Tuesday, March 30, 2010

I do, but only if you sign the prenup

It's finally spring, and that means it's wedding season. I know three couples who got engaged within the past few days, and others who have been engaged for a while have weddings quickly approaching on the horizon.

If couples have done their pre-marriage due diligence, hopefully they're at least on the road to agreement about how they save and spend money. For some people, that means combining it all into one big pot; for others, assets remain separate, often legally divided by a prenuptial agreement.

As usual, I don't think there's one right answer for everyone. When I got married, though, it was important to me to have a prenup. There were a lot of reasons for this: Although he worked hard to change his ways, my former husband had a long history of financial irresponsibility, so he had essentially no savings and his credit in his home country was pretty well shot. In addition, my parents felt that they didn't want their eventual estate to be up for grabs if something happened to the marriage. The long and short of it is that I just felt safer with a prenup, and we entered into it with the idea that we'd revisit it with the intent to dissolve after a number of years.

The prenup was good and bad. By the time we split up, my ex was making twice my salary, yet I was still paying half of our living expenses. Because I'd waived my right to any kind of settlement, I didn't have any recourse. (I also don't really think I actually deserved any recourse for this one because I should have addressed the question of fair division of expenses during the marriage.) The split also quickly spiraled into a vitriolic situation on both sides, so being bound by a legal agreement about how the assets were to be divided saved us both a lot of money in legal fees since we were limited in what we could argue about. By the time we got to the point where the cost of arguing was greater than the value of wasn't covered by the agreement, I told my attorney to let him have everything left so we could just wrap up the separation agreement and file.

Having a prenup was more good than bad in my case. While I don't really see getting married again, I think there are very few situations in which it wouldn't make sense going forward.

How do you feel about prenups? If you're married, do you have one? Why or why not? If you're single, would you get one? Why or why not?


Sunday, March 28, 2010

A million isn't what it used to be

I'm late to the game on this one, but last week there was an interesting Yahoo Finance article suggesting that if you're more than a few years away from retirement, a million dollars isn't going to be enough.

Obviously, there are many different variables at play, some within individual control (like personal spending) and some external (like inflation), so a blanket statement like that isn't going to apply to everyone. In my case, however, I've never assumed that a million would be enough.

I noted in an earlier post that I want to start my retirement with a budget of $10,000 per month. Conventional wisdom is that at the start of retirement, it's safe to draw down no more than 4% of the total value of one's portfolio annually, adjusting the withdrawl rate for inflation every year. I'm risk-averse, so I'd like to keep that draw-down rate closer to 3%. $10,000 per month works out to $120,000 over the course of a year. If that's 3% of my total portfolio, then my portfolio has to be worth $4,000,000 to support my target retirement budget.

Even at my current savings rate, that $4,000,000 nut is a little intimidating. It's mitigated to some extent by my pension because I'm vested for about $20,000 per year starting from age 65 until death, which means that I'll need to count on drawing about $100,000 per year from my portfolio. In order to cover that, I'll need to have $3,334,000 saved up.

If I end up staying with my current employer (and that's by no means guaranteed), the value of my pension will go up substantially over time and in a best-case scenario, full benefits will kick in earlier than age 65. Being risk averse, however, I'm building my plan with the assumption that something will prevent me from collecting any more of my employee pension than I'm vested for today. Similarly, I'm assuming that if Social Security still exists, I'll be taking a pretty big haircut relative to the benefits available today, and I'm not eligible to start receiving benefits until I'm 67 anyway. I also want to retire before age 65, and that means a number of years in which my retirement is completely self-funded before my pension benefits kick in. As a result, $3.5 to $3.8 million is my target net worth figure for retirement

How much do you plan to save for retirement, and what assumptions play into that figure? If you're already retired, how well do you think your financial planning for retirement is working out?


Sunday, March 21, 2010

Raising the curtain on the second act

The New York Times had an interesting article this weekend about midlife career transitions. The article detailed a program called Encore Fellowships, which offers six to twelve month paid work in the non-profit sector for people who are nearing retirement but not yet ready to hang up their suits and ties for good.

There are a couple of different factors driving the Encore Fellowships program. The main one is the fact that people who are in their '50's, '60's, and 70's today will, as a generation, live far longer than their parents. While the question of continuing to work will be a choice for some of these people, a great many more will simply need to continue working for economic reasons. At the same time, recent research suggests that the stereotypical intellectual decline that is associated with late middle age may not actually exist. The founder of Encore Fellowships suggests that the trend of staying on in the work force at work that is ideally more fun than drudgery is the start of a massive cultural shift, where people move in and out of the work force and even college between the ages of 20 and 80 based on life events.

I'm not convinced that we're on the edge of a massive cultural shift, but I do think more people will end up working longer because they have to. Personal aspiration might be there for some (possibly many) of these older workers, but I think it'll be secondary relative to economic necessity.

I really like the idea of having something interesting and engaging to do following retirement, but I'm not sure that paid work is what I want. On top of that, after seeing how hard baby boomers have been hit in the job market in the course of the recent economic decline, I'm convinced that once I hit my fifties I'll be at reasonable to significant risk of becoming involuntarily unemployed. (Shoot, for all I know, that could happen tomorrow.)

With fifteen to eighteen years ahead of me, I'm sure my perspective is going to evolve over time. Today, however, I want to retire by the time I'm sixty and be done with the working world for good. Whether or not my outlook on this changes between now and then, I want the decision of whether to retire or not to be my choice.

Do you plan to work past retirement age? Why or why not? If you don't plan to continue working, how do you want to spend your golden years?


Tuesday, March 16, 2010

The monster lurking in the closet

Inflation seems to be a mixed bag in PF blogworld. Many people don't think it's any big whoop and don't really factor it into financial planning, but others are deeply concerned about its potential to eat away at their retirement.

I fall into the latter category. Part of my perspective probably dates from childhood memories of stagflation in the 1970's, when my mom and dad went black belt on groceries and other variable expenses (even giving up coffee for a time, a previously unthinkable act in our household then and most definitely in mine now) because of rapidly rising prices combined with worries about their jobs. On the whole, however, my concern about inflation comes straight from the numbers. According to the very interesting inflation calculator at moneychimp.com, inflation averaged 3.1% between 1900 and 2009. I tested a number of different 20-year and 30-year scenarios, and while I got some variation, it was small enough that I think the overall average is a pretty good estimate to use for financial planning purposes.

3.1% inflation isn't much to worry about, right?

Wrong. A neat little inflation calculator I found on the web had an easy way to run some interesting future scenarios. What I learned is that over twenty years, an inflation rate of 3.1% knocks almost 50% of the purchasing power out of every dollar. In other words, I'll need roughly $3500 per month to maintain the very same New York City lifestyle that costs me $1800 per month today.

$3500 isn't really that much for a monthly budget anyway (and certainly not in New York), but I'm planning to have a LOT of fun in retirement and it's going to cost money. For planning purposes, I set my future retirement budget at $10,000. It sounds like a crazy amount of money relative to what I spend today, but given that 3.1% inflation means that $10,000 per month in twenty years will buy me a lifestyle that costs $5327 today, suddenly it doesn't sound outrageous at all.

Do you factor inflation into your future financial planning? If so, what assumptions do you make for inflation in your planning?

A word on online calculators: Personally, I don't generally trust them right off the bat because there's no way to know how accurate they are. I usually run a couple of calculations on both an online calculator and either on a financial calculator or in Excel to make sure the figures match. In this case, they did.

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Friday, March 12, 2010

The bad boss festival

In my last post, I promised I'd give a little more background about how I developed most of my principles of people management. As I mentioned, most of my ideas come from experiences I've had working for other people.

I've had a lot of different bosses over time, nine in three turbulent years at one point. They range from being incredibly good to being among the worst of the worst, and I've learned a great deal from all of them. The ones that stand out the most, unfortunately, are the bad ones.

I try very hard not to be too emotionally invested in work, but it's difficult to do that at times: I'm a solo act so work is pretty integral to my life, especially since I'm not financially prepared to retire. There have been many instances in which something my boss at the time did made me feel undervalued, disrespected, marginalized, and completely unappreciated. They include:

--Boss who tracked his guesstimates for female employees' menstrual periods on a calendar.

--Boss who ripped me to shreds and then told me I should be more like her.

--Boss who told me to my face that he was smarter than me.

--Boss who told me he requested a salary adjustment on my behalf, but turned out to be lying.

--Boss who dumped a project on me as I was leaving for the airport for a five day beach weekend with my family to celebrate my dad's 80th birthday. (Boss had six weeks notice of my time off.) She said she needed it delivered the day before I came back. I didn't feel like I could say no, so I put in four sixteen to eighteen hour days while on vacation to complete it. Boss did not review project for two weeks, did not say thank you, and also denied my request for comp time.

--Boss who was invited to my wedding, accepted with his wife, and then didn't show because he had something better to do that came up that morning. (His actual words.)

--Boss who committed me to impossible deadlines and budgets that he made up out of thin air in client meetings and then held me accountable for meeting.

--Boss who proseletyzed his religious faith to me.

--Boss who was fond of BIG HUGS and kissing female employees on the forehead. (This stopped after a sexual harassment complaint from another employee.)

--Boss who habitually allowed people to wander in and start socializing during what was supposed to be our weekly one on one meetings.

--Boss who gave another colleague and me our annual reviews together on the grounds that we were interchangable and it would save time.

--Boss who spent my midyear and annual review time talking about his career, reading his Blackberry, and sending instant messages.

--Boss who told problem employee he was outstanding because he didn't want to deal with his behavioral issues, and then gave him to me to manage and asked me to "fix" him.

Some of these managers are still around, and I've been promoted up to their level. One very senior one remains but was counseled by HR for his inappropriateness around women. One was fired for cause, one was laid off, and two had all their staff taken away and have no one reporting into them.

As a manager, I work very hard not to do these kinds of things to other people. My track record isn't perfect, but it's pretty good. I also learned quite a lot (mostly what NOT to do) about confrontation, picking battles and difficult conversations while going through these experiences. The point is, as bad as bad working situations can be, if you can use them as a guide on how to do better when your opportunity comes, they aren't all wasted.

Do you have any bad boss stories of your own to share?

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Monday, March 8, 2010

Building a better boss

There are lots of things I do very badly and a few things I do pretty well. One of the things I do pretty well is managing people.

The comments from a post over at Revanche's blog made me start pondering this topic over the past few days. As I've mentioned before, I've been managing people in a corporate environment for about thirteen or fourteen years. I started with summer interns (always a little unpredictable) and gradually took on permanent employees of different grades, and today my team of direct reports consists of mid-level managers and subject matter experts.

Over time, I've developed a philosophy of people management. Some of it comes from books I've read or training courses I've taken over the years, but most of it is the result of processing my own experiences, good and bad, as an employee. Here are a few characteristics and behaviors that I think are integral to becoming a good people manager:

Lead by example
Model the behavior that you expect to see. If you expect work completed by a certain date, don't let your own deadlines slip. If you expect people to demonstrate good analytical work, do good analytical work yourself. If you expect them to treat people with respect, then let them see that you always treat people with respect. Perhaps most importantly, if you want your people to be energetic and enthusiastic about their work, you've got to be their biggest cheerleader.

Get to know your people as people
Show an interest in their families, their hobbies, and how they spend time outside of work. It'll help you help them achieve and maintain balance in their lives, and that makes the whole process of allocating work and managing expectations about when it'll be done all the more effective. It'll also make you more approachable to your team members because they'll feel warmth from you as a person. Moreover, I've always found that having insight into my team's lives outside of work is both personally rewarding and really helpful when it comes to gauging how they will respond to difficult situations.

Build a culture of trust and respect
Employees deserve honest feedback, delivered respectfully, on both their strengths and growth areas. This is feedback that needs to be delivered continuously: It's not fair to either withhold well-deserved praise or blindside someone by bringing up constructive criticism for the very first time on a formal performance review. It's also important not to shoot the messenger when something doesn't go as expected. My experience is that people who trust their managers not to fly off the handle at bad news feel safe to alert them about mistakes up front instead of sweeping errors under the rug. This matters because early warning is key when it comes to effective damage control.

In addition, make sure your actions match your words. Don't ask your team to move heaven and earth to get something done and then let it sit for two weeks before you review it. Don't promise to do something and then not do it. Many managers blow their credibility (and the trust and respect that go with it) by falling short on the follow-through.

Look out for your people's interests
I mean this in two ways, engaging your team members' attention, and giving them opportunities. Just about every job carries a certain amount of drudgery to it, but matching work to people's interests will go a long way towards generating momentum. Not everyone likes to be taken out of their comfort zone, but encouraging your people to push the boundaries of their current knowledge and develop new skills will generally serve them well in the long run, as long as they get the support they need to to be successful. In addition, broadcasting their successes, providing the resources they need to help strengthen their growth areas, and standing up for them when they're taking flak over something that didn't go so well are all critical parts of developing their careers.

Listen more than you talk
I usually aim for a ratio of 30% talking to 70% listening. When someone is talking, his or her receptors for non-verbal cues are not working at full capacity, and that can mean missing something important. In addition, employees who don't feel heard because their manager never shuts up don't feel valued or respected, and feeling marginalized at work affects everything from motivation to follow-through.

Listen with your full attention
Body language matters. When meeting with team members, especially one on one, it's really important to reinforce the message that they are valued by showing that you're giving them 100% of your attention. Non-verbal cues that indicate attentiveness include forwarding the phone to voice mail, setting cellphones out of sightline, turning away from the computer screen to avoid distractions from incoming mail or instant messages, and sitting in a neutral body position (directly facing the person, leaning slightly forward to show interest when they're talking, arms and legs not crossed, hands relaxed, and sustained eye contact without initiating a staredown). These body language techniques don't come naturally to everyone and they are certainly not natural to me, but they can absolutely be learned.

Have difficult conversations
It's not easy to tell someone that he or she isn't measuring up, but it's so important. In most cases, I think the assessment that someone is simply a bad employee is something of a cop-out. Sometimes employees honestly don't know why they're struggling. In those cases, how will they figure it out if the person who is responsible for managing their performance doesn't speak up about how their actions are perceived? If you've built a culture of trust and respect and really plan how you deliver the message (role-playing is very helpful here), my experience has been that team members will respond well because they believe you're looking out for their best interests and trust you to tell the truth.

In other circumstances, there might be something in the employee's personal life that has affected his or her performance. This is where having a culture of trust and respect and knowing your people as people are invaluable. Alternatively (and this is something I've certainly seen happen as the result of internal reorganizations), the employee might not be in the right job. I find these latter situations the most difficult situations to solve, and sometimes they just aren't solvable. That doesn't mean it's okay not to try, though.

Build a sense of ownership and responsibility
I don't like it when people dump problems in my lap. A tool I've found effective in counteracting this is to push people to take ownership by analyzing the problem and proposing solutions themselves. Questions I like to ask include:

-- How do you think we should solve this situation?
-- What do you think you could have done differently to produce a positive result?
-- So and so sounds very [add negative emotion of the day here]. Why do you think s/he reacted that way?

There's a time when issues escalate to the point of needing air cover, and it's important for managers to be able to recognize that and act accordingly. For most problems most of the time, though, refusing to take on the role of Mr. or Ms Fix-It empowers (or possibly forces) team members to really become invested in and responsible for the quality of their work. It also helps them build their own soft skills, problem-solving skills, and leadership skills.

Don't believe your own press
It's important for a manager to have confidence in his or her abilities, but the minute a manager tells someone to model themselves on the manager, that manager has lost it. We all have room for improvement, and team members can provide really valuable insight into how their managers can improve. To me, this is part of the continual feedback cycle I mentioned above. One of my favorite expressions is Challenge me if you think I'm wrong. My team does, and we all produce better results for it.

I want to stress that I'm very far from perfect, but that's what I believe in and do my best to live by consistently as far as people management goes. Do you think it makes sense? What other qualities or techniques help a person become a good people manager?

Check back here in a couple of days for a little background on some of the things that went into the development of my management philosophy. In the meantime, for a really outstanding book on managing and motivating people, I'd recommend It's Your Ship by Captain Jack Abrashoff. It's engaging, funny, honest, and in my experience, very, very accurate.

Please cast your vote for Frugal Zeitgeist in the Best Kept Secret category of the Plutus Awards!


Saturday, March 6, 2010

Say what?

I read an article on CNN the other day that annoyed the bejibbers out of me, so naturally I wanted to share it with you.

A short synopsis goes like this: Elderly people have a tendency to make unwise money decisions, thus endangering their children's inheritances. Economists have a remedy: Bequests are essentially trades of inheritance money tomorrow for love and attention today. If you start being nice and attentive to your elderly parents now, you'll have a greater chance of being remembered in their wills.


I've brought up the topic of family relationships in the past, and the less-than-overwhelmed reaction from many readers convinced me that when it comes to parent-child relationships, I have a blind spot big enough to drive a truck through. As a result, I'm writing my reaction only from the perspective of my relationship with my parents. Your mileage may vary greatly.

So, onto the reaction.

My relationship with my parents has never been perfect. To be completely honest, there were years when it was perfectly awful. In my early 20's, I decided that I did not want to live with regrets after they died, so I started actively trying to back off on the things I did that annoyed them and let go of the things they did that annoyed me. As time marched on and I got better at doing these two things, our relationship greatly, greatly improved. In the last seven or eight years of my dad's life, I talked to my parents first every day, and then twice a day. I traveled out to see them every six to eight weeks in the last year and a half my dad was alive, and I'm still making the trip four or five times a year to hang out with my mom.

The prospect of inheritance does not factor into the equation.

I have always viewed my parents' money as their money. They helped me out financially in four crucial circumstances of my adult life (paid for college, wiped out my outstanding school loans after I finished grad school, kicked in a couple of thousand for my wedding, and contributed to the down payment for my apartment). I'm always going to be grateful for their help. Although The Millionaire Next Door posits that financial help from family enables dependence, in my case I think it had the opposite effect: I never viewed their wealth as my income (a term from the book that stayed with me), but their financial help gave me the freedom to build and manage my own assets without being shackled down by school loans. In addition, I would not have passed my co-op board review for my apartment purchase without their assistance.

Having said that, I think that my parents wouldn't have been as forthcoming with the help if they viewed me as being financially irresponsible in the first place.

My mom got everything after my dad died, and it never occurred to me that it should be any different. I periodically encourage my mom to spend more money: My mom deserves to enjoy the retirement of her choosing. I keep an eye on her financial planning not with the intent of lining my own pockets, but rather to make sure she doesn't end up getting fleeced by one of the many con artists who prey on senior citizens.

My attitude towards my mom's money is that she can do whatever the heck she wants with it, either now or in her will. Leave it all to my sibling? Fine. Donate it to charity? Cool. Establish a scholarship for struggling students? Excellent. She has a comfortable asset base because she and my dad worked very hard and lived frugally for many, many years. I think if she ever thought that I was trying to ingratiate myself for the sake of an inheritance, she'd be devastated. I'd feel overwhelmingly dirty about doing that in the first place.

I'm not saying that there aren't circumstances where factoring finances into the parent-child dynamic might be appropriate. For other people, the family versus inheritance paradigm is going to be completely different from what I just described. That's really what I'm interested in hearing about from commenters.

If you have older parents, what role (if any) does the prospect of inheritance play in your relationship? If you have kids, do you associate the depth of your relationship with them with rewards in your will? How do you plan to divide your estate, and what's driving your decision-making?


Thursday, March 4, 2010


Got my taxes done today. I always end up owing a little on state, but was pretty sure I'd net close to zero with a small federal refund. I was basing my expectations on two things: First, the fact that my investment returns were really good last year; second, 2009 was my first full year mortgage-free since I paid that sucker off in July of 2008.

To my surprise and delight, I'm netting about $4000 back. BOOYA! I realized that my expectations were way off base both because I didn't cash out any investments last year and the taxable dividends were practically nothing, and because the interest payments on my mortgage were so low by the time 2008 rolled around that losing the deduction really didn't make any substantive difference.

I should probably adjust my withholdings to lower my refund on the grounds that the refund is basically a tax-free loan to the government, but I'm not going to. I really like having a buffer against taxable events, and I just despise dipping into cash to pay the IRS.

As far as what I'm doing with the refund goes: I'm tentatively planning on another trip to San Francisco this fall, so I'll definitely cover that with the refund money. Aside from that, the rest is going into investments. After fifteen months of layoffs and counting, jobworld is so depressingly dismal that I'm highly motivated to do whatever I can to bust out sooner rather than later.

Are you getting a tax refund this year? If so, what are you doing with it?

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Tuesday, March 2, 2010

O Canada

Some of you might remember that last April, a change to Canada's citizenship laws resulted in my becoming eligible for Canadian citizenship. I don't see a downside to dual nationality, so I applied for a citizenship card in July. Late last week, I received notification that my proof of eligibility met Canada's requirements, so I'm now recognized by the Canadian government as a citizen.

I applied for citizenship because of my family history and ties, but there are definitely benefits from a practical perspective. Here's an overview of what dual citizenship means in my case:

Right of residence
If I ever want to move to Canada, it couldn't be easier: All I have to do is pack up and cross the border.

Eligibility for employment
As long as I can land a job in Canada, I'm eligible to work. I would pay into the social security system, of course, but I'd also be eligible to benefit from it at retirement age.

Thanks to a tax treaty between Canada and the US, I only pay taxes where I'm living.

I can't vote. Canadians who have lived outside of Canada for five years or more are ineligible to vote until they re-establish (or in my case, initially establish) residence. I think that's perfectly fair, at least as far as people in my situation are concerned.

I'm eligible to apply for and travel on a Canadian passport, which has its upside in certain parts of the world. This is something I'd want to be a little careful about, though. My SO was told that now that he's a US citizen, he can never again enter the US on his European passport; I assume that the same would apply to me as well. As far as I understand, however, I can enter any other country (including Canada) as either an American or as a Canadian because I hold dual citizenship.

Health insurance
I couldn't find anything definite about this but from what I could tell, establishing residence in Canada would mean eligibility for Canada's national health insurance program, which is administered at the provincial level.

For about a hundred bucks in application fees plus pure dumb luck, I think it's a pretty good deal. Do you have (or are you eligible for) citizenship in more than one country? If so, where? What benefits does additional citizenship provide?

For a humorous introduction to Canada, check out this brief video:

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