When we started The Journey column on planning for and living in retirement a decade ago, the oldest baby boomers were just turning 60. Housing prices and stocks were rising steadily, but a chorus of experts was warning that no one was saving enough.
Today, even the youngest boomers are now past 50, having weathered housing and financial crises. And the undersaving chorus still plays. Social Security is hurtling closer to shorting benefits for Generation X’ers like me, long-term care insurance has become so expensive many financial planners aren’t recommending it anymore and rock-bottom interest rates have pushed retirees into uncomfortable investment risks to generate portfolio income. Certain financial salespeople are still not required to put clients’ interests ahead of their own.
On the plus side, investment costs have declined substantially. Fee disclosure rules in workplace retirement plans helped lower expenses in those accounts, and automatic enrollment in 401(k) plans helped make sure millions more workers began saving.
It’s been a mixed bag for many individual retirees, too. Mary Jane Good, a Cincinnati retiree I interviewed for the first Journey column in 2006, had retired into the 2000 dot-com bubble crash and then got hit again after the 2008 financial crisis.
Recently, I caught up with Good, now 81. She’s three decades ahead of me on this journey, but we found some common ground. We both became widows in 2013 and both had always taken the lead in financial planning for our households.
Through investment diversification with a team of trusted advisers and a resolve not to panic, she said, her portfolio came through both market storms and she’s doing fine financially. She’s staying mentally fit by continuing to volunteer for a number of nonprofit organizations and her church.
I’m still working, but after the loss of my husband have crossed the line from simply accumulating savings to pulling money out while I finish raising two children. Like many of my semiretired readers, I’m straddling the nebulous world of the unretired, still working but also trying to make a nest egg last a lifetime. I’ve had a pension from a previous employer turned over to the Pension Benefit Guarantee Corp., listened to some ridiculous advice from highly recommended experts and turned 50, that hiring red zone for working women.
The upshot of all this is a short list of the most important things I’ve learned in 10 years on the retirement beat:
Save — and spend — in buckets: When you’re still accumulating savings, allocate every dollar of total household income to one of four buckets: Housing, taxes, savings and everything else. (Very high-income couples can eliminate the housing category and allocate in thirds). Try to make the buckets roughly equal. Include all taxes, even property taxes, in that taxes bucket. Include all housing expenses, even furniture and the light bill, in the housing category. After allocating 15 percent of income to retirement savings, put the remainder toward shorter-term goals. And if you’re still paying off debt, allocate that money in this bucket. At retirement, think about your nest egg in buckets, too. Even if you’re pulling out income using systematic withdrawals, carve out a pile — 10 to 15 percent — for very old age in case you make it there and your withdrawal plan ran out of gas. For this, consider a longevity annuity, a fixed deferred stream of income that begins in your mid-80s.
Know what you don’t know: Countless readers and friends have asked me how to find a financial adviser. Many of them had only a vague notion of what they wanted the adviser to do. Interview at least three candidates and ask for specifics.
Take off the blinders: As the pension era gave rise to 401(k)s, financial advisers reached for a rule-of-thumb withdrawal percentage that would allow retirees to take out a consistent amount of money that would rise with inflation. Understand that a few horrible market cycles could doom this strategy if you don’t cut back.
Pay for what you get: Payment for advice is a moving target, with so-called “robo” advisers disrupting investment management with very low-cost portfolio rebalancing. More “live” advisers are beginning to charge a retainer or by the hour rather than billing by the amount of assets they manage. Consider what value you’re getting from the arrangement, and pay accordingly.
Save-and insure-but not too much. While many Americans are underinsured and have saved nothing, I’ve met others who went too far the other way, depriving themselves of satisfying life experiences. My husband and I saved by the bucket method above and paid a hefty sum on life insurance premiums, but not so much that we ever felt seriously deprived. The result was that when the unthinkable occurred, I had great memories and a nest egg I should be able to live and build on, but not one that will result in a retirement more lavish than we’d planned together. It’s good enough.
Share your journey to or through retirement or pose a question at journey@janetkiddstewart.com.
