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September 24, 2011

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I don't think finding a fee-only financial professional is necessarily a bad idea for two reasons.

First, a third party is going to be much more rational about your money than you will be. If you have a disagreement with your spouse or a tough emotional decision, a third party observer, if they have a fiduciary responsibility, will help bring some balance to your plans and finances.

Second, its just too complicated. I am an educated (master's degree) person with good math skills whose spent hundreds of hours reading books, blogs, and websites about investing and personal finance. My basic understanding is probably much better than the average person (not saying much, I know). But that being said, when you get to the intricacies of taxes, estate planning, and investing, there are still holes in my knowledge that a professional works with every day. And with a one-time plan for a couple hundred dollars, you will easily save/make that money back with interest.

Most people know how to stay healthy. Eat well, exercise, stay away from people who are sick as much as possible...etc. However, that doesn't mean you shouldn't "retain a medical professional" from time to time, perhaps yearly, to help keep everything in order. I'm all for DIY finances, but professionals absolutely have their place in my opinion.

I started with my last employer in 1960 and retired in 1992 as a senior staff engineer for a large aerospace company, aged 58, with a fixed pension of $2,520/mo. and a 401K of $320K.
My wife retired a year later with a pension that increases every year and is now $783/mo.
Most importantly we retired completely debt free with our home and beach condo fully paid for. I also rented out the condo to vacationers for a few weeks every year.

Prior to retirement I made a careful estimate of our projected expenses such as food, utilities, home maintenance, auto maintenance, healthcare costs, property taxes, income taxes, personal costs, home & car insurance, entertainment, vacations etc. Since our income was going to be essentially static I also estimated inflation costs for about 10 years into the future.

In 1996 we both took Social Security at the earliest date possible. This added another $1,864/month to our income. Since we were managing very well at that time I used my new Social Security income to treat myself to something I had always wanted, which was a really beautiful car by buying a 5 year old, very low mileage, Mercedes 560SEL for $37,000 total, with the help of a 5 year loan from my credit union. I still have the car today but don't use it very much.

Estimating one's future investment income is impossible unless you are 100% in individual bonds or CDs being held to maturity. My approach was to educate myself in "The Technical Analysis of Stock Trends", as described in the pioneering book by Edwards & Magee. That led me into subscribing to a proprietary database of mutual fund and market indexes that is updated every market day. The owner of the database also made the format of the database available to 3rd. party developers and I soon started developing additional software that made use of the database and that interested me. I credit the use of this database, its software, my own software, and the investment skills that I developed along the way for being able to make money every year since I started managing our money on December 28th. 1992, with an overall ANNUAL percentage gain of 17.63%.

I also decided early on to not use investment income for our monthly expenses. The only expenses for which I have used investment income have been for income taxes in years with large capital gains, and for major home improvement projects. Thus the size of our investment portfolio continued to grow, reaching the point in late 2007 when for a variety of reasons I decided to lower my risk, lower my work, and to eliminate market volatility once and for all by moving completely into fixed income investments yielding around 5%, all of which will be held to maturity. Also since all of the investments we presently own and continue to buy were purchased at or below par, between now and 2032 all of our principal will be returned along with capital gains of $60K. Our annual income is also either tax deferred or tax exempt so our largest taxable income every year is the mandatory required distributions from our IRAs into our Trust account.

Could I repeat my financial success starting today with the present state of the world economy? I have to say emphatically, "No Way".

I'll consider a financial adviser (#3) when I can no longer make my own decisions - hope that day doesn't come.

I am "considering" fixed annuities (#6) because longevity runs in my family. I view it as a way to create our own pension fund, which we don't have enough of (I've got a tiny fixed pension that won't make much of a dent.) We don't have children, so we really don't care if we have any money left when we die; we just don't want to run out. Unfortunately, I think the Fed's recent Twist program will reduce the attractiveness of annuities for some years to come. So I'm waiting for hyper-inflation in 3-7 years to make the returns more attractive.

I've got the rest of the items covered, and believe we are well prepared for retirement.

I think this is one of those simple-but-not-easy situations. The simple part is that we all need to maximize retirement contributions (and non-retirement contributions). We can't know how that will play out, due to returns and inflation, but the more we have put away, the better the chance we have at retiring.

Beyond that, there needs to be emphasis on lowering living expenses and getting out of debt.

None of that is easy, but it's the only way.

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