Musings

What if You Haven't Saved Enough for Retirement?

MusingsIf you are in your fifties or even sixties and you haven't saved enough for retirement, you are in good company. More than 25 percent of Americans 55 years of age and older have saved less than $25,000, according to the Retirement Confidence Survey by EBRI (Employee Benefit Research Institute).

Writing for CNN Money, Walter Updegrave offers "3 ways to recover from a late start on retirement planning." The three ways are not a silver bullet, by any means, but they make a lot of sense: Very simply, (1) start saving right now, (2) stay employed longer, and (3) "be flexible and resourceful." Updegrave goes into detail about each of the three ways, offering sound advice. It is an article every under-funded Boomer should read.

Obviously, the later you started saving, the more you'll have to make up. Examining sources of income (including anticipated Social Security payments), understanding how to leverage your assets (such as your home), and reducing expenses will all be important in helping you cope.

Updegrave's conclusion is fair warning, but still hopeful. He writes: "I'm not saying it will be easy or that you can put yourself in the same position for retirement you would have been in had you saved throughout your career. But if you combine several of the steps I've outlined here — and keep an eye out for even more ways to generate more post-career income or lower your future expenses — you can still improve your chances of achieving a secure retirement."

 


Why 5 Years Before Retirement is a Key Time

MusingsEvery Boomer's definition of "retirement" is a little different, but we can all agree that it is a time when you need to be more prudent about your finances. That's why many financial experts and advisers believe the best time to start planning for retirement is five years beforehand. Writing for The New York Times, Peter Finch has assembled the advice of financial gurus into a helpful article he calls "Countdown to Retirement: A Five-Year Plan." 

Finch says that the five year mark "is a good time to take a look at your overall asset allocation... a balanced allocation of 50 percent stocks and 50 percent bonds is reasonable for someone expecting to live another 30 years or more." At three years, Finch recommends that we "put aside some time this year to contemplate what retirement will actually mean for you." With two years left before retirement, you should "lay the groundwork" for "some potentially big tax-saving opportunities" that could come your way when you retire. In the last year before retirement, it makes sense to evaluate whether you will continue to work and think about "ways to reduce spending." Also "take another look at your investment portfolio," writes Finch, to see if the savings you have will adequately fund your retirement. If so, "many advisers recommend pulling back on your stock holdings and adding cash and other short-term investments as your final day at work nears."

The nice aspect of Finch's article is that it offers advice from a number of sources and is organized year by year. Check it out here: https://www.nytimes.com/2018/07/06/business/retirement-five-year-plan.html


Retirees are More Frugal Than You Might Think

MusingsWith all the red flags being raised about retirement age Boomers saving inadequately and running out of money, it is comforting to read something positive about the frugality of retirees. Richard Eisenberg, Managing Editor of NextAvenue.org, a great resource for Boomers, reports on recent research by the Employee Benefit Research Institute (EBRI) and the Society of Actuaries (SOA).

EBRI looked at three groups of retirees: Those who retired with non-housing assets of $200,000 or less, from $200,000 to $500,000, and $500,000 or more. The third group, with the most assets, spent only about 12 percent of their assets after 19 to 20 years of retirement. The other two groups spent from 24 to 27 percent of assets during the same time period. These percentages suggest that retirees are more frugal than you might think. About one-third of all retirees actually had more assets after 18 years than when they first retired. However, 35 percent of retirees with $200,000 or less to begin with had less than 20 percent of their assets left after 18 years.

An SOA study of retirees over the age of 85 was also encouraging. Although it was limited to focus groups and not a quantitative survey, the study indicated that the majority of these retirees spent less than their income. Two looming concerns may play a large role in why retirees are watching their pennies. A 2017 study by the SOA indicated that more than half of retirees are worried about (1) healthcare costs and (2) long-term care costs. As much as three-quarters of pre-retirees are worried about these two cost factors as well.

While the research suggests positive outcomes for many Boomers, it goes without saying that Boomers thinking about retirement need to financially plan for their futures, ideally with the help of a financial planning advisor.

 


Are You Miscalculating Your Retirement Income?

MusingsAs a Boomer, you have probably found it useful, at one point or another, to calculate the retirement income you think you will need. Unfortunately, not all of those seemingly handy online retirement calculators are as helpful as they may seem.

According to the Retirement Income Industry Association, some online calculators can offer "extremely misleading" data. That's why it may make a difference to use the right calculator.

This useful article from The Balance evaluates and ranks a number of online calculators on the basis of three key criteria: accuracy, usability, and education. Check it out.

In addition, it should be obvious that an online retirement calculator is just one tool. When it comes to something as important as planning for retirement income, many factors come into play, including Social Security payments, Required Minimum Distributions (RMDs) from retirement accounts, and income taxes. While a calculator can give you a rough idea of what you will need, you'd do best to work with a financial planner to get the complete picture.


Number One No More

MusingsNext year for the first time, the Boomer generation will relinquish its position as the #1 generation in terms of percentage of the U.S. population. Taking over will be... who else but the Millennials.

Statistically, it doesn't really matter, but socially, it's a big deal. We are already witnessing the mass cultivation of Millennials with products and services targeting them as Boomers fade in popularity. Similarly, businesses have little compunction when it comes to ejecting a Boomer employee in favor of a Millennial employee.

The Wharton School of Business has something to say about the coarseness of letting Boomers go because of age: "...companies eager to move baby boomers along should be careful what they wish for. For one thing, millennials are less likely to stay in jobs than others, and turnover often carries high hidden costs. For another, few workplaces have mastered a system for transferring knowledge from one generation to the next."

The fact is, age discrimination is widespread across many businesses, putting Boomers in a precarious position because it is difficult to prove and take legal action against an employer who practices age discrimination. According to Wharton professor of legal studies and business ethics Janice Bellace, “It is much more difficult to prove age discrimination than race or sex discrimination." Bellace says the burden of proof that an employee was demoted or fired because of age lies with the employee. “That’s a very heavy burden of proof,” she says. “In real life, if an employer would like to push out an older worker, the employer’s [managers] would have to be idiots not to lay down some paper trail that suggests that there were some other reasons for dismissing the person. It’s even more difficult in a hiring case, because the plaintiff must prove that there was no other reason, except for age, that the employer preferred another candidate.”

Age discrimination will therefore continue to be a big challenge for Boomers, who may need to find non-traditional employment as an alternative, such as becoming self-employed and working on a contract basis.


"Unvarnished Truths" About Retirement

MusingsSome Boomers approach retirement with apprehension, while others are chomping at the bit to start a new life. Jonathan Look decided to retire early -- at age 50 -- and follow his muse. Six years later, he shares some of the things he learned along the way, and they're not all pretty. Still, if you're close to retirement, or already retired, Look's 21 "unvarnished truths" are worth reading and considering. They include such eye-openers as:

  • Money is overrated.
  • Time is your most valuable asset.
  • Your bucket list is crap.
  • You can't make people happy.
  • Negativity wastes life.

Sounds to me like Look is quite the philosopher. Take a look at his entire list of unvarnished truths about retirement on NextAvenue.org. You may not agree with everything he has to say, but he certainly isn't afraid to be thought-provoking. And if you aren't a subscriber to NextAvenue.org, I suggest you sign up for the free newsletter. It is one of the more valuable information sources for Boomers in pre-retirement and retirement.


A Boomer's Sense of Purpose

MusingsHaving a sense of purpose in life offers lots of positive benefits, but "purpose" sometimes seems to be a concept that applies only to one's youth. When we're younger, for example, developing a sense of purpose is often associated with job satisfaction, career success, or starting a family.

Shouldn't Boomers have a sense of purpose too? Yes, of course. In fact, recent research suggests purpose is just as important for Boomers, according to a fascinating article, "How to Find Your Purpose in Midlife." Eric Kim of Harvard's School of Health, for example, found that "people who report higher levels of purpose at one point in time have objectively better physical agility four years later than those who report less purpose." Patrick Hill of Washington University "found important advantages for more purposeful adults, including better cognitive functioning and greater longevity."

Another interesting aspect of research into finding purpose in midlife suggests that a particular kind of purpose is of greater significance to Boomers. According to Anne Colby of Stanford University, research showed "Those who were purposeful beyond the self said their lives were filled with joy and happiness.”

The article, which appears in Greater Good magazine, published by the Greater Good Science Center at UC Berkeley, also offers some tips on developing a sense of purpose. Not surprisingly, one avenue that relates directly to purpose is volunteering. Jim Emerman, vice president of Encore.org, advises, “The key things to think about are: What are you good at? What have you done that gave you a skill that can be used for a cause? What do you care about in your community? Those questions really help one focus.”

 


Is the "Spend Safely in Retirement" Strategy Right for You?

MusingsIt's a refrain you hear more and more: Boomers are under-funded when it comes to retirement. The answer may be the "Spend Safely in Retirement" strategy, developed by researchers from Stanford University's Center on Longevity and the Society of Actuaries. According to a recent article in The New York Times, the strategy uses a person's retirement savings to "mimic a steady pension." It includes three steps in combination: Working longer, delaying payments from Social Security, and budgeting withdrawals from retirement savings accounts, such as IRAs or 401(k)s.

Many Boomers already realize they need to work longer, but depending on your anticipated Social Security monthly payment and the total amount available in your retirement savings account, you may be able to work part-time instead of full-time. Even a modest income can help you cover living expenses and offset the need to draw from Social Security too soon. You can draw Social Security benefits as early as age 62, but financial experts advise waiting until age 70, when you are eligible for the maximum amount. (Social Security benefits are based on your work earning history, so the actual benefit amount will vary for individuals.) The key thing to know is that, from age 62 through age 70, Social Security payments increase by 8 percent.

As for your retirement savings, you have likely been accumulating principal and interest in a tax-deferred vehicle. At age 70-1/2, according to current regulations, you must start taking a "Required Minimum Distribution" (RMD) each year, which will be subject to income tax, but presumably at a lower tax rate because your income is now less than during your peak earning years. The RMD is the minimum based on tax regulations, not based on what you might need to live on. That's where the juggling comes in. Steve Vernon, one of the Center on Longevity researchers who came up with the Spend Safely in Retirement strategy, tells The New York Times that a retiree might want to think of Social Security as a monthly "paycheck" that supplements any employment-related earnings, while the annual RMD can be viewed as a "bonus." Whatever way you think of it, it is important to establish a realistic budget you can comfortably live on and see how it matches up with the income you receive from the three sources -- work, Social Security, and retirement savings.

In terms of specific income, the Spend Safely in Retirement strategy will vary widely for every individual or couple, but the strategy is applicable to most people, as long as you can combine some employment income with Social Security income and  payments from retirement savings. Sounds like a sensible way to approach retirement, doesn't it? 


No Surprise: Experts Advise Boomers to Work Longer

MusingsNew year, new goals: If one of yours is retiring from your job, hold on just a minute. Well, make that three to six months.

A recent report entitled "The Power of Working Longer," issued by the National Bureau of Economic Research concludes the following: 

"...delaying retirement by 3-6 months has the same impact on the retirement standard of living as saving an additional one-percentage point of labor earnings for 30 years. The relative power of saving more is even lower if the decision to increase saving is made later in the work life. For instance, increasing retirement saving by one percentage point ten years before retirement has the same impact on the sustainable retirement standard of living as working a single month longer. The calculations of the relative power of working longer and saving more are done for a wide range of realized rates of returns on saving, for households with different income levels, and for singles as well as married couples. The results are quite invariant to these circumstances."

MarketWatch looked at the report and added the following analysis:

"So why does working longer have such an impact on the standard of living in retirement? Because it bolsters two types of retirement income — Social Security benefits and 401(k) withdrawals, the research says. The longer a person works, the longer Social Security is deferred, which means a higher benefit check. The worker’s 401(k) withdrawal will also be higher from more money in the account. Social Security makes up 81% of retirement income in this case, the researchers said, and 401(k) payments make up the rest."

Bottom line: If you've been thinking about retiring this year, maybe you should hold out just a little bit longer. Experts think it will make a significant difference when it comes to financing your retirement years.


Let Employment Statistics Be Your Guide

MusingsLike many Boomers, you may be in a transitional state in 2018 when it comes to employment. As you consider your work options, it may be wise to review some current employment statistics to get an idea of where opportunities exist. Entrepreneur magazine offers a handy infographic, based on data from Paychex, a leading payroll service, that looks at employment ages in the U.S. in states and industries.

Here are some interesting Boomer-oriented highlights from the data:

  • The five states with the highest percentage of workers 65 and older are, in descending order: South Dakota, Vermont, New Hampshire, Connecticut, and Washington, DC
  • About 23 percent of U.S. adults age 55 and older were working in 2016
  • The top five industries with the greatest percentage of workers 65 and older are, in descending order: Legal; Community and Social Service; Life, Physical and Social Science; Arts, Design, Entertainment and Social Media; Personal Care and Service
  • The top five states with the greatest percentage of MALE workers 65 and older are: Vermont, Connecticut, New Jersey, Kansas, Washington, DC
  • The top five states with the greatest percentage of FEMALE workers 65 and older are: New Hampshire, Vermont, Washington, DC, Connecticut, Hawaii
  • The three leading ways unemployed workers age 65 and older have attempted to enter the workforce are (1) contacted the employer directly, (2) sent out resumes or filled out applications, (3) contacted friends or relatives.

If you're looking for work, maybe some of these statistics can provide clues that point you in the right direction.