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Not ready for retirement? It’s only too late if you don’t start now!

Not ready for retirement? It’s only too late if you don’t start now!

Years ago, I hit a major crossroads. I had been restructured out of a corporate job I loved, and while I was shell-shocked by the reality of being a victim of workplace ageism, I knew in my heart that I had something important to do in my life. There was a mission I had yet to find; it was out there, somewhere, waiting for me to uncover it.

Thankfully, I stumbled across Barbara Sher’sbook: It’s Only Too Late If You Don’t Start Now: How to Create Your Second Life At Any AgeOf the many books I’ve read, this guide was one of the most transformative. It empowered me, and it gave me the fierceness I needed to take charge of my life. I soon found my mission that had been lurking in the shadows, and Klein Financial Advisors was born.

Last week, I found myself sharing that story with Susan and Scott. My newest clients, they are on their own urgent mission: to build a nest egg… starting at age 57.

When we first sat down together, I could feel their apprehension. It was no surprise. They had told me they had minimal savings and were unprepared for retirement. Smart, responsible people, they had been dealt a tough hand financially. With three kids to raise and aging parents to care for, they were among the many who lost their homes in the financial crisis. As an independent contractor, Scott’s income had ebbed and flowed, and Susan had left her job at a local university to wrangle three teenagers and help her mother with some health issues. Since then, they’ve been focused on staying out of debt (cheers to that!), and even though Susan is now back at work, they haven’t been able to save a dime for retirement. Today, they’re ready to do something about it. Susan was blunt: “Are we just too late?”

My answer was simple: “It’s only too late if you don’t start now.” With that, we rolled up our sleeves and settled in for some serious planning. And it all began with making these four important promises to themselves:

Promise #1: Claim Social Security at age 70 (not a day earlier!)
Smart Social Security claiming is an absolute must. While most everyone is eligible to begin receiving Social Security payments at age 62, between age 62 and FRA (Full Retirement Age) at age 66 or 67 (depending on your birth year), your benefits increase 5% each year.Even better, between FRA and age 70, your benefits increase by 8% each year you delay, plus an annual cost of living adjustment. Therefore, if your monthly benefit at age 62 is $750, waiting to file until your 70th birthday nearly doubles your monthly check to $1,320. Plus, because spousal benefits are based on the other partner’s benefit amount, by waiting until age 70 to claim benefits for the highest earner both spouses’ benefits are increased by 8% per year. Your goal is to secure a higher monthly income over the long term, and delaying Social Security is one of the most effective ways to do it.  

Promise #2: Rethink your retirement age.
Most of us grew up with the idea that we would retire at 65… or earlier if we could swing it. It’s time to relegate that 20th century idea to the history books. People are living much longer. In 1970, the average U.S. lifespan was 67 for men and 74 for women. Today those averages have climbed to 76 for men and 81 for women.[1] That means that here in Lake Wobegon (where we’re all above average), your investments must meet your needs for an extra decade—at least. Instead of making your retirement goal 65, banish that idée fixe and put a plan in place to keep earning into your 70s.

Promise #3: Focus on building enough cash reserve to make work optional.
Saving cash can be challenging, but only because we’re usually rooted in habits and behaviors we’ve been honing for decades. Building a nest egg in your later years can be done, but it takes focus, diligence, and sacrifice. Get rid of debt first. More than anything else, debt has the power to hurt your future self.  Reconsider adopting your parents’ or grandparents’ depression-era frugality tips. You may have laughed then, but thrift serves your goal to eventually to make work optional. Again, it’s only too late if you don’t start some serious thriftiness today. Build that cash reserve dollar by dollar.

Promise #4: Don’t give away your future to your children.
Saying no to adult children isone of the biggest challenges you’ll face. For decades, the #1 priority for parents is to take care of their kids. You’ve been holding their hands since they opened their eyes for the first time. How can you stop now? You can. And you must. Especially when your retirement savings is lacking or nonexistent. (For more on this hot topic, see my blog post Money Rules.) If you haven’t saved for college tuition for your kids, work with them to create a plan that doesn’t put your future at risk. If you have 20-somethings living at home—a common scenario these days—they should be contributing financially to the household. When your adult child needs money, he or she really does have other resources. It’s time to stop being “the bank of Mom and Dad” and start making your future your new #1 priority.

Recognize that it is not too late, as long as you start now! I just read this great NPR article that talks about getting kids to pay attention, something Mayas in Guatemala are doing better than most. The writer quotes psychologist Edward Deci at the University of Rochester, who says that one of the most important ingredients for motivating kids is autonomy. In his words, "To do something with this full sense of willingness and choice." It’s a lesson in motivation at any age.

Susan and Scott have made that choice. They are catching up on savings through IRAs. They’ve stopped financing their kids. Susan is considering increasing her income with a better paying job or a side gig. They are both committed to right-sizing their lives so they can build the nest egg they will need in the future. They have a plan, and they are building momentum every day.

Whether you are just starting to build your retirement nest egg or your savings is not where you need it to be, make the choice today to actively create a financially secure “second life.” It’s only too late if you don’t start now.

[1] According to the National Center for Health Statistics 2016 data.

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How long do you plan to live? (And are you planning for it?)

How long do you plan to live? (And are you planning for it?)

Back in January, I dove into Jonathan Clements’s fantastic book How to Think About Money. My blog Money really can buy happiness introduced the first step in this great guide: Buy more happiness. The second step may be even more important, in part because it’s something almost everyone I know seems to be in denial about. What is step two? Bet on a long life!

It’s quite an anomaly. Humans embrace anti-aging remedies and strive for immortality, but when planning for our financial life, we frequently place our bets on living fewer years than is reasonable to expect. The data is out there. We are living longer. In 1900, the average life expectancy was just 52 for men, and 58 for women. What a difference a century makes! Men and women who are in their mid-60s today can now anticipate living to age 90, and 10% can plan to celebrate their 95th birthdays! Knowing that, why do so many people plan their finances as if they were still living in the olden days? If our golden years are likely to last two to three decades, it’s time to start getting serious about planning to sustain a long, happy, healthy life. And while there are lots of pieces to the planning puzzle, here are five ways to help propel you on the right path forward:

  1. Reset your expiration date. For years, we’ve been conditioned to see our 60s as the final stage—the denouement—of our lives. Get over it! The fact is, if you only live to your 60s, you’ll be among the unfortunate few. The good news is that once you change your mindset and reset your target date, almost every decision you make about the future will change. Your approach to investing will shift (see #2). You’ll suddenly have permission to make a mid-life career change and finally explore a passion that brings even greater joy in the decades ahead. Instead of seeing the years ahead as a slow, inevitable decline, you’ll start to look at—and hopefully realize!—all of the breathtaking opportunities ahead.
     
  2. Invest (and keep investing!) in stocks. When it comes to investing, the golden rule is to “invest early and often.” Thanks to the magic of compounding, the longer your dollars stay invested, the greater the compound (i.e. exponential) growth. My client Polly is my favorite example of this in action. She and her husband bought shares of great companies in the 1950s, reinvested dividends, held the splits and spinoffs, and didn’t react the to “the market.” When her husband died a few years ago, she was assured a secure widowhood and is planning her charitable legacy. Intuitively Polly and her husband know that capitalism works. Markets work. Downturns happen, but over the long term, the market continues to climb skyward. Invest as early as possible, and you can sit back for the ride.

    Twenty years ago, there was a rule of thumb to “hold your age in bonds” to protect your savings from any untimely downturns in the market. Why doesn’t that rule apply today? It assumed that retirement would last only a decade or so. Imagine a 30-year-old pulling out of the market to “protect her assets” at age 50. It’s unthinkable! In the same way, while you may choose to get slightly more conservative in your later years, staying in the market continues to provide the greatest potential for continued returns. Invest—and keep investing—and you’re much more likely to enjoy a lifetime of financial freedom.
     
  3. Delay claiming Social Security. The Social Security claiming decision is one of the most critical retirement decisions most American will make. For most of us, it should be a no-brainer. Claiming benefits before Full Retirement Age (FRA) costs you a bundle. In fact, between age 62 (when most people become eligible for Social Security benefits) and FRA at age 66 or 67 depending on your birth year, your monthly check increases by 5% a year. Waiting until age 70 increases your benefits even more, by a whopping 8% for each year you delay, up until age 70. Knowing that the chances are good that you’ll live another 15-20 years (especially if you’re a woman), why would you not take advantage of this guaranteed, inflation-adjusted longevity insurance? You can’t get much better! (For more details, see my blog Social Security & Women: Tackling the Challenges.)
     
  4. Consider other income streams.  While traditional pensions are largely a thing of the past (consider yourself lucky if you do have one!), guaranteed lifetime income is something for which we all strive. Consider options such as income annuities (an entirely different product than deferred annuities, which I hate, and so should you!), fixed income strategies, and longevity insurance (a less expensive option that starts paying a guaranteed income when you reach a certain age, say 80 or 85). Everyone’s situation is different, so be sure to work with your advisor to do a detailed analysis and identify the options that are best for you. The most important thing: don’t delay. The earlier you put your plan in place, the more optimal your outcome.
     
  5. Stop worrying about dying young. One of the biggest arguments I hear from clients when it comes to longevity planning is, “What if I die earlier? Won’t I be leaving money on the table?” It is true that most analyses will provide a “break even point” for Social Security and certain insurance benefits, and if you do die earlier than hoped, you may have given up a small percentage of potential earnings. But just look at the alternative: by making your decisions based on a long life—not a short one—you can create more income, which gives you more choices and more freedom, no matter how long you are lucky enough to live. Focus on the amazing possibilities a longer life has to offer and bet on living it to the fullest!

If you groan, roll your eyes, and say “God forbid” when someone mentions the possibility of living beyond 100, give me a call to discuss how to make your money last. The sooner we start planning, the more prepared you’ll be if (when?!) you reach that triple digit!

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >