Fred Hall (age 111) lives nearby. Each morning he reads the local paper and does his routine exercises. Mr. Hall is a retiree of the railway mail service; he worked there forty-six years ago. A coworker of mine visits her 104-year- old grandmother, who has a grandchild with grandchildren.
These people are among the seventy thousand centenarians in the United States. Will we live fifty to sixty years longer than we are planning for? Will we survive longer than our income does?
In Life Extension Planning, Susan K. Bradley writes, “Not long ago, I had felt I was doing a good job helping my clients prepare for retirement.
Then one day, I saw a small article on the inside page of USA Today: Scientists had determined that humans can live to be 140—two decades past the previous longevity mark of 120” (Journal of Financial Planning, January 2001, p. 38).
Because estimating longevity is an essential part of planning for retirement, an underestimation will cause people to save too little, retire too early, and spend too much. If you don’t have a realistic estimate of personal longevity, how can you know whether you have the right retirement plan?
To further complicate matters, many people are expecting to retire earlier than the historical norm. In 2001, an EBRI News survey found that “one in three workers expected to be retired less than 20 years” (Journal of Financial Planning, March 2001, p. 120).
But in 1990 the U.S. Census Bureau estimated that when leading-edge baby boomers begin turning 100, more than 834,000 citizens might already be centenarians, adding, “And, if we see even more rapid increases in life expectancy, as assumed in the highest series, the future number of centenarians could be substantially higher.”
The number the report offers: 4,218,000 souls! This report implies we could live in retirement decades longer than we first expected, even if we do not retire early. It notes that 100 is considered “extreme old age,” but only because we are not there yet.
At one time, 70 was extreme (“Projections of the Resident Population by Age, Sex, Race, and Hispanic Origin: 2000 to 2050,” Population Projections Program, Population Division, U.S. Census Bureau, in Centenarians in the United States, U.S. Department of Health and Human Services, July 1999, p. 3).
The 2000 U.S. Census report found that the number of people over age eighty-five increased 40 percent from 1990 to 2000. Rapid advances in health and medical technology and practice may usher in a new Genesis in aging. Like our biblical ancestors (the first Adam begat his son at 130), we may enjoy a grand portion of life’s blessing cup.
How financially prepared you are to maintain a consistent standard of living for an extended life, is a question that should give you and the thoughtful financial advisor of your choice much to consider.
It is only recently that I have come to realize, as clients have presented me with their retirement plans, the complexity of retirement planning for the twenty-first century.
If you have recently retired, or would like to retire within three years, and you hope that your (or your spouse’s or ex-spouse’s) pension, 401(k), cash balance plan, or TSA plan will support you for life, and you urgently need to feel secure about the hard choices that you face, this book is for you.
In an objective way it will help you form an investment strategy the way the chief financial officer of a multimillion-dollar endowment fund does.
If you need to gain confidence and trust in evaluating professionals who manage money, read this book. According to Employee Benefit Research Institute (EBRI), 1999 was the first year that individual retirement account (IRA) assets, totaling $2.47 trillion, exceeded 401(k) and pension plan assets.
Each year now a million people are retiring. Ready or not, each retiree will face tough money-management decisions. If you are one of them and you want your retirement-plan dollars to support you, you must make the right moves now.
I’ve dedicated this book to my dad, who, like many people, failed to save enough. Oftentimes, through no fault of their own, people fail to realize that they can outlive their income or that investments can sour.
Although many are offered contributory retirement plans, such as a 401(k), they do not participate. What these people need is a professional to coach them to invest and to help them take proper risks.
For many employees who are making contributions, professional advice can help keep them on the right track, even if they plan to work after retirement from their primary job. It is good that people stay busy.
According to Rutgers University, “68 percent of Americans expect to work after retirement, but not for the money.” While some of these people will volunteer their time, I believe others will be forced to do full- or part-time work to supplement their income. Some will have sufficient resources, allowing them the choice not to work again. Will you be one of them?
As people retire, their retirement money needs to be managed. Who will manage it? Contrary to your working years, when you work for money to sustain your lifestyle, during retirement, money must work for you.
Those who were unconcerned about fluctuations of their investments while employed become more mindful of the market when their budget demands that withdrawals begin. At withdrawal time many people become uncomfortable with their nest egg. They wonder, “Is it going to last?”
Unlike many retirees of the new millennium, my dad, a master carpenter, had the health, skill, and capability to work part-time until his early seventies. He also had a substantial Social Security check that met the remaining needs of his frugal lifestyle.
He had a big family, and he was thankful for that blessing and for having survived World War II in Normandy. He told me once, in a plaintive tone, “You’d better save for retirement.” But he dated himself when he added, “You will need at least $200,000.”
People retiring today are very different from the last generation. They (especially early retirees) may not receive a Social Security check for five or ten years, and when it comes it will be a small percentage of their spend- able income.
These retirees need more powerful tools to manage much larger sums of money for a longer period of time. While some choose to run their own businesses, others do not have skills to be self-employed, nor do they desire to learn a new career, especially in money management.
Often retirement incentives look so attractive that the long-term picture is not seriously studied. Financial Engines, an advisory firm, found that only “8 percent of employers think that their employees are prepared to make investment decisions regarding their retirement assets” (Journal of Financial Planning,
November 2000, p. 28). Whether or not you work after retirement, you will almost certainly need to supplement your income with a retirement account, such as a rollover IRA, which will need to be well managed.
If you are among the millions of workers in their fifties and sixties who plan to have a substantial amount of their retirement income (as much as 70 percent to 100 percent) coming from retirement plans and personal savings, this book is for you.
You will need transition planning (from working to retiring) or possibly career planning. In a short while you will go from accumulating income and assets to spending them. People who do not have $200,000 or more in a 401(k) or TSA, plus a pension plan, will most likely fall short if they retire too soon without another job.
According to the Social Security Administration, Office of Research and Statistics, as of 1996 new data show a dramatic change in sources of retirement income. For those retired earning more than $31,180 annually, pension and Social Security provide less than half of retirement income on average (see chart below).
Without a pension, many people may not be able to retire until Social Security begins.
They need to take a good look at everything they spend money on and save as much as they can daily, going as far as to check the bottom of the washer and dryer for loose change. The English say, “One of these days is none of these days.”
Do not wait to begin a meaningful savings program. This book is aimed at those who have already begun investing for early retirement or have retired recently. If you’re fifty or over, the 2001 tax act allows for higher contribution limits to retirement plans and new “catch up” provisions (see the Appendix).
While we were still in grammar school my mom gave each of us kids a red, leather-bound metal bank shaped like a book. It was about the size of a man’s wallet and on top it had a slot for coins and a round hole for bills.
After forty-five years I still have that gem. I recall filling it and then bringing it to Cayuga Savings Bank in Auburn, New York. I quickly discovered how money worked for me, rather than me working for money. The bank tagged on a few cents to the balance each time the teller tallied up its coins.
I would stare at those “free” additions and smile. My first lesson in unearned, compound interest would have a profound impact; it may have been then that I began to associate a book with money, for I called it my bankbook.
