Life in retirement, which once conjured images of golf and sunsets at the beach, took on a drearier edge in recent years as more people realize they are unprepared financially to stop working.
The Washington Post has called it “the new reality of old age” and quoted one 74-year-old man saying he will need to work until he dies. For those who have retired, a Fidelity study found that 55% are at risk of running out of money before their lives end. Think of this statistic: more than half of those surveyed aren’t prepared. Are you?
“When the stock market was falling in 2008, I had prospective clients share with me they had lost tens or hundreds of thousands of dollars, and some even shared how many years of work they had lost,” says Troy Bender, president and CEO of Asset Retention Insurance Services. “They wanted the losses to stop, and they were desperately looking for help.”
In addition to the recession, several other factors contributed to their retirement woes. Most businesses no longer offer pensions, so retirees must rely more on their savings. People also need to rely more on Social Security, but Social Security replaces usually only 40% of a person’s pre-retirement earnings. In addition, according to Social Security, they have shared on their website that they may end up paying 75 cents on the dollar in 2033.
All of this raises the question: Is it even possible to retire in today’s economy?
The answer is “yes,” Bender says, but even those who planned well and saved plenty need to be careful as they near, and enter retirement. With many clients in their eighties and some in their nineties, we all have to plan to live a lot longer. Here are a few tips to help retirees and pre-retirees protect and grow their money:
Know when to take Social Security. If you don’t choose the most advantageous time to start drawing Social Security, you could leave a lot of money on the table. Several factors can come into play here depending on your personal situation, so it’s best to seek professional advice. Employees at your local Social Security office generally aren’t equipped to give you that kind of advice.
Live by the “Rule of 100.” This is critically important. In the investing world, the “Rule of 100” says that the percentage of a person’s portfolio that should be in stocks should be equal to 100 minus their age. So, for example, someone who is 60 should have 40% of their portfolio in stocks and the other 60% should be in bonds or other lower-risk investments. “If you aren’t living by the ‘Rule of 100,’ you should be, especially if you’re 50 or older,” Bender says.
Plan for long-term care. A person who turns 65 today has nearly a 70% chance of needing some type of long-term care services at some point, according to the US Department of Health and Human Services. The cost can be devastating, so it’s important to plan financially for this likely eventuality. One option is long-term care insurance. “Sometimes people expect a family member to take care of them in these situations, but I encourage people not to be a burden to someone else,” Bender says.
“The stock market has been riding high, but we all know from experience that this situation is not going to last forever,” Bender says. “The closer you are to retirement — or are currently in retirement — the less time you have to recover from a downturn in the market. No one wants to be forced to continue working in retirement or to change their lifestyle because they experienced major erosion in their retirement portfolio due to circumstances beyond their control.”
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Sometimes people expect a family member to take care of them in these situations, but I encourage people not to be a burden to someone else, Bender says.
The other side of that coin is: If one has built a fortune sufficient to provide a substantial inheritance to children, it can be thought of as private compensation for their loss of pension benefits enjoyed by one’s earlier generation. It repays them for payments to social security that the parent took advantage of to a greater extent than their children have in prospect.
Too bad things aren’t like the Walton’s TV show anymore, where multiple generations lived in a household, and the elderly helped with the infants, and were helped by their grown children.
We have no kids, nor close relatives that would be interested in our farm when we go, so we’re in kind of a dilemma as to what to do with it, and our desire to live on it until we die.
I’m considering building a nice cabin (2br, 2 bath) next to my orchard/sawmill area and use it for an overnight “Air B&B” kinda thing for the next 5-10 years, then see if I can find a young couple willing to help out with farm chores (mowing/firewood/etc) in exchange for rent while I measure their mettle and character.
Assuming I find a good couple, (we’d be mid-late 70’s by then), maybe make them a deal where they provide us with living assistance, and in return, they get something like a 2-3%/yr stake in the equity of the farm, vested after say 5 years. Either of us decides to call it quits after 5yrs, I owe them the % x the number of years in cash. If they stay, they get the whole shebang when we’re gone.
Andy, Are there any good-hearted young country boys near you, of the kind I have for neighbors here in WV? They are raised to respect and take care for family, young and old.
Adopt one!
What he inherits (if anything) will go by your will as life plays out.
Free advice, worth every bit as much as you’ve paid for it …
I question how many of the people that are unprepared for retirement live in 4000+ square foot houses in expensive neighborhoods, go on expensive vacations every year, buy a new car every other year, and wonder why they can’t put more than 10 or 12% away for retirement.
As an example, The man in the office next to mine is preparing to retire this April. He’s told me that he has consistently put 10% into his retirement account. He is particularly scared about how he’s going to pay his bills in retirement. He also lives in a large house in an expensive neighborhood. He has a fairly new 5’th wheel camper that he leaves in a campground all summer long. He “needs” a $60,000 pickup truck to haul this camper around with, and his wife drives a fairly new Lincoln. Now, I don’t mean to knock his priorities and spending decisions, but perhaps if he allocated a little differently he wouldn’t be so worried now.
It isn’t today’s economy, it is today’s lifestyle. I was on the committee that ran our company 401k program and saw all the loans that went out against retirement accounts to buy $50k pickup trucks and $40k bass boats. Half the vehicles in the parking lot were better than the used car I drove even though I had one of the better paying jobs. I retired early three years ago while the other guys my age are still there at the plant because my family lived frugally in comparison to most.
Here is another important tip to help retirees protect and grow their money: Know how much of your nest egg you can safely spend each year.
If you withdraw too much from your retirement savings you risk depleting these funds during your lifetime. And this may happen at a time when it is difficult for you to find suitable work that pays enough to cover the shortfall.
Two solutions: one is to put your retirement savings into a fixed annuity. Your nest egg is converted into a fixed income stream so in effect you are put on an allowance at a safe level. Watch out for inflation though.
The other solution if you prefer to self-manage is to determine your safe withdrawal rate (typically around 3% per year) and don’t spend more than this level. The Rule of 100 applies to the rest.
Honestly, I don’t see how most people are going to retire in the future. This whole retirement gig is a very recent experiment in human history. Up until just early-mid 20th century, retirement was the “work til you die” plan, unless you were a 1%’er…..and my guess is we’re going back to some version of that.
Look at the statistics today of how many folks are going toward retirement age with very little in savings. One CAN make it on SS alone, I know some that do..but it’s tough…..no cushion at all.
Wife/I are mid-late 60’s now, and been ‘retired’ from paycheck work for about 5 years. But we planned ahead. She gets retirement check from a defined benefit plan as a 32yr public school employee. Knowing she was “going the distance”, she got advanced degrees, moved into a supervisor’s position (both paid better) when one opened, and got a good retirement (based on last 5 yr average in TN) amount. With her SS (taken at 62), she gets almost 80% of what she did working.
I was self employed for most of my working years (carpenter, home builder, sawmiller, farmer) and my ‘retirement’ is SS only, and about 1/2 of what her’s is. My half of “the plan” wasn’t cash at the end. I built rental properties (another reason my SS is way lower….rent not subject to SS tax), and poured my earnings into developing our farm into a fairly self sufficient place to retire.
As a result, we raised most of our food, nearly all our fuel (wood), all our power (solar), water is off our place, sewer is private septic, property taxes are covered by internet tower I built and rent (along with free internet !) Our monthly “nut” for insurances, food we don’t raise, gasoline, DISH bill, phone ($26 house, $17 cell) clothing, etc probably runs less than $1,000/mo.
My assumption is one day down the road, the fund for her retirement, along with Social In-security will get to the point they have to cut, or maybe eliminate, benefits, and we want to be able to live here on our saving alone if necessary.
I also wonder how many people will ever retire. I work for the federal government and several of my coworkers borrow against their TSP to purchase and pay for all kinds of things( boats, cars, trucks, cruises, home remodeling etc) They are living sooo far above their means. It is scary! Unfortunately, one coworker who has lived above her means for many many year has become ill and made the comment ” It is really hard to get old and to be sick and to be unable to retire cause of finances.” This is her plot in life due to her poor financial choices.