The Whinging Geezer

No matter when you are planning to retire, the foremost thought in your brain these days is “will I have enought money to retire comfortably”? Well, according to US News & World Report and a senior analyst at Ameriprise it will take a million dollars and you can, but just barely. Well, I don’t know about you, but I surely don’t have that kind of money sitting around. If I did, I certainly wouldn’t be here banging away on my computer.

If you’re like me, you’ll consider some of these strategies that Ameriprise came up with to help you get there:

How do you know if you’re saving enough for retirement?
Most people don’t know. The only way you can know is by figuring out what kind of retirement you want and how much money you will need. Many people are feeling very out of control and people have more doubts and more fears. Sitting down and making decisions and developing a plan takes so much stress away from people.

What needs to be factored into your calculation?
One of the things that is very useful to do is figure out what you are going to spend in retirement. Consider what kind of lifestyle you want in retirement, inflation, what your risk tolerance will be now and in retirement, what rate of return you might assume on your assets, and how long you will work. Also, do you have a pension? How much will you get from Social Security? Will you take on a second job or do some consulting?

How do you figure out what your risk tolerance is?
The big overall question about risk tolerance is, for you personally; would you rather sleep comfortably every night and at the end of 20 years have a 5 percent rate of return or have some bumps in the road and possibly get an 8 percent rate of return that is not guaranteed? People will answer that question differently depending on what cycle the market is in. It’s almost like a doctor diagnosing what your real health condition is. If we get it right you will be a good investor. There is an enormous amount of psychology involved. We’ve all come to understand how wide the market swings can be. If you know that an 80/20 mix can go down 40 percent and you can’t live with that, maybe you have to switch to a different mix. And then you need to understand that you are limiting the up side as well.

What span of time should you estimate you will live?
I usually start off using 95. You get a lot of different reactions from people, but life spans are expanding. If you plan for 80 and live until 87 you can’t come back to me and say I ran out of money. You need to plan for longer than you think you will live.

What percentage of your salary should you aim to save?
If you have children in college or in private school you might aim to save 10 percent of your income. But in the time when the kids are out of the house and before you retire you may want to bump that up to between 20 and 25 percent. It really depends on your situation. You should always save in your 401(k) at least up to the company match. You certainly need to be saving enough money to have a cash reserve for emergencies.

Is $1 million enough to retire comfortably?
For a modest retirement in most places in the country that may be enough money, but it probably would not be enough money in San Francisco or Los Angeles or New York City. For example, $1 million could produce about $40,000 a year. And then if you get $20,000 from Social Security that would be $60,000 without any other income. There are people in retirement who spend only $3,000 a month because they don’t have a mortgage, they have a low cost of living, and they go to the early bird specials. If before you retire you are earning $200,000, then you might have to downsize a little bit.

 How can you keep your nest egg safe after you retire?
The most important thing is to get your emotions under control and not make decisions based on emotions. When the market is going up people can’t wait to throw money in and when it’s down people pull their money out. In life there are things we can influence and things we can’t do anything about. What I tell clients is that there are only four things you can control about your financial picture: how much you spend, how much you earn to an extent, your emotions, and what you do with the money that you have. You can’t control the market, but you can control the decisions you make about the money that you have.

What should a baby boomer who wants to retire soon do to get back on track?
You have to think about what is more important, retiring soon or retiring well. It may not be realistic for you to retire at 58 with the lifestyle that you want and make it to 95. Now you have less money than you thought and maybe not even much job security. Some of us baby boomers all grew up with really unrealistic expectations of when we were going to retire, and we planned in a way that didn’t bear fruit. But what if I told you, you could still go to Hawaii, but you can’t stay at a luxury hotel? Most people say, “I can do that.” You have to adjust your expectations. Or you may have to work until 62 even though we planned for 57. Let’s reframe what we are going to do. Everyone around you is also going to be spending less money. The day of the $14 cosmopolitan is over. And who felt comfortable doing that anyway?

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Medical researchers have known for some time that the prevalence of dementia doubles every five years among people over 65. It hasn’t been clear, however, whether that trend continues into the 90s and beyond. This week, after surveying more than 900 people over the age of 90, researchers have offered an answer: yes for women, no for men.

The news for men isn’t as encouraging as it seems. Fewer men in their 90s were found to suffer from dementia: 28 percent, compared to 45 percent of women. But the difference wasn’t because men were less likely to get dementia; rather, it seems to be because they died more quickly with it. “Men and women get dementia at the same rate. Since women live longer with dementia, we find more women at any given age with the disease,” says Maria Corrada, an epidemiologist from the University of California-Irvine who led the study.

If that news isn’t totally confusing, then what can we do increase our ability to avoid it? There’s emerging evidence that men (and women, too) may be able to stave off certain types of dementia or dampen the condition’s devastating effects temporarily by taking certain steps:

• Consider light therapy. A Dutch study published in the Journal of the American Medical Association showed that exposing elderly nursing-home-bound people to bright lights all day improved some symptoms of dementia and reduced levels of depression.

• Keep HDL high. Research published this week links low HDL cholesterol to higher rates of dementia, my colleague, Deborah Kotz, explains. More research is needed to confirm this link, but Kotz reports that exercising more and eating fewer refined carbohydrates can help raise HDL.

• Stay social. A recent study of older women showed that staying social may help keep dementia at bay.

• Get rid of belly fat. A study published in March showed that excess belly fat is linked to dementia. My colleague, January Payne, reported on this.

• Exercise Your Brain. There’s growing evidence, we reported in January, that keeping your brain busy with activities such as reading, dancing, or playing an instrument can decrease your odds of developing dementia.

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Shrinking retirement accounts are only just the start

Permanently giving up your job is risky business. You’ve got to worry about your investments dropping in value, outliving your money, and inflation eating away at your purchasing power. Even worse, you could develop a health problem or be forced into retirement earlier than you planned. With those issues in mind, here are five retirement risks explained, as well as strategies for managing them:

Inflation. A major threat to retirees’ portfolios is inflation, which eats away at the value of investments and reduces purchasing power. To combat inflation, investors should consider adding exposure to stocks, commodities, and real estate, which each act as a hedge, says Frank Armstrong, founder of Investor Solutions and coauthor of Save Your Retirement: What to Do If You Haven’t Saved Enough or If Your Investments Were Devastated by the Market Meltdown. That’s one opinion. There’s an ongoing debate among those in the retirement planning industry about the best way to stay ahead of inflation after retirement. Some financial advisers say investors should maintain a substantial allocation to stocks. “If you are in your mid to late 60s and in reasonably good health—and have every prospect of living into your 90s—you might want to keep anywhere from 35 percent to 50 percent in equities,” says Jerry Miccolis, a certified financial adviser for Brinton Eaton Wealth Advisors and author of Asset Allocation for Dummies. “But if you’re in your mid 70s and in failing health, and this portfolio is really all you’ve got (and your investment horizon isn’t that long), you ought to have a third or less in equities.” Other advisers think stocks are too risky. “Equities, as we have just seen, are anything but a reliable inflation hedge,” says Zvi Bodie, a professor at Boston University and the Massachusetts Institute of Technology and coauthor of Worry-free Investing: A Sure Way to Achieve Your Lifetime Financial Goals. He has 100 percent of his retirement money in Treasury Inflation Protected Securities (TIPS), government bonds that promise a rate of return above inflation.

Outliving your money. Once they make it to age 65, American men can expect to live 13 years, and women are likely to live 15 years. But relatively healthy 65-year-olds should consider the possibility that they’ll live past 90. Traditional pension plans, Social Security, and annuities offer the best protection against outliving your assets because the payouts continue as long as you live. Social Security recipients even get annual cost-of-living increases, which are tied to the consumer price index. Social Security payouts can also be increased by approximately 7 to 8 percent for each year you delay claiming between age 62 and 70.

Investment risks. After you retire, investment losses can have a dramatic impact on your finances. “If you have taken on too much risk on the upside, the downside can absolutely ruin your retirement,” cautions Jeff Ivory, a partner with Stonebridge Financial Partners in Bingham Farms, Mich. Retirement savers need to balance safety with the need to build wealth. Instead of chasing the highest possible returns in a retirement account, retirees may want to consider significantly dialing down their risk. It’s also important to keep between five and 10 years’ worth of living expenses out of the stock market, so other riskier assets have time to weather any market conditions. “People are realizing that they can’t count on the stock market and real estate as a way of compounding their wealth,” says Brad Barber, professor of finance at the University of California at Davis graduate school of management. “For preserving your principal and keeping up with inflation, inflation-indexed bonds and TIPS are the way to go.”

Health problems. Losing health insurance before age 65—when Medicare eligibility kicks in—can be financially devastating. Plus, even government health insurance may not be enough. A 65-year-old couple with Medicare retiring in 2009 will need approximately $240,000 to cover medical expenses throughout retirement, according to a Fidelity Investments estimate. That number includes likely out-of-pocket expenses, deductibles, coinsurance costs, and some services excluded by Medicare. It doesn’t take into account over-the-counter medications, most dental services, and long-term care expenses. For this reason, many retirees purchase supplemental health insurance policies. Reviewing medical bills for errors, asking your doctor about less expensive tests and medicines, and even offering to pay cash in exchange for a break on medical bills that are not covered by insurance are good strategies. And prices for medical services are sometimes negotiable. Long-term care is pricey. A private room in a nursing home currently costs a median price of $74,208 annually, or about $203 a day, according to a recent survey by long-term care insurance company Genworth Financial. Slightly more affordable long-term care options include home health aid services, which run about $31 an hour, or an assisted living facility, which typically costs $33,903 annually, not including entrance fees. The most affordable option, adult day health care, costs a median price of $54 a day. Long-term care insurance protects against some of these costs, but policies are prohibitively expensive for many people and generally have a considerable amount of fine print involved. Before you buy, check up on the financial health of the company and find out how to cancel and renew the policy, what happens if you stop paying the premiums, and what needs to happen before you can begin using your benefits.

Unexpected Retirement. Retirement often happens while you’re making other plans. About 47 percent of current retirees say they retired sooner than they originally planned to, according to a recent Employee Benefit Research Institute survey. A layoff or health problem can easily force retirement plans off track. By age 40, most people have already had one or more sudden events shock their finances, including job loss (18 percent), divorce (29 percent), the death of a spouse or life partner (10 percent), a serious illness or long-term disability (24 percent), or the illness or disability of a child (7 percent), according to a survey of 1,200 adults between ages 40 and 79 by AARP Financial and Boston Research Group. Only about 43 percent of those surveyed made it to middle age or older unscathed. “It’s easier to work an extra year or two than to try to get back into the work force after you have been out,” says Miccolis. “If you do retire, try to keep some options open like working for a consulting company as needed.” While you are still working, develop a succession plan in case you are suddenly retired. Disability and life insurance can help protect against sudden health problems. And, at any age, keep an eye on the job market in case you should suddenly find yourself back in it. A polished resume listing up-to-date skills could still come in handy, even during the traditional retirement years.

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If you suddenly find yourself back in the job market after age 50, you might need to dust off your résumé and spruce it up for today’s changing job market. Here are seven strategies older workers can use to get their résumé to the top of the stack, score an interview, and—yes—land a new job:

Play down your age. Age often brings wisdom, but wisdom can seem awfully expensive to a hiring manager. You don’t have to include all of your achievements on your résumé. “You should consider not putting dates like graduation dates on your résumé,” says Tom Musbach, senior editor of Yahoo! HotJobs. “You don’t want to lie if asked, but on your résumé, you don’t want to broadcast that you graduated in 1960.” According to an October survey by Gray Hair Management, a career coaching and networking firm, 65 percent of senior-level executives age 40 or older say they’ve adjusted their résumé to downplay their age. Older workers need to appear up-to-date with the modern workforce. Be sure to list the work experiences most relevant to the description of the job you’re applying for so that your résumé will turn up in job bank searches.

Use examples. Don’t just say you have good communications skills: Give concrete examples of how your abilities boosted a former employer’s bottom line. “If you’re applying for a financial position, you can find out what system of accounting the company uses and tell them about your experiences using [that system] at your last three jobs,” says Steven Greenberg, CEO and founder of Jobs4Point0.com, a job-search website for those 40 and older. It helps if you can also describe how much money your skills made or saved the company. You might be expected to show as well as tell. “In a sales or marketing-related position, your follow-up has to be excellent because that’s part of the job and you’re showing me what kind of salesperson you are,” Greenberg says. That goes for other industries too.

Emphasize your flexibility. A common misconception is that older workers are unfamiliar with new technologies and are resistant to change. “You have to demonstrate your flexibility and adaptability and comfort with technology,” says Mark Anderson, president of ExecuNet, a networking firm for senior-level executives. So play up any computer experience you have: Include a link on your résumé to a website you designed, or describe a program you implemented that improved work flow.

Offer new info. Most people know that following up is the best way to make sure your résumé gets a reading. But don’t pick up the phone without a plan. Offer a new piece of information about yourself that’s not included in your résumé or cover letter that applies to the job. “You want to call out something to your experience each time you follow up,” says Greenberg. “You’re creating more data points for the employer to have about you and make a decision about you.”

Be a problem solver. Companies are looking for employees who can improve their bottom line. “Finding out what problems a company may have and then positioning yourself as a solution to that problem is a really important way to set yourself apart from a person who comes to the interview and just answers questions,” Anderson says. “You have to demonstrate what you can do that is better than what others can do.”

Apply to companies that aren‘t hiring. Many positions are never publicly posted. “With so many people seemingly out of work, employers don’t want to be bombarded with a lot of unqualified candidates that they have to weed through to find the jewels,” says Renee Ward, founder and publisher of Seniors4Hire.org. “The recruiter will network and/or search résumé databases to select candidates.” Sometimes it’s better to look for jobs that aren’t posted by sending your résumé to companies that don’t have open positions listed on their websites. Also, let your network of friends and colleagues know you’re looking for a new job. “The way you are going to find your next opportunity is through a network of people who know what you can do,” says Anderson.

Focus on fields that welcome older workers. After age 50, you probably don’t want a strenuous job that requires standing or repetitive motion all day. There are plenty of industries that welcome older workers, such as healthcare, higher education, and government positions—all industries that are also proving to be relatively recession resistant.

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Which one are you?

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