You’re going to need more money—maybe a lot more.
You know the rule that says you’ll need 70% or 80% of your preretirement income to live on? Try 130%. That’s right. You may need to generate a more—a lot more—income in retirement than you think.
Here’s why. When you’re no longer working 40 hours a week, that’s 40 hours a week when, all of a sudden, you’re available to spend money. Everyday’s like Saturday. On top of that, a lot of things your employer used to pay for—like coffee, a laptop and phone, maybe a subsidized gym membership, tuition reimbursement—that’s now on you. And chances are—says study, which was conducted by fintech company MoneyComb and the Center for Advanced Hindsight at Duke University—you’ll wind up spending more than you think.
On top of that, don’t ignore inflation, which year by year eats away at your portfolio’s purchasing power. Example: Fidelity Investments says that a 65-year-old couple retiring this year will need $280,000 to cover health care and medical expenses throughout retirement. That’s up 2% from 2017 and 75%—or an extra $120,000—from as recently as 2002. At that rate, a couple retiring in 2033 would need $490,000—just for health care. Where’s that money going to come from?
Top financial advisers agree with the premise of the study. “We do not believe the 80% rule,” says Donald Chomas, a portfolio manager and wealth adviser for UBS Securities—who has been advising retired clients for nearly three decades. “In our experience, clients often spend up to 50% more in their early years of retirement when compared with the preretirement spending estimate.” He adds “Nearly all of our retirees seem to spend at least a little more than they predict and almost none spend less than they predict during the first several years of retirement.”
What can you do to structure your portfolio accordingly? Some advice here—but of course, you should always talk things over with your own adviser.
Not enough in the bank? You’re in good company
As if the above item isn’t daunting, consider this: Nearly four out of five Americans are “extremely” or “somewhat” concerned about being able to afford a decent retirement, while two- thirds worry that they’ll outlive their retirement savings. And given that one in three baby boomers (born between 1946 and 1964) have between $0-$25,000 in retirement savings, many could be right.
The study by Northwestern Mutual is the latest in a series of reports warning of a serious retirement shortfall. And, it seems, more Americans understand the difficulties that lie ahead: “more working Americans anticipate retiring at 70 years or older (38%) than in the more traditional 65-69 age range (33%),” the study says, and nearly three-fourths say, bluntly, that the reason is because they do “not (have) enough money to retire comfortably.”
Fund your retirement—or help your adult children?
Every parent knows that it costs big bucks to raise a child: an average $233,610 from birth to age 17, not including college. But even when kids are grown and ostensibly on their own, they’re still getting a ton of help from Mom and Dad: a staggering $500 billion a year. That’s twice as much as those parents save for their own retirement, according to a Merrill Lynch study conducted with Age Wave.
The study says that half-trillion goes for everything from helping adult children cope with crushing student loans and housing costs to footing their cellphone bills. All told, it says that nearly two-thirds of parents are still helping their grown children.
It’s understandable that parents want to help their kids. But the problem is that $500 billion that flows from parents to their adult children is $500 billion less that those parents have to save for retirement. Age Wave’s Ken Dychtwald says it works out to about $7,000 per family a year.
“I worry that we’ve got all these 40-, 50- and 60-year-olds subsidizing their children for thousands of dollars year after year. That’s going to come back to haunt them; it’s not going to make their future more secure,” Dychtwald adds.
Perhaps parents are hoping that they children will one day be able to help them.
Don’t let this happen to you
Buying insurance is tricky enough. So many products, phrases and numbers to sort through. But this is what it boils down to: You send money to an insurance company and in return that company promises to compensate you or your family in the event of a loss, illness, damage or death.
Many Americans thought they were purchasing this peace of mind back in the 1980s and 1990s, when they bought something called “universal life” policies from insurance providers. “It was a sensation when it premiered,” notes our sister publication The Wall Street Journal, ”and for some years it worked as advertised. It included both insurance and a savings account that earns income to help pay future costs and keep the premium the same.”
Fast forward a few decades later, and it seems that whole peace of mind thing was just an illusion.
Here’s why. When folks signed up universal life policies way back when, interest rates were a lot higher. But rates are near historic lows now, meaning that those policies aren’t generating much cash for policyholders. Adding insult to injury, customers who bough policies 30 or 40 years ago are now elderly—and looking at much higher premiums to keep those policies going.
This one-two punch—costlier premiums and lower income—has proven to be devastating for many. “I’m very scared that everything will go down the drain,” Bernice Sack, a 94-year-old former hospital billing clerk in North Carolina, says.
As usual, when buying any insurance product, caveat emptor—let the buyer beware.
Finding a job when you’re 50+
Sure, unemployment’s low and employers find it difficult to land the right workers. So that’s good news for older workers, right?
Not necessarily.
“Age discrimination is definitely alive and well,” says Renee Ward of Seniors4Hire, a career counseling firm based in Huntington Beach, Calif. “Hiring managers aren’t interested in the 50+ crowd.”
This often comes as a shock to those older workers, who think their experience is valuable. “I’ll have a client who’ll say ‘I’ve been doing this for 30 years!’ But to employers, somebody with five years experience is equally competent,” Ward says. “So the question is, what makes your 30 years more valuable?” Sometimes older workers carry a chip on their shoulder about this, but that’s their problem—not a potential employer’s.
What to do? Begin by acknowledging the employer’s specific needs, and then pivoting to your value added.
In a cover letter. on a website, or during a phone call, “I would say, ‘I understand that you’re looking for someone with five years’ experience, and I do have the five years. And I’m confident and capable with the skill set that you’re looking for. But in addition to that, here are some other ways I can prove to be valuable to you.’ And then list them confidently,” Ward says. There are no guarantees of course, but this strategy works quite often.
Ward offers additional tips here.
Turn back the clock—in the bedroom
Golf? Here’s an even better way for retirees to putter around: Have sex. A study says doing it at least once a week can help you feel as much as 15 years younger. The survey conducted by a British orthopedic support company also found that people over 50 felt younger “petting animals and seeing pals.” Some of these pursuits seem better than others, but we’ll leave that up to you.
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