How to Have Enough Money for the Rest of your Life

Apart from marrying a very wealthy person, or correctly guessing the winning lottery numbers, there are some helpful ways to ensure that you will be likely to have enough to live on in your retirement years:

Get a realistic estimate of how long you’re going to live. Try for example. This will give you an idea of how long your money must last.

Next, consider the 4% rule of thumb: you can reasonably expect to be able to withdraw 4% of your retirement savings each year. If you’re likely to live longer than a normal life expectancy, maybe less than 4%. There are different opinions on that number as being an appropriate one.

Have some flexibility in your withdrawals. If investment values are down, try to restrain your spending.

Review the allocation of your investments among the various categories, to make sure you have the proper balance for your age and risk aversion.

Keep your accounts simple- avoid having a large number of accounts. you can usually cover all investment categories with just a half dozen or so funds.

Consider retiring later. A statistic, for what it’s worth, indicates that waiting until age 70 will give you a very high percentage likelihood of success in stretching out your retirement savings, while retirement at 62 reduces it significantly.

Of course, the golden rule: spend less, save more.

The Retirement Transition Process

Much has been written about the process of transitioning from the daily working world to the world of retirement. Of course, these two worlds can overlap, as many people continue to work after they have begun the retirement process. But there are some dividing lines, and things to do as you cross those lines:

First is health, as it should be. When you reach age 65, Medicare will send you birthday wishes and advise you of tests and vaccinations to which you are entitled under Medicare coverage. Things like pneumonia and shingles shots, a physical examination, colonoscopy, etc. Review this list and check off the items as you complete them.

Second is health insurance, which is vitally important. If you sign up for both parts of Medicare, you will still need supplemental insurance. Most people will benefit from assistance from health insurance/Medicare professionals in making these choices.

Third, consider changes in investments. As you get older, how should your mix of investments change? You might decide to have a more conservative lineup. Again, you’ll probably need professional help.

Fourth, consider your retirement income. When should you take Social Security? A very complicated question. When should you and when must you start taking distributions from retirement plans and IRAs? There is no answer that covers everyone.

Fifth, is your estate plan a sensible one, and do you have documents to carry it out- will, power of attorney, healthcare directive, among others? See a lawyer, don’t buy a kit, which rarely works out the way you think.

Finally, decide what kinds of activities you will pursue in retirement: travel, part-time work, hobbies, new kinds of work. Find something to do.


Charitable IRA Rollover Still Unsettled

Several sessions of the US Congress have eventually passed provisions permitting contribution of IRA amounts to charities. It’s always been a limited right, applicable only to those who have reached age 70 1/2, limited in amount to $100,000, and somewhat limited as to what charities could receive it. It’s really more symbolic than anything else, because anyone can withdraw from an IRA, distribute the funds to a charity and get an income tax deduction. The benefit of a charitable IRA rollover was that the amount withdrawn was not included in income. There was no income tax deduction for the transfer, but the absence of income treatment and a deduction meant that there was no risk of having itemized deductions limited because of high income, and there was less chance that Social Security benefits might be taxable in part, again because of high income.

The problem has been that the provision of the Internal Revenue Code expires and Congress doesn’t act to restore it until late in the year. As of October 7, the provision has not been revived for 2014, and it’s unlikely anything will occur until until December.

Either the provision will or will not come back into the Internal Revenue Code. It’s a bar to intelligent planning that potential donors won’t know until the last minute whether the benefit is available. More importantly, those who have large IRA accumulations should make longer term plans as to their disposition: who should be the beneficiaries when the owner dies and how should benefits be received (outright or in trust). This is part of the overall wealth/estate planning process, based on a plan that encompasses all forms of wealth, the varying needs of family members and the desire to benefit charities.

The Problem of Elder Investment Abuse

As members of the large baby boom generation get older, worries about the adequacy of retirement income tend to grow. Too often, that leads to attempts to boost that income with more aggressive planning. That makes older people more likely to fall prey to unethical salespeople, whose aim is to sell whatever makes the most income for them, regardless of the needs or investment profile of the buyer. The result that has occurred far too often is that older people are talked into buying products that promise higher returns than traditional investments, but that are far riskier than is appropriate and that carry high fees. Often, people are talked into investments that lock them in for long periods of time when they need the funds invested sooner. There are strict securities industry rules and governmental regulations to prevent and punish this kind of behavior, but that hasn’t stopped unethical salesmen from taking advantage of individual investors who are often unsophisticated investors. In addition to out-and-out crooks like Bernie Madoff, there are people pushing the envelope too far by selling bad investment products and hiding the fees charged. More education is needed for senior investors, to help them choose the best investments for their particular situation; and they have to be encouraged to take action when they have been mistreated, rather than failing to act out of embarrassment.

What is Unretirement? How Much Do You Need to Retire?

Two recent books discuss these questions. Apparently, the key to a successful retirement is to write a book about it. In a book called Unretirement, author Chris Farrell explains that it means you retire a little later. If you retire from the work you’re doing now, find something else you can do that you will enjoy. Easy to say, I suppose. If you find that kind of work, delay using your retirement savings and delay starting Social Security benefits. In the second book, You Can Retire Sooner Than You Think: The 5 Money Secrets of the Happiest Retirees, author Wes Moss suggests that the base line amount needed for a happy retirement is $500,000. I didn’t read the book, so I don’t know how he reached this conclusion, but surely the amount you need depends on where you live and, most importantly, your health and that of your spouse, if you’re married. It’s not difficult to determine what you need: what are your current expenses and which of them disappear when you retire? What sources of income do you have, such as Social Security and pensions? What gap must you fill from retirement savings and how much do you need to fill that gap? When you know what you need, think about what else you want and whether you scan afford it. It makes sense to work longer and save more. It makes sense to delay Social Security. And, above all, it makes sense to do whatever you can to maintain your health as you approach retirement.

Preying on Senior Citizens With Scams and Flim-Flams

A Pennsylvania lawyer was disbarred recently after a hearing that revealed a years-long practice of high pressure selling of estate planning or probate avoidance kits. For a substantial fee, individuals signed up to have living trusts prepared. Nearly all of them never saw or spoke with the lawyer who was preparing the trust, which he did based on forms provided to him by national sellers of these products. All contact seems to have occurred through non-lawyer salespeople. When the trusts were prepared and delivered, the selaesperson then embarked on a fast-talking, aggressive effort to sell annuities that included high fees. The disciplinary board that reviewed the evidence concluded that a number of rules applicable to lawyers had not been complied with: in nearly every situation, the lawyer never met with the “clients”; no analysis was done to determine that a living trust was appropriate; fees were divided with non-lawyers; etc. In short, older people paid a lot of money for something that usually wasn’t necessary or appropriate, and were pressured into buying products that were poor investments. Unfortunately, this isn’t the only circumstance we are seeing, in Pennsylvania and elsewhere, of senior citizens being sold a bill of goods and cheated out of at least part of their retirement funds.

This is not to say that annuities can’t be a good investment. Many very savvy investment advisors suggest them to clients when they are appropriate. But they can’t be appropriate in every situation. And when they are, sellers should provide the best annuity product for the clients, not the one that earns the highest fees. And having estate planning done through a kit that you buy from a non-lawyer who knows nothing about you or the applicable law makes as much sense as buying medical or dental care on-line: “tooth hurt? we’ll tell you how to fix it yourself with our dental drill delivered to your home.”

What Retirement Really Is

An article in a publication called National Underwriter Life and Health makes a very good point about the many advertisements we see picturing retirement. Whether it’s on TV or in a magazine or brochure, retirement is always pictured as “fishing, gorgeous sunsets…” as the author, Maria Ferrante-Schepis writes, to which I would add the inevitable sailboat, the dock on the lake, the shining grandchildren. As she points out, retirement means a lot more than that to most people. For many people, retirement is about figuring out if you have enough money. It’s deciding when you can stop working, or when you can work on a part-time basis. It’s also about straightening out “screwups” with your health insurance, according to retirees I have met. Make no mistake: retirement, if you can afford it, is better than working full-time. No retiree I have ever encountered has said he or she wished to be back in the work force. But getting to what your version of a good retirement will be takes some work on your part; you can benefit from the help of advisors, but you have to start by deciding what you want to do. If you want to work a little, determine how you can do that. Look at your sources of income and your likely expenses. Make plans, but remember that you won’t anticipate everything that will happen after retirement. I have often met with clients who have done their homework and just want to explain it to someone to see if there are any holes. That’s a good exercise.

A Simple, But Important Thing We Can Learn from Casey Kasem

And it’s not what record was No. 17 on the Top 40 Countdown on June 11, 1976. Casey Kasem had a long and, I’m guessing, prosperous career. But terrible things happened to him just before and after his death, in the form of a family dispute between his children and his second wife. I have no idea who was right or wrong, and it’s probably not relevant anyway. What should have happened in this family, as it should in many other families, is an understanding of what the “deal” was. Who was going to take care of Casey as he got older, how would the rest of the family interact with him, who was going to benefit from his estate after he was gone? This could have been covered in a series of family meetings, perhaps with some written guidelines. Maybe this happened and the parties just didn’t follow it, but it’s more often the case that families don’t discuss these issues, prefer not to think about them, and hope matters resolve themselves. Sometimes they do, but many times they don’t, which can result in disputes and, at least, hard feelings. We encourage families to meet, either among themselves or with the help of a facilitator, to talk through family issues. These might include the disposition¬† of a family business, how to even things up if one child is in a business and another is not, how assets will be distributed during the parents’ lives and afterwards, and whatever else might be a sticking point. The worst advice: do nothing during life and let the “kids” work it out.

Your Biggest Expense in Retirement

will probably be healthcare expenses. The Medicare program will help to defray them, but it won’t cover everything. Supplemental insurance is essential, and you need to decide on what type of policy to buy, but not without professional assistance. Some people can rely on help from people who sell such policies, while others will prefer advice from someone who doesn’t receive a commission from the sale. A recent article from US News add a couple of important yet basic considerations:

  • know a lot more about Medicare than you do now. The Medicare program may seem like stereo instructions, but you have to study it and achieve some level of understanding. You can get help from others in determining how it works, but you can’t rely entirely on others.
  • estimate your costs of medical care in retirement. This sounds difficult, because it is, but there are some guidelines you can use, depending on the general state of your health. These expenses will include the cost of Medicare and additional insurance, plus your out-of-pocket expenses.
  • review your options for paying healthcare cost in retirement. This is also difficult. The article basically says save money to pay for healthcare costs. Don’t assume they are all covered by Medicare and insurance.

I would add the following: get all the preventive medical care you can: shingles and pneumonia shots, TDAP shot, regular checkups with various kinds of medical specialists. Squeeze as much in benefits out of Medicare as you can. Also, pay a lot of attention to your health, your exercise habits and your eating habits. My experience with clients has been that if you can maintain good health as long into your retirement years as possible, the financial cost of retirment will be manageable.

Yet Another Survey on Retirement

I’m not sure what is the point of continually asking people what they think of retirement, either for those who are retired or those who are close to it. But another insurance company has done so. Here are the startling conclusions: people who are retired generally like being retired. Anecdotally, I have yet to speak with a retired person who wished he or she were back in the workforce. Also, the survey found that those who have not yet retired plan to work longer than those who have already retired. That, I suppose, is their solution for not having saved enough for retirement; just keep working indefinitely. That might work for some, but others can’t continue to work because of health issues, and others just get tired of working. One point made by this survey that hadn’t occurred to me before was the difference in attitudes based on whether the individual was a disciplined planner of the retirement process. Not surprisingly, those who had disciplined plans had a more satisfying retirement. Finally, a significant percentage (42) of those surveyed had not spoken to anyone regarding retirement. The takeaway from this survey: stop reading surveys and make some basic plans about how you’re going to deal with retirement.