Monthly Archives: July 2012

How the sandwich generation can avoid getting squeezed

Good Day,

Even though majority of experts paint a grim picture for the generation born by baby boomers, they is still lots of time to make drastic changes that can ensure a comfortable life amidst the economic gloom that is surrounding them. With the current economic woes unleashing a blow to the economy, and the global economy as a whole, the financial difficulties facing the baby boomers is causing havoc upon them. Take for example the current job market, with more baby boomers making a decision to delay their retirement, means that their kids will have to fight for the fewer job openings that are available. As if that is not enough, people are living longer and this means that more money will be required to take care of their aging parents. We have not even taken into consideration the fact that college education doubles every few years, a rate higher when compared to the rate of salary increments, if there is an increment to begin with. All these realities means that the task ahead is an uphill one, but to avoid being caught unawares is to face the facts and make major preparations early in your life. As Lou Carlozo elaborates in the following article, there are steps that one can take to avoid getting squeezed.

Children of the baby boomers, the so-called sandwich generation, face household fiscal strains unlike any other time in history, often with the obligation to support their parents as they age and their children as they enter college, with one eye on their own retirement funds.

Here’s the bottom line: More than 60 percent of young adults ages 19-22 receive financial help from their parents, according to a 2012 study co-authored by Patrick Wightman and Robert Schoeni at the University of Michigan. The tally comes to about $7,500 a year when help with rent, transportation and college tuition are included.

As for elder care, the sandwich generation faces frightening costs. More than 10 million Americans currently need long-term care, according to the Kaiser Family Foundation. Today’s average annual cost of nursing home care is $72,000; assisted living, $38,000; and home health care services up to $30,000 a year, according to Kaiser Health News. The U.S. Census Bureau says the number of Americans aged 65 or older will double to more than 70 million by the year 2030.

Even the affluent have their sandwich-related worries. A new Merrill Edge report finds that in April 2012, 49 percent cited caring for an aging parent and/or adult children as a major financial concern. Half of adults ages 18-46, along with 42 percent of baby boomers, reported paying medical expenses for aging parents and relatives, according to U.S. Trust’s 2012 survey of high and ultra-high net worth Americans.

How the elderly have prepared for retirement also plays a role. The recession damaged or wiped out many retirement nest eggs. Now many older adults may plan to keep working, but this may not always pan out. “This significant portion of the boomer generation may rely upon their family for support,” says independent financial adviser John Graves, editor of the Retirement Journal and author of “The 7% Solution,” a book about affordable retirement. Graves has a name for these sandwich seniors, who represent the opposite of empty nesters: “return-to-the-roost-ers.”

The overarching problem is so bad that some politicians, while perhaps lacking a battle plan, at least want to raise awareness. In Michigan, Gov. Rick Snyder has proclaimed July 2012 as Sandwich Generation Month.

So how can you survive the sandwich years, and guard against getting your pockets picked by unforeseen expenses? Experts recommend these courses of action.

1. See it coming

It wasn’t hard for Mark Roma of Voorhees, New Jersey, to see his jump into the sandwich generation looming. The 48-year-old has four daughters (18, 15, 10 and 9), and he’s about to start paying for college tuition in the fall – the first in a long string of tuition bills that will likely stack up for the next 16 years.

His parents are 69 and 70 and lack long-term health insurance. His wife Amy, who works part-time as an administrative assistant, has a father who’s 81. To top it all off, he has survived two layoffs in the last four years as a senior business development manager in factory automation and IT.

“At the end of a day, you can only divide a quarter so many ways,” he says, so some planning is in order.

2. Find a financial adviser – now.

For many sandwich adults who lack an adviser, “They either think they don’t have enough money or they can’t afford it,” says Luke J. Vandermillen, vice president of retirement and investor services for the Principal Financial Group.

But those who work with an adviser make big changes. According to the latest Principal Well-Being Index, 83 percent of workers who use a financial professional have an emergency fund, compared with 58 percent of workers who do not use one.

3. Do the crucial paperwork.

Many documents that can ease sandwich years fears – from a living will or power of attorney to trusts and a 529 education saving plan – require busy adults to take time out and consider the big picture, says Katie Libbe, vice president of consumer insights for Allianz.

You will want to include other professionals in your planning, such as a lawyer and/or accountant, says William Smayda, a director and regional sales manager for Merrill Edge in Los Angeles.

4. Talk to older parents to help them – and you – prepare.

Many sandwich adults start retirement planning when their own parents are healthy and working, but things can change. You might not relish talking to Mom and Dad about worst-case scenarios, “But you have to have these conversations,” Libbe says. “What if all of a sudden when someone has a stroke or is diagnosed with Alzheimer’s? If the family has played these what-if scenarios, they won’t have to treat it like it’s a fire drill.”

5. Have older kids help out in practical ways.

We’re not talking the odd babysitting gig. While 1 in 8 kids now return home to live with parents after college, there’s no reason why those children can’t contribute something to footing household expenses. “It’s not always a financial drag with more responsible children who pay rent,” Smayda says.

As for college tuition, since 1976, the cost of a year of school has risen by a factor of eight, U.S. Department of Education statistics show. Put another way, the price tag of college triples roughly every 17 years; over time, tuition has risen at twice the rate of inflation.

6. Balance short-term expenses with long-term goals.

Many sandwich families get in a bind because they’re so busy paying for everyday expenses that they allocate little or nothing to bulwarks that can ease their biggest fiscal burdens. What’s more, they often lose lots of traction from impulse spending. Big categories where people can cut back – make room for college, retirement or healthcare planning – include entertainment and dining out, new second cars and personal luxuries, the Merrill Edge report states.

Retirement Bliss May Turn to Blues for Some Boomers

Good Day,

And here I am, thinking that at least baby boomers are in a better financial situation than Generation Xers, that I talked about in my last blog, when it comes to retirement. But it seems that everybody is screwed according to the latest report on retirement security. The financial crisis really did some major damage, and considering that people are living longer and the healthcare costs are ever-increasing every year, the future does not look that rosy for most of us. The damage done by the financial crisis on baby boomers retirement portfolios may be felt much later in their retirement due to the reduced retirement funds, if the latest report by financial experts is anything to go by, but it is not all gloom because with adequate financial planning, many retirees may weather the storm because there is still time. For the rest of us, we should look forward to saving a lot more than the previous generations, if we are still planning on having a decent retirement. As the following article by CNBC points out, the retirement life that many baby boomers had hoped for, may turn out to be another nightmare.

Will the old thirty-something gang still be showing up for work at seventy-something?

That could be the case for many of their real-world contemporaries, if they hope to enjoy financially secure retirements.

Baby Boomers, with their inheritances, homes, and old-fashioned pensions, may appear to be on track for a solid retirement, but some experts say the forecast for the generation born from 1946 through 1964 isn’t necessarily so rosy.

While Boomers are more likely than younger workers to have defined-benefit pension plans and certain other advantages, that’s particularly true of older Boomers, many may wind up financially ill-prepared for retirement unless they work longer and save more.

The recent financial crisis took a toll on wealth; inheritances on average won’t be that big; traditional pension benefits are phasing out; and many shop-till-you-drop Baby Boomers simply haven’t saved enough money to last through retirements that should stretch beyond those of previous generations, economists note.

“The majority of today’s retirees are able to afford a decent retirement. However, this group is living in a ‘golden age’ that will fade as Baby Boomers and Generation Xers reach traditional retirement ages in the coming decades,” states an October 2009 report led by Alicia Munnell, director of the Center for Retirement Research at Boston College.

“This gloomy forecast is due to the changing retirement income landscape. Baby Boomers and Generation Xers will be retiring in a substantially different environment than their parents did,” the report notes, citing longer life spans and retirements and declining “replacement rates” – retirement income as a percentage of pre-retirement income.

As of 2009, in the wake of the housing and stock market crises, some 51 percent of U.S. households were at risk of being unable to maintain their pre-retirement standard of living at age 65, the authors calculated in their report, “The National Retirement Risk Index: After the Crash”. Some 41 percent of early Boomers, 48 percent of late Boomers and 56 percent of Gen Xers were at risk, they said.

The financial crisis, however, can’t be blamed for everything.

“They weren’t prepared even before the crisis,” Munnell told CNBC recently. The report noted that two years earlier, 37 percent of early Boomer and 43 percent of late Boomer households were at risk

“The gist of this whole story is that retirement ages are increasing as people live longer and health care costs rise, and at the same time the retirement system is retracting,” says Munnell.

Eligibility for full Social Security Insurance benefits is gradually rising from age 65 to 67, Medicare premiums will account for a bigger chunk of spending, increasing numbers of households will be taxed on their benefits, “and people really don’t save on their own,” says Munnell.

Some researchers believe most Baby Boomers are indeed wealthy enough to maintain their pre-retirement consumption, notes David Wise, an economist at the Harvard Kennedy School of Government. Wise, however, says it’s instructive to look at the real financial status of elderly retirees near the end of life.

“When you look at it that way it doesn’t look as favorable,” he says.

In a recent study, Wise and two colleagues found that “a substantial fraction of persons die with virtually no financial assets – 46.1 percent with less than $10,000 – and many of these households also have no housing wealth and rely almost entirely on Social Security benefits for support.”

Based on a replacement rate measure, “many of these households may be deemed to have been well-prepared for retirement, in the sense that their income in their final years was not substantially lower than their income in their late 50s or early 60s,” the study notes. “Yet with such low asset levels, they would have little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities. This raises a question of whether the replacement ratio is a sufficient statistic for the ‘adequacy’ of retirement preparation.”

Given these findings, expectations of a life-saving wealth transfer to the Baby Boomers may be overblown. Maybe half the Baby Boomer population will inherit money from parents, with a median amount of $40,000, according to Boston College’s Munnell.

“It’s not going to be enough,” she says.

People increasingly will rely on their 401(k) retirement plans, but the savings rate isn’t reassuring.

According to BC’s Center for Retirement Research, 62 percent of workers were covered only by traditional defined-benefit pension plans in 1983, compared with 17 percent in 2007. Those covered exclusively by 401k plans increased to 63 percent from 12 percent during the period.

“In theory 401(k) plans could provide adequate retirement income, but many individuals make mistakes at nearly every step along the way,” the center’s report states, citing research showing that the median 401(k) and IRA balance for those near retirement was $78,000.

Annamaria Lusardi, economics professor at the George Washington University School of Business, points to a general lack of financial literacy and planning.

“A sizable group of the population has not even thought about retirement, so there are a lot of people that are approaching retirement without any preparation for it,” she says. “Even for the Baby Boom generation, I think there are worries about a good fraction of them potentially not experiencing a good retirement.”

Many people see retirement as a distant stage even if it’s only five years away, and expect to keep working even though their employment situation may not evolve that way, says Lusardi.

She also says retirement planning can be a “sophisticated calculation” that chief financial officers with MBAs handled for traditional pension plans. Now many workers must decide how to invest their own retirement wealth in 401(k)s and IRAs, as other major financial forces, for example, spending on children’s college education, accumulation of credit card debt, take a toll on retirement savings.

The challenge may also be compounded by the boom-bust cycle of the housing market. Many people took money out of their homes through refinancing packages, lowering their equity stake. Even for those who did not do so, the subsequent price slump has eroded equity, taking a bite out of what’s been a traditional retirement nest egg.

“I think it’s very important that we provide ways to help workers make good decisions about retirement,” says Lusardi, suggesting that employers provide financial education programs.

Not every economist foresees a bleak future for Boomers, and even those with significant concerns see ways to make those retirements brighter.

“It’s basically a very mixed bag. Richer Baby Boomers will do better than previous generations,” while the poor will do worse as pensions disappear for many workers, Massachusetts Institute of Technology economics professor Jonathan Gruber said. The extremes in income distribution seen during the working years endure in retirement, with the wealthy in each generation doing better and children of the rich becoming rich themselves, he says.

The amount of income needed in retirement is a subject of disagreement. While the Department of Labor and financial planners recommend an 80 percent replacement rate, some consider that standard too high.

An Urban Institute report this year called the 80 percent rule of thumb “misguided,” stating that Americans aren’t necessarily saving too little, but need to save enough so that spending doesn’t need to drop sharply in retirement.

Economist John Turner, director of the Pension Policy Center in Washington, D.C., thinks retirees above the poverty level should do OK with at least 60 percent of pre-retirement income, and suggests saving 10 percent of earnings for retirement is enough. That’s more than most people are saving, however, he notes.

“The way out of this box is to work longer,” says Boston College’s Munnell “Now that’s harder in this environment where we have high levels of unemployment, but that’s really in the end what’s going to keep people financially sound. If people work until age 70, I think the vast majority of people would be perfectly fine in retirement.”

Retirement May Be Mission Impossible for Gen X

Good Day,

Every time I read an article in the newspaper or a financial magazine, or when watching TV, the information I get is how bad things are going to get before we can start seeing any positive change. The reports are of how people lost the little money they had saved for their retirement during the market crush of 2007, investors being scammed by con artists, since everybody is broke and people are using any means to get their hands on cash. All this negative information is bound to affect present and would-be investors. Consider Generation X, for example, that is any individual born between 1965 and 1981, they have seen it all, they were babies during the oil crisis of 1979 and the currency devaluation as a result of pegging of the dollar to gold, even though at that time most of them had no idea what was happening. Then came the market crush of 1987,  followed by the Tech Bubble of the late 1990’s and finally the great recession of 2007, that is still being felt to this day and it doesn’t appear like it will be coming to an end any time soon. Come to think of it, I can’t think of any generation that has been through so much at such an early age, OK fine, the baby boomers went through the Great Depression, but at least they had two decades of financial prosperity. Generation X have been through all  of this, and to make things even more worse, the future is not that bright, with people living longer, thus the retirement age of future generations might have to be extended a little bit longer, and we have not even considered that Social Security might be broke by the time they retire.

With all this negativity all around them, no wonder most of them have lost faith in retirement planning. Most don’t even pay attention to their retirement portfolio, leave alone how much they have accumulated to date. We all go through tough times, thus, it is too early for this Generation to give up so soon. If most Generation Xers think this is bad, wait until you retire and you find that you have nothing to support yourself during your sunset years. My only plea to all those people who belong to this Generation is, even though the economy has not been so rosy the last couple of years, and it doesn’t appear like it will be any time soon, it’s too early to throw your life away. And as the following article by CNBC points out, it’s not too late to start planning for your retirement.

As kids, they sat on gas lines in the backs of their parents’ cars. As young adults, they saw the stock market crash, and when it finally came time to settle down, they bought a house at the peak of the housing bubble and then were faced with the worst economy since the Great Depression. It’s no shock that Generation X – those born from 1965 to 1981 – may get short-changed in their golden years.

Though they’ve watched parents and grandparents nestled with pensions, Social Security and strong economic growth, these are no longer guarantees. On the other hand, longer life spans with more medical bills and greater need for cash are the reality for many.

Gen X is the first generation to deal with the fact that the models of American retirement are changing – and its members are flustered. The generation once called “slackers” has been true to form with retirement planning.

“Gen X is a transition generation,” says Carol O’Rourke, a certified financial planner and Executive Director for the Coalition for Debtor Education in New York City. “Gen Xers were young during the tech bubble, and when they came of age, housing was a lot more expensive. With all the talk about whether Social Security is going to survive, there is a sense of not having something to look forward to.”

According to a 2012 Insured Retirement Institute , IRI, report, only one-third of Gen Xers are “very confident” about having enough money to live comfortably during retirement, cover their medical expenses, and pay for their children’s higher education.

Just 41 percent of the group have tried to figure out how much money they will ultimately need to save for retirement, and among those who have saved, half have amassed less than $100,000.

“Even though they have a longer time horizon toward retirement, there has been a tremendous emotional impact on their confidence in the future. What are they going to do to be sure that they have enough?” adds Cathy Weatherford, IRI president and CEO.

Along the same lines, a November 2011 report from the Guardian Life Insurance Company found 82 percent of Xers believe the economy is headed in the wrong direction.

Skepticism is one of the defining X characteristics, says Robert Wendover, managing director at the Center for Generational Studies in Littleton, Colo.

“Many of the institutions that they were taught as children didn’t play out, whether it was political or social or economic. They just kind of unraveled for a variety of reasons,” says Wendover.

With the complexity of financial products on the market, Xers are not investing like other generations because they can’t find advice, say experts.

O’Rourke points out that, “while you used to be able to start small, private banks these days are looking for large clients and you need something like $250,000 to open an account.” Though Xers might be comfortable with online banking, they’re not the type to invest in the Internet.

Gen Xers have been burned and are more hesitant, agrees Shalyn Courtenay, a Senior Associate at a Cambium, a full service financial advisory firm in Purchase, NY. In some cases, Courtenay encourages clients to put money in the stock market, but frequently suggests annuity products and cash value whole life insurance that provide guarantees.

The IRI study also revealed that during the recession, 15 percent of Xers made early withdrawals from their 401(k) plans, 23 percent stopped contributing to their retirement accounts, and 22 percent stopped contributing to college savings plans.

“The leakage out of their 401(k)s to meet current needs is what is most worrisome,” adds Weatherford.

“Tapping into retirement accounts is expensive,” agrees Courtenay, who is quick to remind clients that everyone should have emergency liquid funds, such as a money market account.

On the job front, Xers may not be in the executive level jobs that they hoped for because the Baby Boomers are working longer.

“It delays the natural promotion and succession process within in many firms,” Wendover points out.

The X gang is also the first generation to have worked for multiple employers and is likely to have between three and six 401(k)s. Courtenay encourages Xers “to roll them in one well-managed, well-diversified account.”

Employers are also providing less retirement support. According to the Bureau of Labor Statistics, in 1981, 84 percent of all U.S. workers in the private sector had access to defined benefit pension plans. In March of 2011.the number was down to 20 percent.

Unlike Boomers, many of whom have profited nicely from two-plus decades of housing-price appreciate and can think of their home as a cash cow, Xers may be the first generation since the one of the Great Depression to not realize gains in wealth.

Home ownership in the X demographic is also down. The Census Bureau reports that in the first quarter of 2005, 70 percent of older Xers (ages 35 to 44) owned homes. In the fourth quarter of 2011, it had fallen to 62 percent. Among younger Xers (under 35), it dropped from 43 to 38 percent in the same time period.

The elephant in the room, however, is Social Security . An American institution since the 1930s, there will almost certainly be modifications that will apply to the X generation, say experts.

It’s possible that SSI benefits will be taxed more heavily, particularly for upper-income earners. Younger people will probably have to pay more in Medicare , and because of stress to the system, it is almost a foregone conclusion that the retirement age will gradually be lifted for those under 55.

“One of the biggest mistakes that people make when planning for retirement is they underestimate health and long-term care costs,” says AARP’s VP for Financial Security Jean Setzfand.

According to a February 2012 AARP report, half of all Medicare beneficiaries pay at least $3,138 in out-of-pocket costs, amounting to 17 percent of their income. Nearly two-thirds of Americans 65 and older will need long-term care at home, through adult day health care or in an assisted-living facility.

The IRI report cited 64 as the average age at which Xers thought they’d retire. A longer horizon for sure, but if they don’t step it up, Gen X may be in the trenches a lot longer.

10 Overlooked Retirement Tips

Good Day,

When we talk about retirement, what most people talk about is basically the retirement portfolio, the expected life of the would-be retiree and the performance of the portfolio in terms of returns. But there is more to retirement than the financial perspective of it, there are certain facts or things that are equally important. Take for example, the percentage withdrawal rate from your portfolio plan, on numerous occasions we are advised that a specific rate is ideal, but what you need to do that will preserve your capital is adjusting that rate to reflect the change in your circumstances. Life is full of surprises, and the trick is making sure that you are not caught off-guard. There are often a number of retirement tips that often overlooked by most financial experts, and the following article articulates some the things that you should take into consideration.

The best way to save for retirement is to follow the usual advice: save more, work longer, delay Social Security and so on. But experts also say there are many little-known retirement tips worth following, too. Here’s a look at 10 such tips that advisers say you shouldn’t overlook.

1. Forget ‘The Number’

You are more than welcome to go about your life worrying whether you’ve saved enough—say $1 million or $2 million—to retire. But that’s not the number you should focus on, said Wade Pfau, an economics professor at the National Graduate Institute for Public Policies in Japan and a frequent blogger on retirement issues. “There is no such thing as a specific wealth number that will suddenly allow you to retire,” Pfau said. “The income stream your wealth can support matters much more than how much wealth you have. The income stream supportable by a given amount of wealth varies with interest rates and other factors.”

2. Don’t rely too much on the 4% rule

Speaking of income, David Blanchett, a research consultant at Morningstar Investment Management, said taking out 4% from your retirement accounts might be a good starting place for an initial withdrawal rate. “But revisit this withdrawal amount regularly, ideally on an annual basis, to make sure whatever the target income goal is still achievable,” he said.

3. Think tax-efficient income

Think also about the tax efficiency of your retirement income, Blanchett said. Dividends, for instance, can be far more tax-efficient than bonds from an after-tax income perspective if they are qualified, that is, taxed at a maximum rate 15% vs. 35% for ordinary income. That’s yet another reason to hold them in an after-tax account.

But don’t think only about generating tax-efficient income in retirement. Consider your withdrawal strategy from a “happiness” perspective. “Ignoring required minimum distributions rules, common tax wisdom suggests drawing from taxable accounts first, then a Traditional IRA, and finally from a Roth IRA,” Blanchett said. “I think this makes sense and can definitely increase the available income, but it’s also important to have some ‘tax diversification’ with respect to withdrawal moneys.”

4. Social Security is a household decision

For married couples, research the various ways spouses can take Social Security, said Pfau. “The week spent studying this matter could result in hundreds of thousands of dollars worth of extra lifetime Social Security benefits,” he said, noting that it’s not usually a good idea for both spouses to begin Social Security as early as possible.

5. Asset allocation matters

Consider, too, which accounts house which investments. Blanchett refers to this “asset location,” the tax-efficient placement of your investments. “Retirees typically transition to more conservative portfolios, and it makes sense to try and keep as most bond moneys—as reasonable—in a tax-deferred account such as a Roth IRA or traditional IRA to minimize taxes,” Blanchett said.

6. ‘Through,’ not ‘to’ retirement

Make your investments work “through” retirement, not just up to retirement, Blanchett said. Start to transition your portfolio before retirement and avoid making the largest shifts at retirement. Blanchett also recommends meeting with a financial adviser who can help transition your portfolio for retirement.

7. Get multiple quotes

Get multiple quotes before buying any product or anything that involves a commission. That’s especially so because many products designed to produce income in retirement will typically “lock up” the retiree’s money with a surrender penalty or charge, Blanchett said.

8. Plan for a long life

Life expectancy to age 75 is for someone just born. But it’s not for someone who is 65 years old, said Blanchett. In fact, according to the Society of Actuaries 2000 Annuity Table there is a 17% chance a male age 65 will live to age 95 there’s a 23% a female age 65 will live to age 95, and there’s a 36% that either member of the joint couple will live to age 95.

9. What’s the point?

When thinking about your income, or your long life, think also about the end game. “You’ll need goals in retirement,” said Andrea Bulen, a financial planner with Paula Hogan. “Retirement is not necessarily an end, but a beginning. Set those goals and plan out what you will need to do to achieve them. Is your retirement income sufficient to meet those goals?”

Also, consider how you will change your lifestyle in retirement, not just from a monetary perspective, but what will your day-to-day life feel like? “What would an ideal week in retirement look like?,” Bulen asked. “What will an ideal week in retirement look like for your spouse? Are those weeks compatible?”

10. Control those fears

Plenty of spouses go through life not talking about sex. They also go through life not talking about their fears about retirement, according to Bulen. Do you or your spouse have fears about retirement that you haven’t discussed? If so, start talking about them before it’s too late.

10 Must-Have Retirement Needs

Good Day,

With each passing hour, day, month and year, you edge closer to your retirement, and every decision you make along the way will determine the kind of retirement you’ll have. So your decisions better be wise, even in tough economic environment, like the one we are in right now. As human beings we have this tendency of procrastinating important decisions to a later date, not knowing that we are only compounding the situation, because it will probably be twice as big or require twice the effort to solve later on. As we embark on life’s journey, we always have a vision of the kind of life we want, but few of us do what it takes to have that kind of lifestyle. Take the example of retirement, we want the best money has to offer, but few ever make the effort and commitment to accumulate enough assets that will ensure that kind of lifestyle. But a successful retirement is more than accumulating assets, because you will need more than money to enjoy retirement. Family and friends, physical health, hobbies are just a few things that will mean a lot in your retirement, and there are other issues that you’ll need to pay attention to as explained by Philip Moeller in the following article on the 10 must-have retirement needs.

Each day brings new challenges that threaten us, and the Internet often resembles an enormous social megaphone with the volume cranked all the way up. So it’s understandably hard to square this persistent outpouring of threats and unhappiness with the reality that the inhabitants of planet earth are living longer than ever before and inflicting less physical violence on one another. What if, God forbid, these turn out to be the best of times?

So it is with the torrent of negative retirement news. Bad as things often look, people will continue to retire, and many of them will enjoy terrific lives in their later years. They will join millions of other Americans who have managed to do the same. What are their secrets? Here, culled from research studies and retirement experts, are 10 essentials for a successful retirement.

1. Planning.

Successful retirements rarely happen by accident. They require planning, and it should begin well before retirement begins. Younger people do not need to have any detailed plan for their later years. Heck, many probably don’t know what they’ll be doing next year. But they should set up tax-favored retirement investments, contribute enough to trigger the top employer match, and place their money in stable and safe investments. Older people should begin in their 50s to ask questions about the adequacy of their retirement funds. They also should attack some of the big retirement issues: where they want to live, how they want to spend their time, and the like. At whatever age retirement becomes financially viable or physically necessary, they should have a more detailed plan and ways to achieve it.

2. Budgeting.

Most people overestimate their retirement income and underestimate their retirement expenses. Well before the regular paychecks stop, many successful retirees will have taken a hard-nosed look at their retirement income and expense needs. Expense budgeting is crucial. Once the income and expense sides of your personal ledger have been completed, you can see if there’s a gap that needs to be closed. Most likely, it will be closed by trimming expenses. Many experts say it’s a good idea to look at your locked-in sources of retirement income–Social Security and traditional pensions–and match this amount to your fixed expenses: mortgage, utilities, insurance, fixed debt payments, operating expenses for your car, and basic household costs for food and other necessities. Then, look at the likely income stream from your investments and use those funds for discretionary spending on vacations, restaurants, and the like. This way, if returns on your investments don’t fare as well as you thought, you won’t have to eat into your investment accounts to pay expenses. When markets recover, you can resume your spending.

3. Homework.

Retirement is many things, but a life of leisure usually must be preceded by a lot of homework. This is particularly true when it comes to healthcare costs. The average 65-year-old couple will spend more than $250,000 on out-of-pocket healthcare during the rest of their lives–the single largest unknown expense for most people. Medicare was complicated enough before health reform was enacted. Now that the U.S. Supreme Court has upheld the law, anyone planning to retire in the next several years should spend time understanding how it will affect them. Other questions you should answer include: how healthy is the economy of the area you’re thinking of choosing for your retirement home; what are the state and local tax rates in that area; what are state estate taxes like; do you have a good approach to spending down your assets in retirement, and what is the best strategy for you about when to begin claiming Social Security benefits?

4. Realism.

None of the planning, budgeting, and homework you do will provide the basis for a successful retirement unless you’re realistic in your assessments and assumptions. Most people, for example, actually retire several years before they earlier said they would. Likewise, they say they will continue to work well past their 65th birthday. Careers do seem to be trending longer since the recession, but there is still a mismatch between plans and actions. Be honest with yourself.

5. Balance.

The key to a lot of good things in life is a sense of balance. Successful retirements involve a good balance between expectations and reality. This doesn’t mean sacrificing your dreams. It does mean road-testing your dreams to see what it would take to make them possible.

6. Health.

No surprise here. Good health is the “knock on wood” wish of every retiree. What’s different today than a generation ago is the widespread recognition that good health is no accident, but the probable result of good diet and exercise habits. These habits need to start now, not when you’re 70 (although it’s never too late to begin). It’s been proven that strenuous exercise, with heavy weights and sweat-inducing cardiovascular workouts, can help even people in their 80s and 90s. Investing in good health is as important as socking money away in retirement accounts.

7. Family and friends.

As people look forward to their later years, the priorities that loom largest tend to be people, not possessions or unshared travel experiences. As with your health, good relations with friends and family members need to be developed and nurtured over time. If there are people you know you want to spend time with when you’re retired, figure out what you need to do today to enhance the odds that you will have the strong bonds you desire in the future. Having honest conversations with children is crucial, especially when it comes to issues surrounding grandchildren. Maybe you want to live close to grandchildren and see them a lot. Do your kids feel the same way? Do they expect you to be constantly on call to be free babysitters? How would you feel about that? Do you expect your kids to be constantly on call to help you out with household chores and errands? Make sure you’re all on the same page before taking important actions you might later regret.

8. Socialization.

Loneliness is a killer for older people. This is especially true for men, who are seen in surveys to have a harder time than women making friends, and tend not to ask for help or reach out to loved ones. If you don’t have a rich circle of family and friends, and aren’t likely to build one before retirement, perhaps a senior community makes sense. Even if you don’t need help due to physical ailments, you might need the structured support that a retirement community can offer. Don’t be in denial on this one. Looking through scrapbooks of old family pictures gets, well, old after a while.

9. Legacy.

People who are happy in retirement have frequently taken care of major life decisions rather than leaving them to some future date. Uncertainty is stressful, and stress should not be a sought-after condition at any stage in life, and especially not in retirement. Questions about passing on wealth and possessions should be decided when you’re healthy, and should be discussed with family members and other loved ones. Maybe your daughter doesn’t really want your wedding china. That doesn’t mean she’s a bad person. Maybe you think leaving college money for grandchildren is a great idea. But you should discuss it with your kids. If you trust your children, perhaps they should control these funds. Where do you want to be buried when you die, or do you even want to be buried? If you’re married, do you and your spouse agree on these matters? These are discussions you should have.

10. Acceptance.

With due apologies for being presumptuous, let me suggest that we all have made many, many mistakes by the time we retire. Often, the people we’d view as the most successful are the hardest on themselves as they approach and enter retirement. Maybe it’s workplace failures. Or personal relationships. Often, it’s the quality of parenting. Whatever it may be, carrying this baggage around with you during retirement is a heavy, heavy burden. It’s nearly impossible to win the blame game. And if you also play the comparison game, you can always find someone who did things better than you. You may need professional help with this, but forgiving yourself for being human can be a liberating act as you approach retirement, and your later years.

8 Building Blocks for a Solid Retirement

Good Day,

It seems life is getting difficult with each passing day, and most experts, financial and economists alike, are all in agreement that things are going to get worse before they get better, and start witnessing any improvement in the general economic indicators. As the saying goes, the fat lady is about to sing her masterpiece, so better hold on. In these harsh economic environment, the only thing that seems to occupy most people’s mind is how to survive one day at a time, and to be honest, I can’t place any blame on anyone considering the state of the economy. But as another saying goes, there is a season for everything, and I know you can’t wait for this season to be over, but believe me it will pass. Thus, one thing that you should have in mind is what next after this is over. Most of us are not preparing for the aftermath, and we might face another financial crisis of our own, since most people are not planning for retirement. It’s probably not on your priority list right now, to be exact it’s not a priority for most Americans, but one day it will come back to haunt us, since the regular income will have to be replaced with another source of income. So as you contemplate your retirement, consider the following article by Philip Moeller on the eight building blocks for a solid retirement.

Retirement planning can be a complex and daunting task. People with small nest eggs are particularly at risk. Their retirement hopes, modest to begin with, have taken a serious beating in recent years. And no one is predicting a return to happier days anytime soon.

When times are tough, however, is exactly when long-term planning and money management skills are most needed. For anyone seeking a structured approach to retirement issues, is worth a visit. It was developed by the National Endowment for Financial Education (NEFE) in partnership with many leading retirement experts.

The site divides retirement issues into eight topics that can have a major impact on how much money is available for retirement: debt, fraud, home and mortgage, insurance, pensions, retirement assets, Social Security, and work. It then explains the major issues in each category and adds some valuable insights about the linkages among the eight categories.

One simple example would be the possible effects of delaying retirement and continuing to work for two or three more years. This decision could permit someone to delay taking Social Security, and each year of delay between the ages of 62 and 70 raises benefits by about 8 percent a year. Such a delay can also keep employer-supported health insurance in place, add to retirement plan assets, increase the size of any retirement pension, and reduce the number of years that a person’s retirement assets would need to help fund his or her retirement.

The foundation developed MyRetirementPaycheck to help provide basic retirement facts, not to permit sophisticated retirement modeling scenarios. “One of the key pillars of financial security is managing retirement income,” says Brent Neiser, NEFE’s senior director of strategic programs and alliances. “Understanding post-employment financial strategies is more important than ever.” Since the recession, he adds, “people seem to grasp the importance of planning for the future and are taking it more seriously.”

The theme of MyRetirementPaycheck is to help people think about putting together a retirement approach that can generate regular payouts that will cover their expenses and provide a stable and secure flow of income in retirement. “It helps people to think about the right questions to ask,” Neiser says, and to understand the links between most retirement decisions.

While helping people think about building a retirement paycheck is a main focus of the site, it does not try to generate specific retirement income numbers. “We purposefully did not design this to come up with a number,” Neiser says. NEFE’s expert advisers were concerned that consumers who have not saved enough or built solid retirement plans–and that describes most Americans–would be discouraged, if a quantitative tool told them they needed to build a nest egg that seemed unrealistically large.

NEFE and other experts have noted that most of the advice and emphasis in retirement planning is devoted to asset accumulation–saving and building a nest egg. There is relatively little attention paid to what’s called decumulation, the process of spending down assets to generate retirement income.

Here is NEFE’s top-level advice for the eight retirement topics:


To maintain a predictable cash flow in your retirement years, make every effort to pay off your consumer and credit card debt before you retire, and don’t borrow money during retirement unless you know precisely how you’ll pay it back. Consider the 10 years before retirement as your “debt-reduction” decade.


You’ve worked hard building up retirement assets. Now you need to protect them. Older Americans, even those who are experienced with investing and are financially literate, are highly targeted by scammers, misleading advertising, and fraud, so be on guard. Make no money decisions quickly, and never without getting a second or third opinion from people you trust. If it sounds too good to be true, it almost always is.

Home and mortgage

A house may be your biggest asset, but be careful about viewing the value of your house as if it were a retirement plan. Even if the decline in home values has stopped where you live, the past five years have shown the dangers of counting too much on home equity for retirement funds.


Your retirement spending plan is not complete until you know how you will pay for medical and long-term care needs. Insurance companies sell many forms of annuities. Putting at least part of your retirement savings into an immediate fixed annuity that will give you a monthly payment for the rest of your life creates a regular source of income.


Your employer pension is an annuity that gives you a steady “paycheck” for your retirement. Even when you’re retired, saving some of your pension benefits is a good way to protect yourself from inflation, and ensure you have enough money for your later years.

Retirement assets

You do not know whether your retirement will last less than 10 years or more than 40 years. To be prepared for reaching advanced age, continue saving and making wise investments even during your retirement. At retirement, most retirees still need to invest in diversified assets that may need to generate income for decades.

Social Security

Taking Social Security payments too early means receiving less money each month than you would receive if you waited for even a few years. If at all possible, do not begin taking Social Security until you are at least your full retirement age [66 for people now nearing retirement]. If you take Social Security benefits at age 62, your benefit will be approximately 25 to 30 percent less than if you have waited until your full retirement age. For an even bigger benefit, wait until age 70, when your payment will be 75 percent higher than if you started taking benefits at 62.


If you are healthy, aim to work at least until your full retirement age. It produces many benefits, including prolonging any healthcare coverage you have, building your retirement assets, and increasing your ability to reduce debt.

Turn saving into a habit

Good Day,

I know, you had promised yourself that you’ll start saving one day, but before you know, that day has turned into a few months and soon after, the year is over. To show just how serious you’re with saving, it becomes a priority with your New Year’s resolutions, but a few issues here and there derail you again, and another year goes down the drain and with it, your hopes and dreams. Saving is not that difficult, the first step is usually the hardest and there after that, it starts running on auto pilot. Once it becomes routine, you’ll accomplish your financial goals sooner than you think, and before you know it, your finances will start behaving in a predictable manner. So make a life changing decision today, that you are going to turn saving into a habit, and as the following article by Carla Fried, Anne C. Lee, Elaine Pofeldt, Susie Poppick and Penelope Wang demonstrates, your net worth is bound to increase.

Regular saving is one of the surest ways to increase your net worth. This is part of a special report on 101+ ways to build wealth. In this story, readers and experts weigh in with advice for significantly boosting your savings.

Stick to a budget for just a month.

A Canadian study found that people who stuck to a budget had higher net worth than those who didn’t have one or had one they didn’t follow.

Know you can’t commit to a lifetime of constraint? Financial planner Sean Dowling of Stamford, Conn., suggests focusing on your biggest spending problem area, and tracking it with Quicken for just a single month.

Then set an attainable goal for the following month — like one latte out for every two drip coffees at home.

Then bump up savings for the next three.

Studies show that it takes about 66 days for repeated behaviors to become habits.

So tell yourself you’re going to try to bank your latte savings for three months or so to see if you can manage without the cash, leaving yourself the option to reevaluate once the trial run is over.

“Most people find that their budget naturally adjusts,” says T. Rowe Price Investment Services financial planner Stuart Ritter.

Restore equilibrium regularly.

A Vanguard study spanning 1989 to 2009 showed that regularly rebalancing a portfolio to target stock and bond allocations increased returns, on average, by 0.5%. To get similar results, rebalance when your target allocation strays more than 10%. The reason it works is classic: You’re essentially buying low and selling high.

Hammer the message home.

A 2010 study showed that people who received monthly text messages from their bank about their savings goals put away 6% more than those who didn’t. For savings above what you’ve automated, set up alerts on your phone.

Readers weigh in: Pay the mortgage, even after it’s erased.

“When we paid off our home, I opened a new savings account, and every month since, I have deposited the same amount into it that I used to use to pay the mortgage. Now we have $20,000 in the account.” — Nona Cervenka, Chicago

Find a carrot … or a stick.

Dean Karlan, an econ professor at Yale, has found that commitment contracts help people stay on track to reach their savings goals.

So enlist a buddy to hold you accountable, and allow yourself rewards (say, a massage) for successes along the way.

Or, if the carrot approach doesn’t do it for you, use You input your goals and authorize the site to charge a certain amount to your credit card — then send it to a person or organization of your choice, like a political candidate you hate — if you fail to hit your target.

Put away your raises.

Each time you get a bump up in your salary, dedicate a portion of that extra pay — say, half — to increasing retirement contributions or other savings.

If a 35-year-old starts out saving 6% of his income for retirement and then puts half of his 3%-a-year raises toward his 401(k) for the next five years, he’d be at a 15% annual contribution rate at the end of that period, assuming he also gets a 3% company match. That rate would allow the saver to maintain his lifestyle over a 30-year retirement — even if he went on shopping sprees with all his subsequent raises.

Auto-escalate your 401(k).

Don’t count on your good intentions to put that raise away. Some 40% of plans let participants set retirement contributions to increase annually, reports Aon Hewitt; take advantage!

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