Do you have enough saved for retirement?

As you can see by the date of my last post, I haven't written much lately.  My family and I went to Chile,
and what a wonderful time we had.   I'm still catching up, so therefore, I am posting an article of interest
to all of us thinking about our retirement.  Stay tuned though.   I'll be posting again soon.  Thanks!

The New Math of Retirement


Financial advice you've gotten in the past may have been misguided and miscalculated. Here's how to make sure you've got enough saved up.

By Linda Stern
May 3, 2010

There's one key fact of life that most retirement planning advice gets wrong: the way people actually live and spend when they retire. Put simply, most retirement calculators and planners aim for decades of level spending, but most people reduce their spending as they move through retirement. That's a disconnect that can significantly skew the results of the typical planning exercise, says a recent study from the Society of Actuaries and the Actuarial Foundation. It could lead workers to take greater investment risks, or be overly frugal during their final years of work or their first active years of retirement.

When workers retire, their budget often goes through four phases: (1) early retirement, when travel, home improvement, hobbies, and new wardrobes can raise expenses beyond workday levels; (2) midretirement, when people (and their spending) typically slow down; (3) late retirement, when spending and activity slows even more; and (4) end of life, when spending for health care and personal assistance can use up what's left of a retirement kitty. But the typical retirement calculator calculates first-year spending based on a worker's last year of salary, and then simply adjusts that estimate up every year by the inflation rate. "Replacement rates may make sense as an analytical tool when peoples' income and expenses are stable over time. However, generally neither is the case," the study says.
In fact, retirement spending actually declines markedly over time, according to data from the Bureau of Labor Statistics. The average household headed by someone between the ages of 55 and 64 spent $54,783 in 2008, the last full year for which data has been published. That same year, households between 65 and 74 spent $41,433 and those over 75 spent just $31,692. Between the youngest group and the oldest group, spending fell by 42 percent, on everything from food to housing to clothing. Entertainment spending fell by almost two thirds. Federal taxes fell away, almost entirely.
That has implications for how pre-retirees save and how retirees draw down their money. It is also causing the insurance industry to start peddling new products aimed at that last, most expensive period.
"The first couple of years will be the most expensive. People should plan on that," says Diahann Lassus, a financial adviser from New Providence, N.J. "We're going to take dollars from future years and front load because we want to take these trips and do these things while we are all healthy and want to do them together. But at some point, you're going to be paying those dollars back."
How would this work, from a practical standpoint? A rule of thumb holds that your money will last all the way through retirement if you take 4 percent of your savings out the first year, and then increase the amount of your withdrawal by the inflation rate every year. But if your spending starts out high and doesn't increase with the inflation rate, you can take, say 6 percent out the first year, but not adjust your withdrawals annually by the inflation rate. By the time you start slowing down, in the midpoint of retirement, your withdrawals will have backed down, proportionately, to where they would have been had you been inflating a smaller withdrawal from the beginning.
There are, of course, caveats to that approach. Baby boomers who have the bulk of their retirement savings in tax-deferred vehicles may not see the same reduction in taxes as their parents did. A really bad year in the stock market, coupled with your first few years of outsized withdrawals, can wreck the whole retirement plan, says Tim Maurer, a Hunt Valley, Md., financial adviser. He tells clients to view their active early years of retirement as a multiyear stage, and save the expensive cruise for a good year. He also tells active retirees that they should continue to earn some money during those first active and expensive years of retirement, both to keep themselves satisfied and to bring in enough cash to pay for those extras. "Medically and financially, it makes significantly more sense to go with a pseudoretirement" that includes part-time or consulting work.
Finally, there's the issue that even retirees that have seen their spending dwindle for decades can get socked with big monthly expenses as their health deteriorates. They may need long-term care or expensive personal assistance. There are a variety of ways to deal with that--if they haven't already downsized their home, they can sell that and spend the proceeds on their later years. Advisers often recommend long-term-care insurance to clients well-heeled enough to afford the premiums, which typically top $200 a month.
Insurance companies are busy devising new products aimed at the latter years of retirement. Called "longevity insurance," these products really are deferred annuities that don't kick in until the owner turns 80 or so. But they tend to be too expensive for what they deliver, says Lassus. "We aren't big fans."

A Closing, and a Beginning

Yes, I did want to say "A Closing and an Opening", but it didn't make as much sense.

Just a few words about the "closing".  John and I have closed on numerous houses and properties.  Not only for ourselves, but while helping our parents.  And this is one thing we've learned.  There is no "correct" way to close on a property.  We've sat with our lawyer in his office with both the seller,  the seller's lawyer, and our realtor.   We've sat in our lawyer's office just  him and us.  We've closed on the phone, and we've closed through the mail!  Whichever way it works out, the one constant is to make sure your lawyer looks over every piece of  paper. 

And now, comes the new beginning.  It's a journey, navigating our retirement.  For our purposes, I will be concentrating this blog on building a home. You, however, may decide to purchase a house, or a condo.  But our course is similar.  We are taking a new road.  Scary?  A little.  Exciting?  Definately!  And fun.

John and I have spent many happy hours, talking about our new property, how we want to design the house, or landscape the property.  And I seriously mean hours and hours.  For the entire four hour drive to that property we discuss, and plan, and argue and compromise.  It may be a long road. But we are elated!  And that old saying is true; for us, it's the journey, not the destination.

Ten Tips for Picking the Right Retirement Spot

Someone recently sent me this article about how to pick a good retirement spot.  I thought it might be worth adding in here, it's good advice.

It was written by Emily Brandon, USNews.com

Most people retire in the same town where they spent their final working years. But some seek out a new locale with ski slopes or perhaps ocean views. Of course, budget is a big concern. "Many people move close by and move to a smaller home or condo where they have less upkeep," says William Frey, a Brookings Institution demographer. "But they still want to stay close to their children and stay involved in the business world by consulting and remaining close to their clients." Here are some tips for finding a place that fits your budget and interests.


Cost of living.

Moving to a place with lower housing, food, and entertainment costs is an obvious way to stretch your nest egg. "A lower cost of living is the major factor behind retirement mobility," says David Savageau, author of Retirement Places Rated. "I don't know anyone moving from Kansas to Hawaii." Some 22 percent of Americans age 51 and older who moved between 1992 and 2004 did so to save money, according to a recent Center for Retirement Research at Boston College analysis. Estimate how your expenses will change if you move.

Low-tax locales.

Tax rates vary considerably by location. Seven states don't levy an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee tax only dividend and interest income. And five states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Be sure to evaluate property taxes and state and local tax exemptions for seniors.

Healthcare facilities.

Your healthcare needs are bound to increase as you age. Make sure your prospective retirement spot has adequate health and elder-care facilities and a doctor who can treat any condition you may have. "You can call and see how difficult it is to get an appointment," says Michael Perskin, a geriatrics physician at the New York University Langone Medical Center. "If you're on hold for more than 10 minutes or you leave a message on voice mail and you don't get a call back, then you know."

Proximity to family.

Many retirees would like to become more involved in their grandchildren's lives. Living near family sometimes has another bonus: help with lawn care or transportation for grocery shopping-services you would otherwise have to hire. More than a quarter (28 percent) of older Americans who have relocated after age 51 did so primarily to be near children or relatives, Boston College found. "People often migrate toward someone because they have become more disabled or have lost their spouse and they need some support that they are not getting in their current location," says Mark Fagan, a sociology professor at Jacksonville State University in Alabama who studies retirement migration. "They will move toward their children or some friends to help them with their daily life.

Job opportunities.

Many people who haven't saved enough or have seen their investments drop significantly in value will need to work during the traditional retirement years. More than a third (38 percent) of Americans between the ages of 62 and 74 worked in 2008, up 39 percent since 1993, according to the Census Bureau. Although the national unemployment rate has been climbing, cities such as Kennewick, Wash.; McAllen, Texas; and Danville, Va., have added thousands of jobs over the past year. Look for a place that has plenty of part-time job opportunities or consulting work in a field that interests you.

Recreation and culture.

When you're no longer tied to a job, you have the freedom to live in wine country or within walking distance of a beach. Perhaps your ideal retirement spot has plenty of art galleries, golf courses, and hiking trails. College towns often fit the bill and host world-class speakers and entertainers, and they often have an affordable cost of living.

Public transportation.

Retirees often reach a point when they can't or no longer want to drive. Consider the cost and quality of a town's public transportation system and how to get around without a car. AppalCART, a regional bus service in Boone, N.C., for example, provides free local transportation. And retirees who join Walnut Creek, Calif.'s Senior Club ($7 annual dues) are eligible for a minibus service that offers transport within the city limits for $1 each way.

Housing needs.

Downsizing into a smaller house or condo goes a long way in stretching your retirement budget. "There's a lot of money tied up in your home, and sometimes there is someplace else you could buy a home and free up some of those assets," says Michael Goodman, a certified financial planner and president of Wealthstream Advisors in New York. Retirement communities and assisted living facilities aim to cater to baby boomers' changing needs and whims. "As you age, you are going to be less able to maintain a large home and [keep up the grounds], and you may be looking for a smaller place with less maintenance," says Fagan. "Rent in a place for a while to see how well you really like it."

Weather.

To some, it's important to not have to shovel snow or defrost a car. But warm climates also come with the downside of larger air-conditioning bills. Think about whether you want four distinct seasons. Some retirees can get the best of both worlds by maintaining or renting a residence in the north and then heading south for the winter.

Amenities.

Of course, you'll want to cover the basics, including the crime rate and quality of healthcare facilities. But don't forget about things like libraries, Internet and cellphone access, shopping, religious institutions, and senior centers. If you plan to travel on a regular basis, look for a place that's near an airport or train station. Some cities, including Boston, Princeton, N.J., and Washington, have developed nonprofit associations of seniors who pool their resources to stay safely in their homes longer. These aging-in-place communities typically provide a range of services, including affordable door-to-door transportation, home maintenance and meal services, and even a daily check-in phone call for an affordable annual fee.