there is no guarantee that the type of work that you performed during the prime of your career will be available.  You might think that you can still perform at a high level.  The hard part is convincing an employer that you still can do it.

It is Not Fun Anymore

Even though you enjoy your job today, it might not always be that way.  Your assignment might change.  That great boss who supports your development takes on a new assignment and your new boss is a jerk.  The co-worker who you are friends with gets a new position.  The demands change.  The company is bought by a competitor.  There are countless things that can occur that can turn a good job into a terrible job.

What Age Should People Plan on Retiring

It is prudent to plan on being able to retire much earlier than age 70.  I would suggest setting a goal of having the option to retire by age 55 or younger.  That does not mean that you must retire at that age.  It simply means that you have the means to step away from work if you must.  By being financially independent, you simply have more flexibility for whatever life has in store for you.

By setting a younger retirement age, you will manage your finances more wisely.  It forces you to start saving a large percentage of your earnings as soon as you enter the workforce.  It will force you to spend less and avoid wasting money on stuff that you do not need.  It will also help you to avoid consumer debt like credit cards or auto loans.  It will force you to live and spend smarter.

If work is your passion, don’t give it up.  I hope that you can work until you are able to call it quits on your terms.  Never the less, life does not always work that way.  Plan for the worst and hope for the best.  That is why planning to work until age 70 is not a good plan.

Writing a Financial Plan

Everyone should have a written financial plan.  A written financial plan is a document that assists you to focus on what you want to achieve when it comes to your personal finances.  A written financial plan is a living document that should be amended as time goes on.

A written financial plan is a useful tool for everyone.  It does not matter if you are a new college graduate (Age 21-28) entering the workforce, a Millennial or Gen-Xer (Age 29-49) who is in mid-career, or a young Baby Boomer (Age 50-65) who might be retired or getting ready to retire soon.  The nice thing about writing a financial plan is that it is your custom plan.  You get to design and write it to meet your financial situation and aspirations.

Having a written financial plan allows you to see the big picture.  It is a way to track short-term goals and make lifestyle adjustments as need be.  A written financial plan enables you to track how those short-term adjustments impact your progress as you work towards reaching long-term goals that might not be realized for many decades.

A written financial plan is not just for looking at how your money is invested in your asset allocation.  While asset allocation is extremely important, it is only part of a financial plan.  If you are interested in learning more about asset allocation, I have written a 4-part series on that topic.  A good place to start is by reading 100 Percent Invested in Stocks and the subsequent posts that follow how my asset allocation has evolved during my investing career.

A written financial plan can have many different categories.  Start with where you are in life and where you want your written financial plan to take you in the future.  Below are some categories and examples to consider:


New Graduate:

  • Pay off student loans (the party is over, here are the damages)
  • Establish an emergency fund (3-6 months of expenses in cash)
  • Contribute to 401K (at least enough to get the employer match)


  • Pay off mortgage (pay it off in 15 vs 30 years)
  • Help children with education (establish a 529 college savings plan)
  • Pay off consumer debt (credit cards, car loans, payday loans)
  • Increase 401K contributions (increase by 1-2% per year)

Young Baby Boomer:

  • Down-size house (the kids are gone, hopefully, they will not come back)
  • Contribute the maximum to retirement accounts (time is no longer on your side)
  • Establish a target-date for retirement (5-10 years)


New Graduate:

  • Select a career field that pays well (think STEM, if you can)
  • Get a job (spend more time on
  • Become an expert in your field (read, read, read)
  • Finding side opportunities to earn extra income (always be earning)


  • Advance into management (you now have  the experience to lead others)
  • Become a partner (lawyers, doctors, accountants, other professionals)
  • Buy a business (if you have the entrepreneurial drive)

Young Baby Boomer:

  • Advance to a C-title (if you are already a VP)
  • Become a consultant (if you have industry expertise)
  • Sell the business or your stake in the concern if you are a partner (cash in your chips)


New Graduate:

  • 25% housing (don’t exceed this amount)
  • 15% savings (it sounds ambitious, but you can do it)
  • 10% transportation (think Honda Civic or Toyota Corolla)
  • 20% towards debt (pay it down ASAP)
  • 30% living expenses (live below your means)


  • 20% housing (stick with the starter house)
  • 35% savings (these are your primary savings years)
  • 10% transportation (mini-van for kids)
  • 35% living expenses (keep an eye on lifestyle creep)

Young Baby Boomer:

  • 10% housing (this is for maintenance)
  • 60% savings (you can see the light at the end of the tunnel)
  • 5% transportation (mid-sized model)
  • 25% living expenses (spend some money on the grandchildren)


New Graduate:

  • Apartment insurance (you don’t have much, protect it)
  • health insurance (it is as cheap as it is going to get)
  • short-term disability insurance (if you have a physical job)


  • Home owner’s insurance (get enough coverage)
  • Family health insurance (it is no longer cheap)
  • term-life insurance (protect your loved ones)

Young Baby Boomer:

  • Have a lawyer write your will (don’t create a mess for your heirs)
  • Create an estate plan (get professional advice if you are not comfortable)
  • Be sure to have health insurance (Medicare kicks in at age 65)
  • Keep some cash liquid (keep the first 2-5 years of retirement expenses in cash)

The above categories are just a few to consider adding to your written financial plan.  As mentioned earlier, you can customize this plan to your unique situation and goals.  Some other options to consider might be plans for continuing education, how volatile your career is during changing economic conditions, family planning, as well as your need to take on market risks due to other income sources such as pensions.


When writing your financial plan, remember to write it in pencil and not in ink.  In other words, the one thing that I have found in life that remains consistent is change.  Over the course of my life, I have watched people change, work situations change, and economies change.  In my own life, I have changed careers, goals, and interests.  This is not a ridged manifesto that must be followed to the letter.  It is just a guide for you to set goals, track progress, and change direction when needed or desired.  Allow yourself to be flexible and enjoy this process.

Do you have a written financial plan?

If you do, what other categories do you have concluded?

How often have you had to make amendments to your financial plan?