On my way to work I see a sign for a psychic. It’s been there forever. I wonder how a psychic stays in business. Low overhead, I guess.
When I hike during the weekend, I listen to The Clark Howard Show on podcast. Clark Howard is a personal finance guru on radio and television, based in Atlanta. He’s one of the good ones, I should say.
Clark used to be a travel agent. Although he hasn’t practiced that part of the business for 20 years, people planning a vacation overseas still ask him when they should buy tickets for their flight. Clark would give a time for when the price would be the lowest — "wait until April" for example. Callers would thank him and be happy.
Is Clark’s advice about when one should buy the flight tickets any good? It’s hard to say. Nobody is tracking to see if it’s better than random picking or a mechanical rule like "next week." People want an answer; they get one from Clark.
I’m going on a short vacation soon. When I bought my ticket, it was $475. Two weeks before the departure date, it came down to $300. Bummer, but what do you do? Too bad Southwest doesn’t fly there. Otherwise I can rebook and keep the difference as a credit for another flight.
Knowing the future would really help, a lot, way more than a $175 difference in airfare. I have a bunch of questions for financial planning I want answers for: inflation, interest rates, tax rates, stock prices, salary growth, health care expenses, to name a few biggies. Not knowing these makes financial planning really hard. How much should I save for retirement? Changes in any one of those variables could make a number I pick today go from too much to too little or the other way around.
I play with the retirement calculator FIRECalc to see if my wife and I have enough to retire now. No matter what I do, I always get a hairball like this:
This chart says if we stop working now, we have a 66% chance of success, i.e. not ending up negative. When we actually land in those 66%, we end up with a lot of money, sometimes more than what we start with (the chart is in inflation-adjusted dollars).
If we reduce the withdrawals in order to push up the bottom and increase our chance of success, we end up with even more money most of the time. What’s the point of working hard, saving a lot, spending little for fear of running out of money, only to die with a boatload of money 90% of the time? Adhering to a so-called "safe withdrawal rate" basically guarantees that you will leave a boatload of money behind most of the time.
It’s a puzzle I don’t have a good answer for. At this time, I think it’ll have to be dealt with by insurance. Chop off both the top and the bottom and compress the range — we don’t need $25 million when we die but we don’t want to go negative with 20 more years to live either.
[Photo credit: Flickr user Jonas B]
Refinance Your Mortgage
Mortgage rates hit new lows. I saw rates as low as 3.25% for 30-year fixed, 2.625% for 15-year fixed, with no points and low closing cost. Check mortgage rates in your state.