​By Brad Thomason
 
 
I really don’t like the term “side hustle.”  I think it’s silly, childish and overused. 
 
Nonetheless, it has, at least for the moment, seemingly become a fixed part of the lexicon.  So you know more or less what I’m talking about when I throw it out there, irrespective of how unpleasant I find it to do so.
 
To be specific, I’m using the term to mean some sort of small business activity which is not intended to be the person’s primary source of income, nor the primary occupier of the person’s time.
 
The common version is that someone makes $5 at their job, but doesn’t want to live a $5 lifestyle.  So they find another way to make money when they are not at work, earn, say $2, and in so doing make it possible to live a $7 lifestyle.  Not a difficult thing to understand.
 
But what if the person engaged in exactly the same activities, but thought of the exercise differently?  What if the person considered his/her retirement plan to be the owner of the side hustle?  What if the $2 went to fund the nest egg, rather than the higher-dollar lifestyle?
 
Let’s change away from $5 and $7 to something that’s a bit more to scale.  If a person engaged in a side hustle that made $25,000 every year, saved it, and had it grow at a 7% compounding rate, then the result after 20 years would be about $1M.
 
It’s worth pointing out that even in today’s dollars, a million bucks will fall short of what many people will need to have in order to pull off a successful retirement.  And 20 years from now, that million dollars will be worth comparatively even less (due to inflation).
 
But in a scenario in which having a few million dollars saved up will be necessary to be considered optimal, anything you can do to pick up an extra million here or there is not insignificant.
 
For too many people, the idea of financial success is based on how much a person has available to spend.  The only people who can spend a lot of money on a sustained basis are those who have a lot of money in the first place.  So you can understand the logic, at least as far as it goes.
 
Yet, logic and wisdom are sometimes two different things.  For my part, of all of the various things a person could do with a dollar, I’ve always regarded spending it as being among the least interesting of the options. 
 
A simple shift in how you think about an activity that you are already planning to be engaged in can have a big impact on the degree of benefit that you get from the effort, over the long-term.  Just decide that your retirement owns the side hustle, and that you need to let your salary be what you use for this year’s spending.  After that, the rest will start to take care of itself.
 
If you have energy and attention span left after making the most of your career opportunities and doing a good job at work, fantastic.  Using that surplus capacity in a way that’s productive is a great idea, and the foundation of wealth building. 
 
Just remember that while making the extra money is certainly important, what you do with it after that – spending it or using it to make more – can end up being even more important, still.  If you decide the side hustle money is off the table for current consumption, the odds are high that your future self will appreciate both your wisdom and restraint, very much.

​By Brad Thomason
 
 
A Reader Asks: 
 
Dear Sir,
 
If my salary is X, how many times X should I have when I retire?
 
OK, a reader didn’t actually ask that.  I fell for some click bait in my YOUTUBE feed and watched a brief video discussing how 8X is considered the “standard answer,” but the real answer (for those in the know, wink, wink…) was probably more like 4X.
 
It was a total junk video filled with nothing (that I recall) but bad information and dangerous advice.
 
So I’ll provide you with an actual answer:  There isn’t an answer because your salary is not a relevant factor. 
 
The basis of this question is some sort of implicit notion that what you make and spend now and what you will need to make to keep on spending it in the future, is correlated.  Clearly they are related.  But not in any sort of direct or systematic way.  Certainly not in any way that would allow one to distill some sort of universal constant that could be stated as a simple multiple of working-year earnings.
 
To dig a little deeper, hopefully as you approach retirement, what you are spending is less than what you are earning.  Hopefully by quite a wide margin.  Otherwise, at the height of your earnings power, little of it is going into savings; and you are funding a lifestyle which is going to be a lot harder (or impossible…) to maintain in the future. 
 
Beyond that, a lot of what you spend money on during your working years goes away once you retire.  Big stuff like 401(k) contributions, health insurance, and the taxes associated with a lot of earned income; as well as smaller stuff like commuting expenses and eating out all the time, to name a few.
 
For these reasons, we always use expected budget as the basis for doing projections.  Expected budget, stated, not in today’s dollars, but in the expected dollars of the future start date, by the way (can’t forget about inflation).  But not present-day salary. 
 
Retirement is ultimately about what you are going to spend in the future, not what you earned in the past (or even the present, if you are still working).  So trying to relate it to salary levels simply requires too many adjustments and tweaks.  Obviously, after you have all of the data in front of you, you can do a simple calculation to see how many times salary your required nest egg would equal to.  But that’s hardly the same thing as doing it the other way around; and what you came up with would differ substantially from what your neighbor would get, too.
 
So don’t worry about trying to denominate savings requirements in terms of current earnings levels.  The two have little to do with each other, and there are direct approaches to getting the answer to the savings question which are both simpler and much more accurate.
 
There you go.  Problem solved.

By Brad Thomason
 
How do you eat an elephant?
 
One bite at a time.
 
It’s an old joke.  It’s not even particularly funny.
 
But it makes a worthwhile point.
 
If you have a big job to do, taking it as a series of small jobs is a very practical way to proceed.
 
I spend a lot of space in this forum making the point to you that the job of planning for and then managing your retirement income, is a big one.  In so doing, I’m trying to set off a chain of logic in your mind that goes something like this:
 
1.      This sounds like a big job.
2.     So I better get started early.
3.     And I better pace myself, because there’s going to be some persistence required.
4.     As I proceed, I need to not get discouraged by the fact that I’m not finished.
5.     I didn’t expect to be finished quickly in the first place, so the fact that I’m still at it is not something I need to worry about.
 
 
Good luck, stay with it, and don’t forget the hot sauce.  Or the napkins.  Happy Thanksgiving.
 

​By Brad Thomason
 
In the children's game, Candyland, as you may recall, there are no decisions to be made.  You simply draw the card and do what it says.
 
In Checkers and Chess there are nothing but decisions.  Obviously there are rules, so there's a limit on the decisions available (unless you try to play Chess with a precocious four-year old; in which case you will find out just how unbounded the possibilities actually can be). But other than your opponent's counter-moves, there's nothing unexpected to have to contend with.
 
Monopoly is a hybrid. You can decide to buy an available property, and whether or not to buy houses or hotels when you have a monopoly.  But the dice dictate your movements, and the two decks of cards periodically inject variability which may be helpful or hurtful.
 
The dice in Monopoly and the various types of cards in both Monopoly and Candyland, mathematically speaking, are generators of random numbers. The games themselves are a sort of equation to be solved, but the presence of these elements lead to different outcomes:  as if you were trying to add up four numbers in a series, but the value of the third one kept changing.  You'd have to work the equation again; you'd get a different answer each time; and you'd never really know what was coming next.
 
Part of what makes retirement planning difficult in the first place is the presence of factors which are similar to dice and stacks of cards you're forced to draw from—and then comply with. This possibility of changeable data is also what creates the requirement for monitoring and adjusting throughout the retirement income period.
 
In other words, the basic reason why you can’t take the set-it-and-forget-it approach to retirement planning is because some of major settings won’t stay set.
 
Here is a non-comprehensive list of random number/event/force generators in the retirement planning equation, in the form of statements which begin with the phrase, You Don't Know...


 

How long you will live
 
How long your spouse will live
 
How much financial assistance members of your family will need
 
How much you’ll spend on healthcare
 
How much inflation will increase during your retirement years
 
How much your investments will earn
 
 
Why a non-comprehensive list?  Don't you feel like that's already enough to make the point?  Several times over?
 
My purpose in bringing all of this up is simply to reinforce things you've heard me say before.
 
First, it's helpful to have a sense of the sheer scope of what you're undertaking when doing your plan, so you don't get surprised and frustrated when you get into it and find it neither quick, nor easy.
 
Second, this perspective is one of the most compelling I know for demonstrating the need to monitor and adjust as you go.
 
We can't get rid of the random aspects of the question. Nor, by definition, can we know exactly what's coming down the pike.  But we can know that the game is not just a matter of our own decisions, and plan our strategies accordingly.
 

​By Brad Thomason
 
 
The four-year-old wanted ice cream.  On this point, there could be no question.  She had declared her great hunger, demanded to be served, even resorted to asking and saying please.  Nothing.
 
So now, with all her might, she pushed on her father’s leg, to propel him into the kitchen, to get her the ice cream that was hers, by right.  Father alternately looked downward with affection at his stubborn offspring, and then with bemusement to the rest of the adults present.  Not moving, of course.
 
In final desperation, her strength fading, and hope with it, she cried out, “Daddy, I’m trying!”
 
Your old science book defines work as mass times distance.  As the mass – Daddy – was moving no distance, no work was being done; irrespective of great desire and even the various efforts.
 
Really, really wanting your retirement finances to go well is a good precursor to putting in the work to make it happen.  It is not, however, even a step in that direction; much less the whole matter itself. 
 
The four-year-old eventually got her ice cream.  But no one that I ever knew of retired comfortably simply on the basis of a declaration - impassioned, or otherwise - that they were trying.  Even really trying.

​By Brad Thomason
 
 
I'm aware that saying "I told you so..." is a sort of tacky thing to do.  So I'll step as lightly as I can here. But the fact of the matter is that over the past ten or fifteen years I've had a number of discussions about inflation with people who have looked at me with pity in their eyes.  Poor Brad, he's really stuck in the past on this whole inflation business.
 
Failing to account for inflation when doing retirement income projections is one of the most certain pathways to gloriously incorrect outcomes.  It's something you always have to account for, so it's always part of the discussion.  Despite the fact that inflation does not occur in a purely uniform manner year to year—more on that in a minute—you still typically put it into the projection model as an annual rate.  I have persisted in proposing 3% as the rate to use, these many years, despite the fact the annual changes have been less than that for a long time. A fact which my interlocutors have pointed out; used as a basis for skepticism (even cynicism) for accepting the suggestion (a la it-was-only-2%-last-year-so-why-can't-we-just-use-2%?); and which is the root of the impression that my suggestion was outdated.
 
But there are a couple of reasons I never relented.  First, medical inflation has had a tendency over the last 30-40 years to run higher than general inflation.  And which age group does most of the medical spending, class?
 
The second reason is because of what we're seeing now.  No, I didn't predict the current inflation situation.  But I have argued—again, for years—that if changes to CPI and other handy measures were not fully capturing all of the "actual" inflation then there would come a day when we could see some catch-up inflation.
 
Even this wasn't really a prediction, by the way.  Just an acknowledgement that what happened back in the 70s could happen again someday.

As a quick demonstration, nine years of 2% inflation followed by one year of 13% inflation will put price levels roughly equal to where they would have been had there been a decade of smooth 3% inflation.
 
I don't know how much of the recent inflation is actual, current inflation and how much of it is echoes from the past, finally catching up with us.
 
Nor is it particularly important to spend any time trying to figure it out for doing retirement planning.
 
But there are a couple of important takeaways which I'll briefly point out.
 
First, don't fall into the trap of thinking that year-to-year changes tell the whole story.  History says the changes do not occur smoothly from one period to the next—and there's certainly nothing here in the present that would lead one to conclude that the historical norm has been supplanted.
 
Second, if you do use a higher rate for planning purposes than what seems to be taking place, it will give you the impression that your results are running ahead of your projections.  It will seem that you have more money than you thought you would. You might be tempted to think of that extra as a windfall; a windfall that you can treat as fun-money for buying something silly.  I'd think twice about that.  If we get a repeat of present-day circumstances out there in the future, it will be wise to have some cushion to absorb the blow. Otherwise you could find yourself behind where you needed to be, the exact opposite of where you thought you were before the full flock of inflation chickens came home to roost.
 
Inflation is one of the wild forces that is a perpetual part of the financial landscape.  Like other wild forces—fire, flood, fashion trends, etc—it is under no obligation to behave itself or act uniformly.  As such it's a good idea to always be a little skeptical that you have its full measure at any given moment, and to arrange your affairs in such a way that a surprise surge isn't a devastating event.

By Brad Thomason, CPA
​
 
We have a problem.  A measurement problem, to be precise.
 
If you are a money manager and you are trying to convince the client/potential client population that it is sensible for them to pay your fees, the most straight-forward way is to demonstrate that your approach beats the market.
 
There’s an extra layer of complexity that we could add to this discussion, in which we talk about doing so at levels of risk that are less than market risk – followed by a lot of arcane and swirly exposition about how exactly one gauges and expresses such risk.  But even if we have that, the thing most people are going to look at is whether or not the manager beat the market return.  A particularly thoughtful client might listen to an explanation of how a sub-market performance was expectable and acceptable due to the dramatically decreased risk.  Might even give it buy-in and feel like they are a member of the enlightened, among a mass of the dim.  Might even be right about that, as a matter of fact.
 
But let’s face it: if you’re a manager, the easiest sales pitch is one in which you can claim (legitimately, of course) that your process did better than a market/index investor would have done.
 
As such, the investor community gets a lot of sales messaging from the manager community about returns.  Mornignstar, in fact, exists for little reason other than to facilitate such comparisons.
 
None of this is hard to see.  None of this is hard to understand.
 
Also, none of this actually addresses this problem I alluded to before.
 
With all the talk of returns and market comparisons, it’s easy to lose sight of the fact that as an investor, your goal is not to beat the market.  May be your manager’s.  But it isn’t yours.  Or at least, I would argue, it shouldn’t be.
 
Asked differently:  What, exactly, should you, as an investor and not a manager, be more concerned with measuring as the basis of investment success?
 
Here’s a quick, one-question pop quiz to prove my point:
 
If Sally needs to earn 7% this year in the stock portion of her retirement savings in order to keep her plan on track, and the market falls 35%, will Sally be happy about the fact that, due to her manager’s good ministrations, she is only down 31%?
 
I’m bettin’ the answer is NO.
 
What do you think?  Does the manager’s market-beating performance end up being what matters most in that little tale?
 
An old poker player was once asked how he managed to maintain a good streak against the latest crop of young, aggressive gunslingers.  He said it was simple.  You just had to remember that poker wasn’t about winning hands; it was about winning money.  While the youngsters were smashing each other up trying to see who could “take down more pots,” the old guy just sat back until a) he got good cards, and b) the other guys had already thrown in a bunch of money ahead of him.  Then he stepped in and cleaned them out.  Sometimes one or two pots in an entire night were enough to send him home with big wins.  He played a different game than the other guys, simply by remembering what was important and what wasn’t. 
 
On the day you retire, which do you think will matter more to you: whether you got the returns you needed during the growth years, or the number of times during those years that you beat the market?
 
Measurements and goals which focus on the wrong thing are a clear path to problems.  Luckily, in this case, it’s easy to fix.  Let your manager worry about beating the market and all the promotional value that goes with it.  You just make sure you’re doing what you need to do to get the returns your plan says it needs each year, even if those returns are less than you could have gotten doing something else.  If you needed 7% in a year and you got 7%, that’s a winning year.  Everything else that went on outside of your portfolio, including the market return, is in distant second in terms of its importance.

By Brad Thomason, CPA

 
Clearly, it was one of the better ideas that any one had ever had.  Twas the week before Christmas and I was zipping through the local Walmart to get a few ingredients for dinner, and check something in the sporting goods section for a last minute gift.  For reasons I can’t really explain, I veered down one of the toy aisles, and saw a box containing five jigsaw puzzles.  Each was a movie poster-style picture, depicting one of the Pixar movies.  Though an infrequent impulse buyer, I scooped it up and took it home, nonetheless.

Then I opened all five puzzles at the same time…and dumped all the pieces into a single container.  All 2,350 of them.  Well, 2,349 of them, as we would later learn.  But you get the point.

This action drew various responses from members of my family, which ran the range from, “Oh my gosh, Dad,” to “What have you done?!”

However, for the next two-and-a-half days this stroke of unappreciated genius lead to the proverbial “hours of family fun.”  The kids (who aren’t really kids anymore…) and I sat at the dining room table for hours, listening to music, singing at varying degrees of volume and quality, talking smack to each other, and grinding through the substantial task of divide-and-conquer that I had manufactured.  Some of us stayed up late; others of us fussed at the first group the following morning for all the noise.  It really was a lot of fun.  And in the end, we did in fact sort the mess and solve all five puzzles.  Ten minutes before dinner on Christmas Eve.  So we took a quick pic, destroyed the evidence, and returned the room to its intended use, as if the whole puzzle-gate business had never occurred.  All-in-all, a pretty cool holiday memory.

Spending all of that time working those puzzles really drew my attention to one of the basic truths of the universe, not exactly news but one that’s still worth mentioning on an endless loop.  Sometimes it takes a while to really see what’s right there in front of your face.

If you think about it, what better example of this principle could there be than a jigsaw puzzle?  Once you flip the pieces right-side up, you are literally looking at everything you need to know to put the puzzle together, in a single view.  Yet it takes hours of going back over the same terrain to actually see what you need to see to do it.  I couldn’t tell you the number of times one of us announced that it was a certainty that a particular piece was simply not there, only to find it some minutes/hours/days later.  As I mentioned above, there was only one piece actually missing by the end.  But there were many more assumed-to-be missing pieces throughout the course of the project.  “Hidden in plain sight” was much more than a turn of phrase for all of us by the time things wrapped up.

To work a puzzle you have to stare.  You have to look at the same thing more than once.  You have to accept that there will be realizations which come later, and you have no earthly idea why they came that time and not before.  To do so takes attention, focus, and above all, time.  Like erosion, it’s a business model rooted in sustained pressure over long duration.

If you think about it, as you have gotten older, isn’t it the case that knowledge has become less about going wider, and more about going deeper?  I’m not suggesting a person ever runs out of new things to learn, especially when it comes to hobbies, and travel and things like that.  But the big stuff, the core matters that affect everyone moving through the adult world?  You had all that pretty well in hand decades ago, didn’t you?  Or, at least you had the basic version, the 75% to 80% you needed to know to not completely make a mess of your life.

Since that time though, for me anyway, the important growth in knowledge has come from going deeper into those things.  From trudging on down the path, full in the grips of diminishing return, to try to go from 80% to 90% and then to 95%.  From looking at what I’ve already looked at before, even thinking things I’ve already thought before, in the hopes that the continued engagement will spawn some new realization.  Miraculously, such efforts almost always deliver the goods.

As complex topics go, retirement is one of the deeper wells that I have found.  It is deceptively complex, likely because of the vast number of moving parts which may come into play.  To really understand the major principles requires lots of time and contemplation.  And to study every little fold and nuance?  I don’t know, but I’ll tell you later if I ever get there.

Part of doing well at retirement, I think, is making sure that you have realistic expectations about how long it’s going to take just to understand what it is that you need to be doing.  Then, allocate the time and put in the hours.
 
No one expects to solve a 1,000 piece jigsaw puzzle in half an hour.  If retirement was an actual jigsaw puzzle I’m not sure how many pieces it would have.  But a lot more than 1,000.  Or even 10,000, I imagine.  Strictly speaking I don’t really know because I’ve never tried to tackle one with that many pieces.  If I did though, I wouldn’t expect it to go fast, and I would (hopefully) not let myself get discouraged that a big block of time would be required to achieve the goal.

Which, I think, is a big part of the prescription for how to approach comprehensive retirement planning.  You just gotta take time to stare.  Then, stare.

By Brad Thomason, CPA
 
 
I like the word ‘might’ a lot.  I find it to be one of the most frequent tools I use when I’m working, especially on planning and advisory exercises.
 
Not such a big fan of ‘will’ and ‘won’t, and their close kin.  Hardly ever have a use for them when I’m in the workshop, so to speak.
 
Might makes people squirm, it’s true.  When you want the definitive, and the conditional is all that’s on offer, it grates.  Grates on me, too.
 
Would I like to be able to say, “Oh yes, I’m sure this investment approach will certainly turn out just the way you hope?”  How about, “Listen, you won’t ever have to worry about that?”  Come on.  You know the answer.
 
But people who have been fully inoculated with might just seem to instinctively understand that they can’t just make a plan, check it off the list, set it down forever and go on to the next thing.  That sort of approach would make them nervous.  They start thinking after awhile that maybe they ought to check back on it, just to make sure everything is going OK.  It probably is, right?  But, like, I mean, what if it isn’t?
 
That’s good.  That’s the right mindset, and the right action step.  Check back.  Check in.  Internalize the fact that this whole retirement thing is a process, not an event.
 
You do not have to develop any kind of super-human abilities to pull this off.  It still riles me up when I work on something that doesn’t end up going the way I want it to.  Makes me furious, at times.  So that’s hardly the mark of some sort of transcendent being. 
 
But what is never in the equation for me is an expectation that things – investments, projects, business initiatives, whatever - will always go the way I want them to.  As a result I’m never surprised when something comes off the rails.  Don’t like it. Don’t enjoy having to get Plan B (or D, or F…) ready to go.  But it’s not a shock.  I have learned to accept that it is just a feature of the landscape, and I can keep on working towards whatever the goal is.  Annoyed or frustrated though I may be.
 
Being a feature of the landscape, it’s not something that ever goes away; and in turn, isn’t something you ever get past.  You do not graduate to a level where uncertainty leaves the equation (at least not while you’re still here on Earth).  So it remains something you always need to keep an eye on.
 
All of which gets us back to might.
 
Ultimately it comes down to a decision.  You just decide that might (or maybe, if you prefer) is going to be a good enough answer for you – not necessarily because you like the answer, but because it’s really the only legitimate one on offer.  Then, you orient your actions to that reality.  For goals that require long-term planning and execution, that means you just check in from time to time to see if what you expected and planned came to pass or not.  Reassess and adjust as necessary.
 
There will always be the crowd that has to operate on the basis of wills and won’ts, even when such notions are nothing more than surface-level illusions.  But if having the best chances for a successful retirement outcome are important, I don’t think being part of that crowd is going to help you.  Some of them get away with it.  But in the cases where they don’t, any comfort they sought from a simplistic world view, back in the beginning, often gives way to profound discomfort later on. 
 
And profound discomfort is one of the few things that we can classify definitively:  It’s safe to say you won’t like it.