Rethinking Retirement in a Recession

In the last year mentioning the word “retirement” often generates a pause or a snigger; it might even seem like you’ve made a sick joke. As in, “What retirement? My 401k has blown up, my job gone, and along with that my retirement dreams.”

True enough, millions upon millions of baby boomers are asking hard questions about their retirements.  Sadly for many of us, the new reality is here - we won’t have enough to retire on comfortably. For others the day of reckoning is all too close; they never saved enough. Even if there hadn’t been a global economic meltdown, they were never going to retire in the lifestyle to which they had become accustomed.

A July 4 article in the NY Times, “How to Make the Best of a Delayed Retirement“, offered interesting answers to some commonly asked retirement questions.  CBS MarketWatch has a slew of articles like “Can You Afford to Retire-Ever” and even a short video on “How Much Money Do You Need“.  Another article on MSN Money offers additional advice about Delaying Retirement. The good news from all these is that there are plenty of positive ways to take the new retirement realities in stride - through planning, imagination, and some hard work.    Here are some of the key points.

Eileen Zimmerman, the author of the article in the Times,  suggests setting  aside your fixed ideas about retirement. Perhaps your portfolio won’t allow you to completely retire. But you probably can find a flexible workstyle that will allow you the best of both worlds. You might be able to work from home on a flexible schedule, or even job-share. You could try a new career or position - maybe without the corner office of manager title or as much money - but it will pay the bills and give you something to do.

That brings up another point. Depression and general malaise all too often occurs when a person glued to their job suddenly finds herself without purpose or plans. Lynn Berger, a career coach and licensed mental health counselor in Manhattan and author of “The Savvy Part-Time Professional” was quoted on this point in the Times article:  “Many people experience a rapid decline in physical and mental health soon after retirement, due to lack of activity and purpose. ” Her point is that a gradual transition to retirement can be a good thing. It might also force you to do something that far too few retirees do before they retire - and that is plan out their objectives and dreams for retirement. In our experience humans aren’t built to do nothing, the happiest people among us tend to be those with a purpose.

The Times article also answers other interesting questions, including how to discuss your retirement (or non-retirement) plans with your boss. Hint: Do it and avoid surprises.

What are your retirement plans? Are you going to retire cold-turkey (or did you already)? Or will you gradually transition to retirement or  a new job? Share your experiences using the Comments section below.

For Further Reference:
How Much Can I Earn and Still Receive Social Security Benefits

No Social Security Increase in 2010

Update: October 15, 2010 - It’s official - no social security increase in 2010 - $250 payment pushed.
It will be the first time in 3 decades, but there will be no cost-of-living increase for social security recipients in 2010. Following a formula set by law to counter the effects of inflation, beneficiaries can usually count on getting a “raise” every year. Thanks to the economic slowdown, inflation is not a problem at the moment, hence the formula indicates no increase next year.

According to the AARP, beneficiaries have received automatic cost-of-living every year since 1975. The increase in 2009 was 5.8%. Controlling inflation should be a good thing for retirees because it means the prices they pay for goods and services are not increasing.

A “no increase” result has implications for Medicare beneficiaries who payPart B premiums.   Approximately 3/4 of recipients are protected from increases in their Part B premiums: their premiums cannot go up more than the dollar amount of their Social Security increase. The remainder of recipients can probably expect an increase in their premium from $96.40 to $119 in 2010.  Premiums for drug coverage could also go up.

About one in four (or about 11 million) beneficiaries are not protected from a Part B increase because they:

• do not have Part B premiums withheld from their Social Security income, or

• have a higher income and therefore pay a higher Part B premium, or

• recently enrolled for Part B.

For further reference:
AARP article on Part B Premiums

Congressional Budget Office blog on Zero Increases

When Should I Start Taking Social Security

Under Water Boomers Face a Dilemma - Rent or Sell

Oh baby boomers, what a mess we’re in now. Not only have our investment portfolios been hammered, but our real estate investments are hurting too. A recent study from the Council for Economic Research points out that both add up to grim news for baby boomers - particularly for those who planned on moving to start their retirement.

“The collapse of the housing bubble, which led to the current recession, has already destroyed almost $6 trillion dollars in housing wealth for homeowners,” said report co-author Dean Baker. “This reality is compounded by the recent collapse of the stock market. The result is that many baby boomers will only have Social Security and Medicare to rely on in their retirement.”

Underwater
The Center’s report found that 15% of homeowners aged 55 to 64 are “underwater” - that is they owe more on a mortgage than the house is worth. The situation is even worse for those 45 -54, where 30% have negative home equity. Boomers in certain parts of the country are more likely to be underwater than in others. South Florida, Arizona, and Nevada residents are most likely to have negative equity. As real estate woes spread across the country, however, negative equity will affect more and more people in the soon-to-retire population.

The Center also reported that overall net financial worth for the 45 -54 year old boomer group has has also declined - 45% over the last 5 years. Their median net worth declined from $172,400 to $94,200 in the period. Whereas 5 years ago this group had investment assets that could generate $14,000 in annual income, now the figure is only $8,000. The result is that many baby boomer households will enter retirement with little wealth beyond Social Security.

For Those Who Want to Move Now
The crisis has particular meaning for baby boomers who are thinking about moving in retirement. To buy retirement property now they face a tough choice - should they sell their homes now and tap their investment portfolio to fund the shortfall, or should they wait for prices to recover?

Richard E. Austin, a financial advisor with Lincoln Financial Advisors, said in the New York Times in March that for people who need to sell who expected “real estate prices to decline for years…. selling now could shield them from deeper losses.” Austin went on to say that “a better option” could be renting out the house rather than selling it, and waiting for real estate prices to rebound.

Topretirements tends to agree with Mr. Austin that renting is probably the better option. It carries the risk that real estate prices will not recover before you need to sell. But it also has the possibility that you could recoup at least the value of your mortgage in the future. In the meantime you could rent out your house (assuming that the rental market in your area is viable), while you in turn could neutralize some of your risk and conserve capital by renting in your new community.

What’s Your Opinion? Use the Comments feature below to share your ideas.

Taking the Mystery Out of When to Start Taking Social Security

Ask any 4 people when they intend to start taking social security benefits and you might get 4 different answers. Ditto with how long should you keep working and how that work will impact your social security benefits (short answer: working longer is usually a good thing for your benefits). Even when to start with Medicare is not well understood (and this is the easiest one to answer: everyone should sign up 3 months before their 65th birthday).

The Social Security Administration is actually doing a very good job of helping to educate the public and remove the mystery out of the issue. As they point out, it is NOT a “one size fits all” kind of question - everyone’s situation is a bit different. To that end the SSA has come out with a short but informative podcast that will be an excellent overview for most people. You can download the podcast and other materials using this link at the Social Security Administration

Topretirements has also developed an extensive article, “A Surprising Answer to When to Start Taking Social Security Benefits“. Our article has some good background and a raft of excellent links for further reference.

Short Answer:
It all Depends!

Give us your opinion either here in our Comments section (below), or in the Topretirements Forum Topic: When to Start Taking Benefits

Will Your Retirement Weather the Economic Storm?

—By now you have probably received your November 401k statements, and maybe you even had the courage to open them. If you haven’t lost 40% of your portfolio since last year, cheer up - you’re a winner!
This article will explore strategies for how you can weather the depressing economic turmoil that has engulfed us in late 2008. We would love to hear what you are doing and thinking about it too. Just go to our Forum and join the thread on “Retirement and the Economic Mess“.

There is no doubt that the economic mess is negatively affecting most retirements. Not only have trillions been shaved off of our financial portfolios, but the same statement applies to our respective real estate equity. People who have already retired are wondering how they are going to survive with diminished resources. Prospective near term retirees are questioning if they should delay retirement. And younger folks wonder if they ever will be able to retire.

Here are some possible strategies to consider:
- Don’t panic and sell. We like the advice we have heard elsewhere – you haven’t lost it until you sell it
- Keep investing. If you are working and contributing to your 401k or the like, keep putting money into equities. You might lose some in the short term, but if you believe in the American economy, today’s low prices will put you ahead some day. At least that’s what we think Warren Buffett would say
- Think about working longer. The more money you have in your investment portfolio, the more worry-free your retirement will be
- Get a part-time job. If you are retired or must retire soon, include plans for a part-time job. Not only will that give you a financial cushion, but it will keep you busy too
- Move to one location instead of two. Many retirees were hoping to be snowbirds – having one home in a warm location for winter and another for the warm months. If your resources don’t permit that, consider the Carolinas or Georgia where you might get the best of both
- Downsize to a more manageable home. Right now might not be the time to sell anything, but think about what makes sense for you long-term. In our opinion too many people hang on to their big suburban homes for too long – all those extra expenses (taxes, heat and A/C, maintenance) could be going toward something fun
- Get creative. So your first plan for retirement didn’t work out, or is on hold. Get ready with plan B!
- Look for bargains. If you will be able to afford living in a retirement community and you have the cash, think about buying now. In some sunbelt states 50% of the houses for sale are in foreclosure. The banks owning them aren’t sentimental, they want a sale. Advice we read recently on foreclosure purchases is to: focus on highest quality properties; look for languishing properties; make a good offer; offer to close quickly

Finding the Safest Investments in an Uncertain Market

Understatement: People nearing retirement have had good reason to be concerned in the last few weeks.

Our friend who likes to check on his stocks everyday has suddenly developed other interests. And who wouldn’t blame him. It’s no fund getting whipsawed - down in the depths one day, brought back to euphoria the next - only to have all hope snuffed out the following morning. Better to take up macrame.

Which leads so many folks to wondering what is a safe investment these days. Precious metals were red hot last week - for a while. Ditto for commodities. Stocks - only the bravest went there. Even staid money market funds, last refuge for the faint of heart, took big hits with net outflows of $173 billion for the week. The Primary Fund “broke the buck” - going below a net asset value of $1. Fortunately the Treasury Department announced a new insurance program like the FDIC for money market funds, helping bring stability back to that market.

All this uncertainty leads one to the question - is real estate a good investment now? Not being liquid, it is only for those with a long term perspective. Only time will tell when the bottom hits, although a few experts think it will come soon. We were cheered by one blogger’s report from Las Vegas that investors are cherry-picking foreclosed properties, snapping up the most desirable ones and bringing some measure of stability to the chaotic market there. If true, more of that would be a good thing to see!

New Social Security Retirement Income Calculator

Want to know how much you will receive from Social Security when you retire? How much will your check will be if you start taking benefits at 62, 66, or “full” retirement age (70). The Social Security Administration has just unleashed a powerful tool, The Retirement Estimator, that will give you these figures in less than a minute.

It’s a great retirement calculator that has many uses. We’ve been doing some work with retirees lately and it is truly sad to see how many people are not financially prepared. They’ve retired, and now many are running out of money because expenses have been higher than they expected - property taxes, fuel, and food being some of the worst culprits. Their choices are not pretty. Often it means selling a home and moving to a new town, a reverse mortgage, going back to work, or poverty. So we recommend this tool as the first step in figuring out if you can afford to retire. The second step is to calculate your expenses - with a generous escalator for the unknown. Check it out.

PS - when we ran the calculator we were amazed at the difference in the monthly check if we wait until we are 70, instead of taking social security at 62. The age 70 monthly payout would be more than $1200 higher than the age 62.

Retirement Calculators Give the Magic Number

July 28 — Are you the type of person who has a certain “magic number” in mind? The magic number being the amount of savings you think you need to quit the working world and retire. It’s always been an interesting exercise, with the problem that all too often these numbers tend to be unscientific, often relying on shaky assumptions about spending and income.

Finding the magic number is an essential step in every baby boomer’s preparations for a worry-free retirement. Nowadays there are any number of retirement calculators available on the internet. These nifty web pages take the mystery out of the process. On most of them, just enter a few facts like your age, life expectancy, current income and assets - then presto - you get how much you need to save for the retirement income you specify.

At Topretirements.com we have looked at several of these calculators and continue to be impressed with their simplicity. Useful too, at least in terms of knowing in an instant whether you are going to have a retirement problem or not. Since only 50% of baby boomers aged 55+ have saved more than $50,000. it might be a good thing for more people to get the dose of reality that a retirement calculator can provide.

Most of the retirement calculators we list (see first section, Financial) are easy to use. Almost all are identical too, so once you’ve seen one, you seen almost all. The exception is FIRECalc. This one provides more options and sensitivity about different market conditions, giving a range of investment results under very different scenarios A more realistic approach, since who knows what types of returns will affect your portfolio. We recommend you take a look at FIRECalc

Housing Slump Postpones Moves to Retirement Communities

Thousands of retirees are having to postpone their planned moves to retirement communities - a different kind of housing crunch victim. Many have selected the active adult community or CCRC of their dreams, only to find a big catch - they can’t sell their primary residence, which is how they will fund their new home or entry fee into a CCRC (Continuing Care Retirement Community).

Topretirements has heard much anecdotal evidence from various CCRCs about this phenomenon. In fact many continuing care communities are experiencing a sales slowdown for this specific reason. Buyers are ready to move in, but they don’t have the cash on hand to complete the deal. Realtor Magazine recently wrote on the subject as well. One of the problems with the issue is many retirees only want to sell if they can realize 2005 type prices - accepting anything less seems like some sort of defeat. Unfortunately that is the state of the current market - prices are off at least 20% in many parts of the country, and probably won’t be headed higher for some time to come.

Vanguard Posts Helpful Retirement Financial Advice

Probably you get a lot of newsletters from your financial advisors. We confess we don’t pay too careful attention to most of them, but recently a newsletter came in from Vanguard that we thought was particularly helpful. Although the focus of this site is primarily to help you choose the right retirement community, being able to afford that community is pretty important too!

The Vanguard articles included:
- What your partner should know about your financial situation (in case something happens to you)

- Sensible spending tips for retirees

- How to support your favorite charities in a down market (some interesting stuff here)