by Peter Kinzler
For most people approaching 60, the question arises, “When should I retire?” (assuming you haven’t already been retired involuntarily). That question invariably leads to a slew of other questions, such as “Do I have enough money to retire on?” and its corollary, “Will I be able to afford to eat anything other than liverwurst in retirement (and what is liverwurst anyway)?”
As I was approaching retirement in 2010, I sat down and tried to figure out what questions, both practical and aspirational, I needed to answer to have a rewarding retirement. I then discussed my initial questions with my wife, with friends who have worked in the financial and retirement fields for a living, and with the members of our couples book club (trust me, it was more fun to do than reading and discussing our previous book, Dante’s Inferno). Based on these discussions, and six years of experience, here are 20 common questions most people will face in retirement – and what you might learn from my experience.
- What triggers recognition that your life has an expiration date? Early in life, you probably believed that you had endless time to realize your dreams, that there were many next chapters. If you had thought about running for public office (an admirable, even admired, goal until recent years), you had probably given up the idea long ago (unlike candidates for the U.S. Senate and the presidency). At some point, usually around 60, most people realize that the next chapter of their life will be the last one, that life is now finite.
For me, the trigger was not so much reaching my mid-60s, but realizing that the next roof we put on the house would be the last one we would ever need. A 50th high school reunion with a bunch of old people didn’t help any either.
- When should you retire? Once you realize that your life has an expiration date (and have recovered from the panic attack), you will probably start thinking about when to retire. This is particularly true if you have found that your job is no longer stimulating or that your employer is looking to younger people to do the work you used to do. Of course, in America today, it is highly likely that you will have been moved to consulting long before this issue arises. Knowing that you have only so much time left, are there things you’d rather be doing?
- Do you have enough money to retire? The best time to address this question is actually before you retire, so you can do something about it if the answer is “no.” You may be surprised at how much you need to maintain your current lifestyle. Financial experts historically suggested, as a rule of thumb, that you needed to generate 70 - 80% of your pre-retirement income for a comfortable retirement. Now, many experts are suggesting that you will need closer to 100 percent, at least during the early years of retirement (typically for travel). The AARP’s retirement calculator is a good tool to see how you are doing, and the Employee Benefit Retirement Institute (EBRI) is also an excellent resource. Unfortunately, most Americans are not saving nearly enough for a comfortable retirement. For example, a Federal Reserve Board study found that, as of 2013, the median retirement account balance among all households ages 55 to 64 was only $14,500.
Of course, your savings are only one component of retirement savings. It dawned on me very late in the day that the income (and potential savings) I had sacrificed by working for the federal government were substantially offset by a generous defined benefit pension plan. And, importantly, my pension is indexed for inflation. If you are in the category of those who have not saved enough, taking into account all sources of retirement income (Social Security, pensions and a reasonable return on your investments), the next section offers some ways to enhance your retirement savings.
- What can you do if you haven’t saved enough money? For those who have not saved enough (including my daughter, whose retirement plan to win the lottery has yet to materialize), the AARP and EBRI websites offer strategies to increase your savings, ranging from the obvious, such as save more and work longer (it not only gives you more time to save more, it reduces the number of years you need to save for), to the less obvious, such as not taking Social Security until you are 70. You are eligible to take a reduced Social Security annuity at 62. If you delay until 70, however, you get a 76% increase in your benefit. The benefit is also substantial, 32%, if you wait until 70 instead of taking your annuity at the “full retirement” age of 66.
In my case, the stock market crash in 2008 significantly reduced my savings. Fortunately, I had not retired yet, so I was able to make back much of what I had lost by working two years longer than I had planned to.
- How will you make your money last? Devising a sound investment strategy. The first half of the answer, like the asset side of a balance sheet, lies in devising a good investment strategy. With the near disappearance of defined benefit plans, you will need such a strategy to make sure your money lasts. You will be bombarded with advice from friends and investment advisors or financial planners. The latter may or may not have your best interests at heart; they will always have their best interests in mind.
When I retired from the government and moved into the private sector, I had some money to invest for the first time. Following the recommendation of my business partner, I hired an investment advisor. I told her I was a conservative investor; that I was willing to trade some upside gain in return for protection against significant downside losses. She told me the answer was diversification, investing in growth and value stocks, in small cap, mid-cap and large cap stocks, in the U.S. market and foreign markets, and on and on. It was enough to make my head spin, and to turn the job over to her.
From 1995 – 2000, during the long bull market, my advisor did a terrific job of protecting me from outsized gains, with returns that were well below the averages of the various stock market indexes. When the markets crashed in 2000, it turned out that she was not nearly so good at protecting me from significant losses.
So, I took my losses, ditched my advisor (whose jewelry collection had improved substantially over the years), and set out to find a better path. I turned to my friend and co-worker in efforts to reform the nation’s auto insurance system, Andrew Tobias. Andy, one of the most highly respected – and amusing – financial writers, responded that I obviously had been spending too much time being a good consumer advocate and had neglected to read his book, modestly titled “The Only Investment Guide You’ll Ever Need.” What I learned, belatedly, did not increase my confidence in professional advisors:
- In one experiment, a monkey with a handful of darts performed about as well at choosing stocks as most highly paid professional money managers.
- Because advisors typically take 1% or more of your funds annually to develop a portfolio for you and often put your money into mutual funds with high expense ratios (the cost of running the fund), they have to beat the broad market indexes by more than the combination of their fee and the funds’ expenses for you to do better investing with them instead of investing in low-cost stock and bond index funds.
Here’s what that can mean in dollars and cents. Assume you have a million dollar portfolio. If you invest it with an advisor who charges a 1% annual investment fee (about average for a million dollar portfolio) and puts your savings into mutual funds with an expense ratio of .7% (again, about average), it will cost you $17,000.00 a year just to get to the starting gate – before you earn a dime. If, instead, you take your million dollars to a firm that specializes in low-cost index funds, such as Vanguard, and have them invest it in their fund that mirrors a broad stock market index, such as the S&P 500, your annual cost would be much lower. Specifically, if you invested it in Vanguard’s 500 Index Fund, your cost would be Vanguard’s expense ratio of .05%, or $500. Vanguard does not charge a separate investment fee for investing in its index funds. The bottom line for you is that your advisor has to beat the S&P 500 by more than $14,500 just for you to break even. To see how likely that is, here is Tobias’ third point.
- A substantial majority of advisors do not beat the broad market indexes each year, and the ones that do in a given year do not necessarily do so the next year. Tobias’ bottom line – most people are better off going to a company like Vanguard and having them design a plan based on investing in low-cost broad market index funds rather than paying a professional to develop a similarly balanced portfolio.
- In one experiment, a monkey with a handful of darts performed about as well at choosing stocks as most highly paid professional money managers.
To me, that makes the most dollars and sense. That doesn’t mean that you can’t find a professional who can do better, just that you should enter any such relationship with your eyes wide open.
Finally, unless you are a professional, you probably shouldn’t even think of trying to pick winners and losers in the stock and bond markets (my stepfather, a very smart man who was a retired cellist from the New York Philharmonic, decided to invest his entire retirement savings in a sure thing and, at age 86, lost all his savings when the sure thing went belly up). So, now most of my money is in stock and bond index funds with Vanguard. I still don’t sleep well during market downturns, but at least I’m not carrying an extra 1.7% cost burden.
- How will you make your money last? Knowing and managing your expenses. This is just the expense side of a balance sheet. You need to know what you are spending before you retire and what you can reasonably expect to be your expenses after you retire. Before I retired, I made an inventory of all my expenses for the previous year (grouping some of them, such as my wife and my monthly allowances to make the task easier). That gave me a realistic starting point. I then modified it for obvious changes in retirement, such as not having to save for retirement and being in a lower tax bracket. While these expenses went down, I discovered others that went up. With more free time on my hands, my wife and I started doing more traveling, and coupon clipping does not pay for trips. I anticipate that our travel expenses will decline, as my wife and I also do so, but this will likely lead to higher medical expenses in the later years. In sum, knowing what your expenses are, and planning for likely increases and decreases in retirement, will help you determine if you have saved enough to retire in the first instance. Then, after you retire, that knowledge will enable you to identify places to save money if your hoped-for investment returns don’t materialize.
- How do you and your spouse share the house? One of the first and most important adjustments you will need to make when you retire is working out an arrangement to share the house. In my generation, most women have already long since retired before their husbands do (In my case, my wife took a “sabbatical” in 1995. She has yet to return to work). Thus, they are used to having the run of the house, listening to the music they choose, the Diane Rehm show or watching reruns of Downton Abbey (or maybe Parking Wars). Suddenly, they are spending 24/7 with a person (you) they haven’t spent that much time with since their honeymoon, and these alien creatures want to watch sports and play with power tools. Of course, if the husband retires first, then the situation and sometimes even the activities can be reversed. My point is simply that the two of you will need to develop a plan to share your living space for this new situation (separate offices make for a good start).
- What will you do with your new-found time? This is another question you should think about before you retire, as it is best if you retire to something instead of from something. For many people – such as those who believe God has a plan for you, those with a certain life style and those with family obligations – there will be a clear path. For others, the number of possibilities is practically limitless. While unanticipated events and interests will invariably arise, you should have a plan, at least of things you want to explore. Many people take the opportunity to do more traveling and to read the books you didn’t have time for while raising kids and working. Many also enjoy the opportunity to slow down. One friend defined a key component of his retirement as getting up three days a week with no schedule. It can also be a time to catch up with old friends from earlier times and to deepen personal relationships with long-time friends. Just having the time to talk with trades people can enrich your life. The point is simply to think about what you want to do before you retire so you have some ideas you’re excited about pursuing.
- If work has been very important, how do you handle not being part of that world? Some people say they just can’t imagine not working. A new boss with her/his own team or a serious illness are just a couple of things that can force you to end your career.
If you’re not ready to disengage completely from work, you might want to consider arranging for part-time work with your former employer, perhaps on a project in your area of expertise and interest. You may also want to retain other parts of the work experience that you enjoyed, such as keeping up with colleagues. Doing so also has the advantage of not requiring your spouse to be your sounding board on every issue (from why none of the candidates would make a good president to who should win “The Voice” and which free agent would be the best fit for the Nationals).
Or you might venture out in a different direction, taking the opportunity to do something you’ve always wanted to do, such as working part-time as a substitute teacher, as a docent or as a mentor to young people. You might also consider going back to school or taking advantage of the plethora of on-line courses.
Then there is the question of what to do with all those files you’ve saved over the years? You know your kids will only throw them away or put them in their attic after you die. One thing you can do with them is write a work memoir, to create a historical record of your experience or simply to get even with all the dunderheads you encountered, including a few less-than-enlightened bosses. If it works out well, you might self-publish a book. In the worst case, you can be pretty sure that future generations of your family will read it. And, once you’re done, you can win serious points with your spouse by throwing the files out or donating them to your college.
- How do you make sense of your life? For many people, retirement gives them the time to contemplate the arc of their lives. You may find yourself thinking about past experiences and relationships, how they are connected and what it all means. Retirees often explore their family genealogy. You may have an ancestor who was a doctor or a tailor (my family, pretty standard stuff). Or you may discover that one of your ancestors fought at the Battle of Hastings in 1066 with William the Conqueror or was King George’s Exchequer in the colonies (my wife’s ancestors, the much greater importance of which was only mildly undercut by discovering that the former was known as “Hugh the Fat” or that the latter almost certainly didn’t cross the Potomac with George Washington). These efforts may lead to a greater sense of integration of your life experience.
- How will you handle the physical limitations that come with aging? One of the mistakes I made was assuming that I, as my father before me, would be able to play tennis into my 70s (straight line assumptions rarely work, with the exception of Secretary of Defense Melvin Laird’s assumption that the Soviet Union would build the same number of SS-9 MIRV missiles well into the future. This reference should end any reader’s assumption that I am really a 20-something year old woman writing under an assumed name). Unfortunately, arthritis caught me by surprise and ended my tennis career before I even reached retirement. I might have anticipated that if I had focused more attention on the fact that both my parents’ had significant arthritis.
Once you start getting intimations of mortality, you will need to decide whether you are going to accept them and adjust, or fight them tooth and wallet. You should exercise and can diet. I caution against expecting too much from dieting, as the human body has innate defenses against such efforts. You may spend a lot of time only to end up frustrated. Remember, you didn’t look like Robert Redford or Elizabeth Taylor when you were young anyway. It’s really just easier to abide by the old saying, “the older I get, the better I was,” and simply tell people you used to look like Redford or Taylor. Then, instead of dieting and getting frustrated, you can choose to die happy at 81 with a milkshake mustache rather than miserable at 81 ½ falling into a tofu burger. Of course, you can choose to go the route of Botox and plastic surgery, but you take the risk of winding up looking like Kenny Rogers (it really is best to know when to fold ‘em).
Regardless of which course you take on these matters, my experience is that people typically make these choices within the context of their personalities. Thus, as my mother lost her hearing, she vainly refused to buy hearing aids, choosing to adopt a beatific smile instead when she could not hear, signaling family members that it was a good time to ask her to pay for dinner. On the other hand, my father chose to purchase hearing aids and, when he had trouble hearing someone, excoriate the other person for not speaking loud enough. Not surprisingly, I do some of both.
- How will you handle any regrets? With time on your hands, you may regret that you never got to be CEO of your company, succeeded Mickey Mantle in center field for the New York Yankees or married the head cheerleader (be she a she or a he, as was the case when I went to Trinity College and when Trent Lott went to Ole Miss). Well, I hate to tell you none of these things will happen when you retire. Besides, the head cheerleader is now as old as you. But it is not too late to mend fences with relatives or to reconnect with old friends you lost touch with because life was too consuming. Reconnecting can be very rewarding.
- How will you deal with being treated as an older person? The rest of the world has an uncanny knack of knowing the minute you retire (surely the remnants of lunch on your shirt or the beige car you drive with dents in the bumpers from where you hit poles in parking lots haven’t given you away). They immediately start offering you their seats on public transportation, asking if you are lost and need directions, and generally treating you as if you were a child. You will need to come up with a strategy to counter these annoying experiences. Just remember, however you decide to respond (with humor or shooting them the bird), don’t go too far because it’s nice to be able to sit down on a bus and sometimes you really will need directions (at least to find your car in the Safeway parking lot).
- How will your relationship with your children change, now that they are grown up and you are beyond grown up? I suspect most parent-child relationships remain fairly static over time (“You will always be my son/daughter”). That may not be the healthiest way to relate to your children. My friend Bob Kuttner and his then-wife Sharland Trotter wrote a book on parent/children relationships, recommending that you develop a new relationship based on the reality that your children are no longer young but are adults with jobs and families of their own. I think this is excellent advice. It also means accepting their choices, whether you would have made the same choices or not. And it is even more important as you age and are likely to need to look to them to assist you in securing services, care and, often, handling your finances. We all fear losing physical and mental capacity but that is a part of life and a strong relationship with one’s children is likely to mean that they will be there to help you handle these challenges.
- What kind of relationship do you want to have with your grandchildren? With more free time, many retirees choose to spend more time with their grandchildren. How much time will depend on such factors as geographic proximity, your relationship with your children and your connection to your grandchildren. Whatever model you choose, it is important to remember that your grandchildren are not your children. The more time you spend with them, the more likely you are to revert to your “parent mode.” But it is not your job to discipline them. If you want to have a good relationship with them, it is best to remember your place. Your role is to bring them age-appropriate treats (ice cream, Iphones, or cars?) and, when they are young, to turn them back over to their parents at the first sign they are getting cranky or over-tired.
- What special things will you leave to your children? Which heirlooms (and non-heirlooms, such as the pottery you made in camp) should you leave to which child? Failing to decide this upfront in writing can result in a very unpleasant experience for your children after your death. It can often leave hard feelings that alienate your children from each other. It is far better to discuss what they want while you are alive and then incorporate those decisions into a specific listing of items for each child. If there are disputes, it is better for you to decide them and explain your decision to your children now than risk having them fight over items after you are gone.
- What do you want to leave your children in terms of knowledge of yourself and their ancestors? Over the years, I have accumulated several folders of still photos of my relatives and I am aware of what many of them did with their lives, although none of them wrote about their lives. Thanks to modern technology, you can do better. You can video an oral history so future generations can see you speaking about your life. In addition, or in the alternative if you are camera-shy, you can write a personal memoir. Regardless of whether you do either of these things, you should leave them a listing of any significant physical or mental family issues so they can make informed decisions in these areas.
- What do you need to do to put your financial affairs in order? It is essential that you not leave your spouse and your children a financial mess. By that, I mean no will and no central accounting of your finances (my grandfather left random dollar bills hidden in his books, along with snippets of paper saying such things as, “Owe Sol $50 for poker losses). Get a lawyer, carefully think out how you want your estate divided (do you divide the assets for your children in equal shares or based on need?) and have your lawyer memorialize your wishes in a will, properly notarized. Should you decide to marry again after your spouse is gone, think carefully about how you want to divide your assets among your new wife and your children, then have your lawyer rewrite your will and draft a pre-nuptial agreement.
Put you papers in order. Assemble information on all of your accounts in one place and let your spouse and children know where that place is. If your information is on your computer, tell them what file(s) it is in and what the user name and passwords are for each separate account. Periodically, you should put that information in a hard copy in a safe deposit box – and tell your family where the box is located and how to get into it. You should also put your will in the safe deposit box and let your family know who your lawyer is.
You also need to assemble easily accessible information on accounts for your phone, television, internet and utility bills, the deed to your house, past tax returns, etc. This is a very big job and only you can do it. Leaving it to the living triples the work – you know where everything is, they do not.
After you have assembled all these documents and determined the division of your private property, you should sit down and discuss these documents with your children. This will probably be a hard conversation for them if they would like to believe in your immortality (if they are looking forward to this conversation, you may want to consider using a food tester at your next Thanksgiving dinner) but they need to know your plans and wishes while you are still clear-minded.
- How will you decide when, if ever, it is time to leave your home? Many retirees pick up and leave for that island paradise or warm Southern city they always enjoyed visiting. Others decide to move into an over-50 retirement community where they can be with others who understand their stage in life and play as much golf and cards as they want to. This time in life presents you with many choices but this is one whose pros and cons you should weigh very carefully before making a decision.
I would suggest you take stock of your present living situation first. Do you have a lot of friends where you live and are many of them likely to stay there? Does your home house wonderful memories associated with all the things you bought on your trips? Are there lots of things that you like to do, such as go to museums, concerts and sporting events? Do you enjoy interacting with younger people? Do you have good hospitals, doctors and experts in different medical fields?
Once you have completed this inventory, identify what you would be looking for in a move – a better climate, more people with similar interests (people who appreciate Young Frankenstein, The 2000 Year Old Man and Dr. Strangelove, remember the first time Gerry Brown was governor of California and when the Congress was actually a functioning legislative body), less traffic, a slower pace or a less expensive place to live.
If you decide to explore moving, you may want to take a trial run first by renting a place for a few months, maybe even during different seasons, to see if you like living there fulltime. See how things compare to your present circumstance and, importantly, see if the community has good medical facilities and doctors who are accepting new Medicare patients (yes, that’s now you; you are now “the old people”).
If you decide that you would prefer to stay put but are afraid you won’t have enough money to pay your expenses, explore a reverse annuity mortgage, which enables you to use the equity in your house to pay for your living expenses (but be careful to explore the costs, as many charge high fees).
If you like living where you are but are no longer up to maintaining your house or garden and no longer drive (or your children tell you you shouldn’t drive any more, noting those dents in the bumper of your beige car and the scrapes on the side), the good news is that new “aging in place” communities are springing (wintering?) up around the country. For a relatively small fee, they will help you find plumbers, electricians and gardeners, and volunteers to drive you to your doctor’s appointments. If you would prefer to stay in your home, these services may be just what you need.
If, on the other hand, after weighing all the pros and cons, you’re inclined to move, it might be wise to move sooner rather than later, before you have to. This is easier said than done, of course, but when in doubt – go!
In sum, this is one of the most important decisions you will make and you should take your time deciding, weighing the likely pluses and minuses of your different choices.
- How can you retain your sense of humor? As Art Linkletter wrote and my wife repeats regularly, “old age is not for sissies” (and “old age is not for the faint of heart”). One of the best weapons you have to face life’s challenges is your sense of humor. My early touchstone was Joseph Heller’s Catch-22, which taught me to laugh at the absurdity of life as a shield against being overwhelmed by it. Of course, it requires many years of psychotherapy to then address why you are hiding your emotions. As with any age, old age will have physical and mental challenges. Just remember to carry your sense of humor with you. With some practical planning, some exploration of new opportunities and a little humor (which some of you will argue is more than was presented in this article), retirement can provide a very exciting and challenging last chapter.
Finally, for those who have noted that I did not cover every aspect of retirement or your particular experience (although most of my family and friends who reviewed this piece have assured me I had covered far too many), I encourage you to add your own. After all, that is really the point of the article.