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When Is the Right Time to Retire? November 15, 2009 (The Columbian) Jennifer Rhoads, senior vice president and director of wealth management for First Independent Bank, says those planning for retirement need a road map. Dan Foster, financial adviser and CPA, says potential retirees must ask their advisers tough questions. When Jennifer Rhoads sits with a new client looking for retirement planning assistance, among her first questions: When do you want to retire? Rhoads, a senior vice president for wealth management at First Independent Bank in Vancouver, believes people need a road map if they expect to ever leave behind the full-time world of work. The greatest challenge facing many baby boomers is the lack of a guaranteed income stream, Rhoads said. Without that pension, they will have to save, invest and then manage that portfolio for their lifetime. With the collapse of home values and the Dow Jones Industrial Average down 8 percent during the past 10 years, many of those nearing retirement might find the process daunting, if not discouraging. But Rhoads and other investment advisers say it is better to dig into retirement planning than live in a world of worry. More information helps people get real about whats possible and what isnt, they say. And there may be a pleasant surprise or two because its not just about how much money you have saved, but how you want to live in retirement. Vancouver financial adviser Dan Foster starts the conversation with that in mind. I ask them what kind of lifestyle they expect to be living in retirement, and I ask them to realistically estimate their lifespan, said Foster, a financial adviser with Ameriprise Financial and president of the Oregon-Southwest Washington chapter of the Financial Planning Association. Its my job to tell them whats possible. If we cant achieve it, then I help them make adjustments. Boomers, Foster and Rhoads say, might be smart enough to understand investment options from bonds to variable annuities, and they might understand market trends, but they might not be objective about whats possible in retirement. Youve got to have a plan, but youve also got to look at what can go wrong with your plan, Foster said. You must get objective advice and feel comfortable with the person youre working with. Too often investors focus on the return and dont look at the risk. Those retirement risks are: * The risk of outliving retirement savings. * The risk that inflation will eat into your retirement purchasing power. * The risk that market downturns and variable returns will undermine your lifestyle plans in retirement. Extra risks for women Women face the additional risk of outliving their spouse. If youre a 65-year-old woman, for example, you have a 40 percent chance of living to age 90. You have a 26 percent chance of doing the same if youre male. Eighty percent of women will outlive their husbands, on average, by 14 years. Nearly 800,000 women become widows each year, according to MSN.com. The U.S. has more than four times 11.3 million versus 2.6 million as many widows as widowers. But according to U.S. Census Bureau research, nearly 30 percent of unmarried women 65 and older are living at or below the poverty line. Women need to be fully engaged in the retirement planning process, said Rhoads. I speak to a lot of married couples and encourage them to have frank conversations about what happens when one of them dies. If its a second marriage, planning is even more important. If the couple has a good, honest relationship, theyve got to talk about estate planning where children are the beneficiaries at the death of the second spouse. That detailed planning is essential to a good retirement. According to MIT AgeLab, a research program devoted to the aging population, when a woman outlives her husband, her income decreases by 50 percent yet expenses only decrease by 20 percent. Meanwhile, the rocky economy is forcing many to re-evaluate their plans and consider working longer or continuing to work part time in retirement. A report from MorganStanley SmithBarney said monthly payments from Social Security now meet only 40 percent of a retirees income needs. And purchasing power of retirement savings will likely diminish over time with inflation. For instance, the purchasing power of $1,000 today will be cut nearly in half during the next 20 years if inflation increases the cost of living by 2 percent a year over that time period. Then theres the risk of negative returns early in retirement that could seriously reduce the size of your nest egg. And a safe saving account in a money market fund paying 1 percent a year, or less, is not going to keep up with inflation. Frozen with anxiety With all of these factors to weigh, its no wonder that many pre- retirees are frozen with anxiety. Those planning for retirement must ask themselves how they want to spend their time, Foster said. Its a quality-of-life question, not a money question. There are ways to make it happen by reducing living expenses. Its not about giving up control ... but about starting with the end in mind. Boomers may have to negotiate with themselves to close the gap between whats possible with their retirement income and the lifestyle adjustments they may need to make. Women, because they generally live longer, must make sure theyre covered, Rhoads said. A $500,000 nest egg might be enough for someone who also has a guaranteed pension benefit, but it might not be nearly enough for someone else, she said. With all of this weighing on boomers, the formula that said All you need to do is withdraw 4 percent a year from your nest egg, and youll be fine, is out the window, say the experts. AARP recently released two tip sheets offering general guidance for how to make good retirement decisions. The first, Making Your Nest Egg Last a Lifetime by researcher Anthony Webb, suggests delaying claiming Social Security for as long as possible. The other encourages certain retirees, especially women, to consider purchasing an annuity as a way to establish a fixed and dependable stream of income that covers basic living expenses. Here again things get complicated because annuities can mean big commissions for those who sell them and because of their complexity, annuities are difficult to understand. Which returns us to the question of whether those planning for retirement can do it themselves? There are plenty of Web sites available to help boomers get planning started. But experts say that because markets have become more volatile, investment choices more diverse and complicated, expert help may be needed. But who can you trust? You have to feel that your adviser is working for your best interests, Rhoads said. If you dont trust your adviser, dont work with them. Theyve got to deliver on what they said theyd do on an ongoing basis. For Foster, getting objective financial advice is essential for those preparing to retire. Ask a lot of questions, Foster said. WANT TO RETIRE? QUESTIONS TO ASK YOURSELF: * What kind of retirement lifestyle do you expect to have? * What does your basic household budget look like now? In retirement? * How long do you expect to live? * How much can you withdraw from your nest egg over that time and not run out of money? * Have you factored in inflation at about 3 percent a year? * Have you factored in insurance needs and costs? * What will your Social Security monthly payment be at full retirement? * Are you being realistic? Should you work longer, save more and hold off on taking Social Security? SOURCE: Certified Financial Planner Board of Standards CHOOSING A RETIREMENT FINANCIAL ADVISER: QUESTIONS TO ASK * What experience do you have? * What are your qualifications? * What services do you offer? * What is your approach to financial planning? * Will you be the only person working with me? * How will I pay for your services? * How much do you typically charge? * Could anyone besides me benefit from your recommendations? * Have you ever been publicly disciplined for any unlawful or unethical actions in your professional career? * Can I have this in writing? For more, visit www.cfp.net, click on Learn about financial planning. SOURCE: Certified Financial Planner Board of Standards Retirement planning on the Web:
What youll find: Retirement estimator that will tell you what to expect in monthly retirement benefits from the agency based on your age, work history and pay.
What youll find: Basic retirement planning tips and definitions.
What youll find: Comparison retirement plans. Top mistakes people make when they retire.
What youll find: Retirement information for women.
What youll find: Comparison of retirement plans offered by major investment companies. Consumer reporting on financial planning and retirement.
What youll find: Free retirement income planner with a questionnaire.
What youll find: In-depth research reports on retirement and longevity planning.
What youll find: Comment and analysis geared to 55- to 64-year- olds planning for retirement. |
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