Are you a planner or do you go with the flow?
Some people are planners. Some are not. Wisdom tells us that we should start saving young so that we can accumulate enough by retirement to sustain us for the rest of our lives. Few, though, are so wise as to follow that sage advice. Young families are struggling with starter wages, children, and other responsibilities. Retirement seems a long way off and is easily deferred to give preference to more pressing current demands.
Still, as the years go by, and the realities of aging become manifest, more and more people turn to planning. Many work with financial planning advisors. Others prepare their own analyses. In this section we have a link to a series of videos that are oriented toward planning. We can all benefit from a consciousness of why we should be planning and how a plan might work.
While planning is the course of wisdom, many people are struggling simply to get by from day to day. Their predicament is different. They may have the protection of a pension plan where they work. If they are among the fortunate few who are able to stay with a single employer long enough to receive a pension, it may be that with Social Security they will have sufficient income as they age. Others may have the proceeds from an Individual Retirement Account (IRA) or employer sponsored 401(k) plan. Since these plans involve capital sums, they require more prudence from the beneficiary so that the proceeds aren’t diminished before the needs of age present themselves.
Some people choose to work for as long as they are physically able. If you enjoy work and intend to continue working after retirement, then you have to consider several contingencies. One is whether the employment opportunities will still be there for you (some employers are reluctant to hire older people and some executives are uncomfortable with people who are older than they are – the movie, The Intern, is interesting concerning this phenomenon). A second consideration is whether the opportunities that are available will pay you a sufficient income. Many jobs for older workers are minimum wage jobs. Finally, there is the contingency that you may be stricken and disabled from working.
While many people think of a job and a wage as security, others are more entrepreneurial and may have businesses of their own or be more dependent on capital. That is an alternative approach to preparing for the financial needs of advanced age. For instance, a proprietor who has developed a chain of restaurants, can sell the business as retirement approaches and garner sufficient wealth to be able to fund a comfortable retirement.
Those who have spent their career in workaday jobs with little advancement opportunity, i.e. in the service industries, fast food, or home services like housekeeping, may have no personal funds to help bridge the nonworking years beyond retirement. For them there is no choice but to turn to charitable and government services. While it can be humiliating to become a ward of the state, for many there is no choice. In truth, many others, who believe that they have provided well for retirement, can find themselves in the same situation if old age infirmity and the need for expensive care leaves them penniless and dependent on Medicaid and other charitable and government resources for survival.
In short, there are many ways to approach the looming financial challenges of age. Some are planners. Some are dreamers. And some simply hope that all will work out for the best. In the column to the right there are resources for planners to help people think through their situation in light of their means. There are also links to other resources that may be relevant.
What will we do after work ends and how will we pay for it?
It takes considerable wealth to fund even a minimal retirement existence. This is particularly true in the low interest environment that the Federal Reserve has fostered in the United States as a means to prop up a sluggish economy in which corporate planners see few opportunities for profitable capital investment. The Federal Reserve seeks to increase the perception of such opportunities by lowering the cost of capital for businesses. The converse of this is that investors’ returns are minimal and may be fully eroded by inflation.
If you’re not a financial person, that last conclusion may not be evident. Consider, for instance, that you have saved $500,000 for your retirement and that safe bank yields are just 1% (or less, but we’ll use 1% for this example). Then, if you take no income, your $500,000 will be worth $505,000 after a year. The $5,000 is the 1% interest that the bank pays for the use of your money.
The Federal Reserve’s target inflation rate is 2%. [Click for source.] That means that the value of money is diminished by 2% a year. Consider what that means for your $505,000. By the end of the year it will no longer buy as much as it would have at the beginning of the year. In fact, it has lost 2% of its value while earning just 1%. The $500,000 which would have had a credible purchasing power at the start of the year will be buy just $495098.03 at the end of the year on an inflation adjusted basis.
For retirees, it can often feel like they are slipping backwards.
Resources to use
Retirement can seem endless. It not like a vacation. After a hiatus from the stress and demands of work life, it's common for people to look for new challenges. Finding meaning in retirement can be more important than knowing how to pay for it. Retirement as no more than moving back and forth between bed and a recliner is passe.
Although the talk is often of money and savings when conversation turns to retirement, the bigger concern is with keeping meaning and purpose in life and enjoying the freedom that can come with age.
Living Life. Love Retirement. Being ready for retirement includes more than just financial considerations.
Financial Planning Video Series
Pure Financial Advisors, a fee-only financial planning, tax planning and asset management firm helping pre-retirees and retirees in San Diego, Los Angeles & Orange County, offers an extensive series of videos helping people to think through their planning options for retirement savings.
Considering Residential Options