The Harvard Economist

Bloomberg News published a story on July 16, 2015, about a Harvard Economist who screwed up (and then saved) her own retirement. Alicia Munnell has a Ph.D. in economics and is the director of Boston College's Center for Retirement Research. The short version of the story is, she was overspending to maintain a lifestyle and made a mistake on taking a lump sum distribution on a pension.

I thought it was great of her to put this information out there and let others benefit from her experience. Everyone's financial situation is unique and that means there are no cookie cutter solutions, but there are some general guidelines you can follow. Fred Young in his classic book How To Get Rich and Stay Rich lays the basic formula out nicely.  It is, spend less than you earn and invest it something that will go up in value over time.

The problem with that, and the problem that Mrs. Munnell ran into is, most people aren't keeping track of their income and expenses. It's a rather mundane and unglamorous process, but would you rather be financially successful or in debt? The correct answer is "financially successful" and that will require some effort on your part.

That's what the Harvard Economist learned. When she started looking at her income and expenses in more detail, it became clear it was not a sustainable situation - especially not in retirement. The good news is she caught it and is now making the corrections needed to have a secure retirement.

Here's a driving test.  You are going 70 miles per hour and notice something on the road ahead.  Is it better to (1) continue driving at that speed until you are just a few feet away from whatever it is, and then slam on the brakes and hope for the best, or (2) take your foot off the gas, put a little pressure on the brake and start slowing down well before you actually need to stop? Retirement planning is a lot like that. The sooner you start, the less panic there will at the point of impact.