July 31, 2017 — Just like the childless doctor that gives parenting advice, almost every “expert” has a few things to learn once they actually experience what they have been advising on. Retirement experts are no different. We recently read a great article by Paul Brown, who co-authored several books about retirement in his 30’s and 40’s. Now that he has actually experienced retirement for a while, he has had some realizations. In general Paul believes he gave good advice to his readers. But he knows now he should done two things differently:
1. Been more empathetic. Actual life is more complicated than theoretical.
2. Given more concrete examples.
Later on in this article we will give a quick rundown of the 3 examples he wrote about in this NY Times article, “Things I Should Have Said About Retirement Planning“. But first, here are observations from your editor.
What your editor has learned:
– It takes a lot of money to maintain your pre-retirement lifestyle if you had a high paying job (and even if it wasn’t so high paying). You tend to ignore that once the paychecks stop, they really don’t come in any more. If you retire at 58, like we did, you’ve got a long time before Social Security kicks in (and by itself, it is not a replacement for a good income). It also takes a a big pile of retirement savings to equal the income from a good paying job. Lets just say your household income was $100,000. Generating that much annual income using the commonly used 4% withdrawal rule translates to having retirement assets of $2.5 million. Need $50,000 – you’ll need half that – $1.25 million. Sadly, the Employee Benefit Research Institute says that 45% of people 55 or older have less than $100,000 in retirement savings (that generates a paltry $4,000 annually at 4%).
– You have to take charge of your own retirement. You don’t have a boss anymore to tell you what to do. And if you were self-employed, your goals are now completely different – they are personal, not business. If you don’t take charge you will be rudderless, floating along with the currents of daily stuff. And that means squandering a unique opportunity to completely reset your life.
– Exercise and stretching are important. We knew before retirement that our body is a machine that needs regular exercise to stay healthy. When your editor retired he plunged into even more sports and exercise. But every year he suffered an injury that took months to recover from. Unfortunately he ignored the advice that daily stretching, pilates, or yoga – something to keep from getting too tight – was critical. Finally thanks to our trainer friend Leigh’s prodding, we do lots of stretching, and, knock on wood, we are injury-free. Too many of our friends don’t exercise or stretch regularly. You can see it when they struggle to bend over or get out of a chair, or can’t play because they are injured.
Paul Brown’s 3 examples:
1. People resist the idea of working longer to save for retirement, but are shocked by the fact they don’t have enough savings. They probably haven’t saved enough by the time they thought they would retire, usually 65 or so. His advice – work until age 70. That strategy has multiple advantages – you get more time to save. And you increase your Social Security benefit by 8% a year by waiting longer. In the example he gives for a couple making $120,000 per year, they would increase what they have to live on by 47% if they worked 5 years longer and delayed taking their SS. He still thinks this is good advice, but now he realizes that as you get older working is harder. Sometimes your health or energy levels might not be up to working full-time up to age 70. And sometimes you lose your job and can’t get another one.
2. Life doesn’t move in a straight line. Brown assumed that once the kids were out of the house that people’s expenses would go down and their savings increase. But that tends to ignore major expenses that might have been postponed, expensive weddings, help for aging relatives, etc.
3. The things you want to do in retirement will stress your budget. You might take expensive trips, fund a big family outing, make improvements to your home. All that is going to cost more than you probably budgeted for. His advice: “…no matter how much money you are going to need, save another 15% just in case.”
Comments? Now that you are retired, what advice would you give someone who is trying to get ready for that hopefully happy event. Please share your ideas in the Comments section below.