THE ENTERPRISE
RETIREMENT?
This edition will be a day late since I've been in Florida for a little R & R. You can't go to Florida without thinking about retirement and retirees. Thus, I decided to make that the topic of this edition of THE ENTERPRISE (largely written while sitting at a Starbucks near Sandestin, FL.)
I am often asked if I am retired. My answer is "nope, not yet," and I probably won't ever be completely "retired," as long as my mind and body will cooperate. The answer I've heard to the question about retirement was someone who said, "Why should I stop doing what I love to do?" In my case, I'm not that good at golf. Wear and tear on my knees and neck (spine) precludes the more vigorous sports like basketball, softball, tennis, etc. except on an occasional basis. I hate fishing and hunting--tried both before. I am fully qualified as a "couch potato," but that seems to be less than a satisfying outlet for intellectual energy, and certainly doesn't help with physical fitness.
WHAT TO DO?
What does that leave? Bicycling and walking are both great outlets that make me more fit and give me still more time to think. And I can do either (or both) alone or with my wife...and others. Travel to interesting places, while it can be expensive, is also great fun. And then there are the children and grandchildren's activities, which are also great fun. Movies, sports and "documentaries" (Like the Discovery Channel's Planet Earth) are great too, especially on a big screen High Definition TV. Then come my great loves, writing, reading, and music. I may even go back to painting (watercolor pictures, not walls) or even resuming my quest to learn how to play the piano and make recognizable music. (My father was a great professional musician--there must be some musical genes in me somewhere!:-)
I'M NOT VERY RETIRED, OR RETIRING!
Thus, with four sizable company boards and two small ones, plus a couple of clients for advisory help, and a new book (still) at the publisher, I guess I am not very retired. I'd enjoy another board spot, if it was the right kind of company. But, I am also thinking about the economics of when I must live off my accumulated assets, Pensions and Social Security. So should you—whatever your age and financial situation.
HOW ARE YOU THINKING ABOUT RETIREMENT?
With that preamble, what are you thinking of retirement as meaning to you? Is it an elusive goal; a mirage? Is the term an obsolete artifact of an era when work was so debilitating that people were "used up" physically, if not mentally, by the time they reached their fifties and sixties? Nowadays, many say that people aged 65 are more like 50-year-olds of a few decades ago. And soon, we will have more 65-year-olds than you can imagine. We are facing an era when the greatest population surge in our country's history is just starting. For the next 20+ years, about 4 million+/- people will turn 60 and grapple with the questions I pondered in the first three paragraphs.
WHAT ARE "WE" FACING?
As this wave of "baby boomers" move into their "retirement years," will Social Security have enough money, and will Medicare stay solvent? The answers for the next 25 years are "probably Yes" and "probably Not." The bigger question is, "How are you providing for your retirement years?" Or are you, at all?
STATISTICS
Just in case you are wondering if you are better or worse off than average, and whether you will be ready for retirement (the "end of earned income" is perhaps a better way to describe it). Consider these stats:
--63% of Americans aged 50-59 said they were concerned about not having enough money in retirement. That's a high percentage.
--1/3 of workers aged 55 and over have less than $25,000 set aside for retirement. That's scary.
--1/3 of workers aged 45 and over are not saving anything for retirement. That's even scarier, because they still have time to accumulate a retirement nest egg.
--Health care costs are a huge issue: the Employment Benefit Research Institute (EBRI) estimated that a couple retiring in 2006 and living to normal life expectancy would need $295,000 to cover post-retirement health care costs and premiums for insurance (not including Long Term Care Insurance).
--The average cost of an assisted-living retirement center is now $35,000/year, and since that's an average, some places are much more expensive.
--Nursing home care can easily cost over $75,000/year, not including medical costs.
AGE MATTERS, BUT NO MATTER YOUR AGE, WHAT ARE YOU DOING?
Compound interest is a wonderful thing, if only you set aside some money and invest it wisely, then keep adding to it as it grows. The government has provided several tax-protected ways for you to set money aside: IRAs (Individual Retirement Accounts) and 401(k)s (employer sponsored retirement funds) are the two most common. Putting money into them is easy, painless and efficient, since it comes out of your "pre-tax" income, and can usually be deducted from your paycheck and direct deposited by an employer. If your employer offers a "match" on the 401(k) fund, maximize your congtributions up to the amount the employer matches. (e.g., Many employers will either match 1/2 or more of what you set aside up to about 5% of your earnings.) Take advantage of this--it's 'free money."
INVEST WISELY--BUT DON'T THINK YOU CAN "OUTGUESS THE MARKET"--YOU CAN'T
You will have to make investment decisions on where to invest the money, but the only advice I have is don't invest it in the stock of your employer. You already depend on the employer for your income, and probably have some other benefits tied into employment, so a different investment will diversify your risk. If you are younger (under 40) you can afford going into a higher risk investment like a "Growth Mutual Fund" (example Vanguard Primecap or Capital Opportunity) a broad market Index fund (Most fund companies offer Total Stock Market index funds) If you are over 40, I'd suggest using a "Balanced Fund" (Vanguard Wellington is a good example) which won't pay as much on the upside but will protect the downside. Bonds are safe, but historical returns are considerably lower than stocks. (And don't bury the money in the backyard, because inflation will make it worth lots less when you dig it up to spend it.)
RETIREMENT PLANNING
I am not a retirement planner, nor a financial planner. I know a couple of people who are, and I have recently been going through such a process. There are a few important questions you need to answer as part of the process.
---How much is enough—i total accumulated assets and annual living expenses those assets will fund? If you don't know, now it the time to figure it out, regardless of whether you are 35, 45, 55, or 65.
---How fast can you withdraw money to live on and how will that deplete your accumulated wealth? (and what are the tax implications of how you do it?) This is a critical determination to make.
---What assumptions are your plans based upon? What inflation rate to assume for living expenses? ---What investment returns have you assumed for your assets? How long will you live, and how long do your funds have to last?
---Where to find help? There are lots of places, and multiple levels of help depending on how much you need, and what level of expertise you can afford.
(For those in Columbus/Central OH or the Greater Cleveland/Akron/Canton, OH Areas, I can make a couple of good recommendations--just email me and ask.)
DON'T GET LOOSE WITH RETIREMENT MONEY--KIDS CAN ALWAYS USE IT--BUT IT'S HARD TO REPLACE
A couple of thoughts as you consider these issues. It is always tempting to "help the kids," but proceed with caution. Their need ... or your love for them... might cloud your judgement about the economics of such a decision. Unless the kids are willing to accept the financial responsibility for you in your later years, first make sure you have "enough," before you start passing it out for their needs, or (worse) for their "wishes and wants."
A WHOLE GENERATION OF AMERICANS MOVING ON--LARGELY UNDER-FUNDED
This is the greatest wave of demographics our country has ever seem, moving out of the productive, job-holding parts of its life and into a resource consuming part the its life. Companies will be shocked once it hits them. The loss of legacy knowledge will be huge. The loss of skills will be great. And too few companies think of it this way. Rather they view it as a convenient way to "down-size" and cut payroll costs. But that sword has two edges and can cut deeply.
A HUGE LEGISLATIVE AND ENTITLEMENTS ISSUE
This sea change of demographics is also an issue for government. The Federal Government is facing a marginal funding status in Social Security (probably OK until 2035-2040+/-) but with far too few workers paying into a fund for the number of retirees drawing from the fund. When you do your retirement plans, assume that Social Security will still be around, but that the retirement age must go up, benefits will likely be reduced, and offsets for "means" (wealth/earnings) will be more common. Medicare is worse off. It is inadequately funded, and will faces disaster in just a decade or two. Premium costs will jump a lot. Coverages will be reduced, too. Beware: those covered by Government Pension plans are also at risk, as many of them are also under-funded.
A BIG ISSUE FOR EMPLOYERS, TOO
Employers have noticed all of these issues; the more perceptive ones see the magnitude and are rightly concerned. Most pension plans are moving or have already moved from defined benefit plans (a guaranteed amount of money per time period) to defined contribution plans (the company will set aside a fixed amount of money...and it just will "cover what it covers"). Many pension plans are being cut entirely, replaced by 401(k) plans which are largely funded by the employee's own earnings and contributions, with a small matching portion from the company. Retiree health care insurance plans are being cut even more often and eliminated in most cases. The era of "cradle to grave" economic security on the company's money is over.
FAILING TO PLAN = PLANNING TO FAIL
Regardless of your age, you MUST start planning now. Use any of the many retirement planning systems or planners, or even a simplistic set of rules. For example, here is a simple set of rules: 1) you will need at least 75% of your current earnings as retirement income; 2) calculate what that is in $/year; 3) multiply that amount times 20—that is THE LEAST you should consider having put away for retirement when you retire. 4) Subtract what you have set aside now. The difference is how much you must accumulate over the remaining years between your current age and the age at which you hope to retire. 5) Divide by that number of years, and see how much you must save per year to get to your 20X number. I bet it's a lot bigger number than you expected.
NOTE: The calculations behind this simplistic approach sort of ignore inflation and also ignore the compound earnings on your savings and assets—by assuming they'll balance each other out. it isn't precise, but it's a good, conservative place to start. You can refine it by using those "calculators" from the Internet to do the math more rigorously. Just Google "Retirement calculator" and check a few. But remember, if you want something to live on when you are older and no longer earning, you must save it when you are younger and earning/--there is no "magic" to this; just common sense.
START NOW, NO MATTER HOW YOUNG OR OLD YOU ARE
Most of those reading this know almost everything in it. A few will find some interesting things they may have forgotten. No matter. If only one or two people get the message and it helps them, this will have been worth it. After all, if you work most of your life, wouldn't it be nice to be able to enjoy your "golden years" at a decent standard of living? I think so.
Best, John
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