, Newburyport, MA

October 4, 2011

The graying of retirement pictures

Money Matters
Donald E. Askey

The latest malaise in the markets has led to the detrimental shortsightedness of prospective retirees. Stated less politely, many in their 50s and 60s are doing stupid things financially right now. They are allowing near-term market behavior to influence how they manage their financial futures long-term.

There are many small steps they are taking now that will trip them up later.

Here are a few small steps that should improve the retirement picture for those now in their 50s or 60s.

If you are married, talk frankly and clearly with your spouse about how prepared you want to be when the time comes that neither of you is working. If you cannot agree on a clear financial path forward, then get help. Clarity of vision will reduce a lot of angst, but this is a difficult first step, especially if you are apprehensive about seeking qualified help.

If you are not married, you still need clarity of vision and should not hesitate to seek professional counsel.

Next step: Avoid making irrevocable decisions. The two most common irrevocable retirement decisions made prematurely and sometimes hastily are starting Social Security benefits sooner than absolutely necessary and getting sold on the tinsel of annuities. These are two decisions that cannot easily be reversed. Enter into each of them cautiously.

The ideal time to initiate Social Security benefits is at age 70, unless you are in poor health. The ideal time, if ever, to enter into an annuity contract is if your Social Security benefit is insufficient to cover your essential, non-discretionary retirement expenses.

The worst time to enter into an annuity contract is out of fear of market volatility and with a sense an annuity will preserve the value of your savings. If you want pure preservation, then keep your money in the bank.

If you haven't saved enough, then work longer. If you can't afford what you are spending now, how will you be able to afford a comfortable retirement?

The ideal design for tomorrow's retiree is enough cash to last two to five years plus investments to handle another 25 to 35 years. Yes, one out of every four us will live into our 90s. Does your plan consider this?

As we turn gray, our plans and our portfolios should not also turn gray. Retirement is a 30-to-40-year-long event. Most people want their money to last a little longer than they do.

But your money will not last the duration of a pretty much average retirement if it is grayer than you are. In other words, if your financial assets are suited for an 85-year-old, appropriately mostly in CDs, then those assets are likely to have the life expectancy of an 85-year-old. If you are in your 50s or 60s, then assets suitable for an 85-year-old will run dry for you before you'd like, well before you'd like.

As we approach retirement we want our assets and our plans to be robust and energetic and capable of sustaining us, including our increased medical costs, until the very end. Our assets have to be in line with our life expectancy and not with our emotional temperament at the moment.

If your financial picture is grayer than you are, then you may benefit from some professional help. And I don't mean a hair colorist.

• • •

Donald E. Askey, a Certified Financial Planner™ professional and president of Provident Advisory Group, is a registered fee-only adviser, headquartered in Newburyport. For questions, visit