retirement – Jane Bryant Quinn

How to Tap Into Your Retirement Savings

The best source to draw from depends on a number of factors

If you depend on investment accounts for retirement income, you’ll have to pull money from them periodically to get cash for your everyday expenses. Those withdrawals will likely come from dividends, interest, mutual fund distributions and sales of securities. But how do you pick which source to draw upon?

Fix your mix

Think about the balance you want to maintain between the stocks and bonds (or stock funds and bond funds) in your portfolio — say, 50 percent of your money in each. If gains or losses on either side throw off your target mix by 5 percentage points or more (say, to 55 percent stocks and 45 percent bonds), rebalance by selling some of the overweight investment to restore the 50/50 split (or something close).

Sell tax-deferred assets

If you’re entirely invested in mutual funds in your traditional individual retirement account (IRA) or 401(k), pulling money out is easy. That’s because no matter where you take your money from within these accounts — stock funds, bond funds or a cash balance — your withdrawals will all be taxed in the same manner: as ordinary income. Reach your dollar goal by selling stock or bond shares in a way that maintains or restores the investment balance that you desire.

Use taxable interest and dividends

If you have taxable accounts (such as a brokerage account that holds stocks, bonds or funds but isn’t a 401(k) or IRA), start out by withdrawing this year’s income — interest, dividends, mutual fund distributions and realized capital gains. Then sell stocks or bonds to restore your desired investment balance, taking out the rest of the money you need. Always be sure to sell investments that you think have the least promise.

Hold off in bad times

When markets are down, think about skipping or reducing your annual withdrawal and living off the cash cushion you’ve already set aside.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

4 Steps to Make Your Money Last a Lifetime

A simple, easy-to-use formula to make sure you never run out of cash

As a financial columnist, I get asked the same heartfelt question over and over: “How do I make sure I don’t outlive my money?” And that makes sense. Surveys confirm that the No. 1 worry among older Americans is running out of cash. Fortunately, financial planners have come up with sound ways to prevent this. Collected here are their key rules for maintaining a livable income for life, plus case studies that show how to put these general rules into action. The goal is your peace of mind — knowing that you’re getting the most from the money you’ve saved and that you’ll always have enough.

The Magic Number

The key to long-term planning is knowing one essential number: how much money you can afford to spend annually. From there, you can adjust your expenses to fit.

You may be tempted to reverse the order — estimate your future expenses, then adjust your investment assumptions to make that spending appear possible. But that’s wishful thinking: a hope that big investment returns will rescue your budget. It leads to overspending early on, and regret later.

Instead, let’s focus on the real, guaranteed money you’ll have. There are two main sources:

Your personal savings and investments.
Your guaranteed income from other sources.

Key Steps

Step 1: Tally Your Guaranteed Income

The most common source is Social Security, which you may already be collecting. (If you’re not, get an estimate by calling Social Security or by opening a My Social Security account at ssa.gov.) You might also have a pension or annuity. If you own a reliable rental property, include the amount of rent you receive after expenses.

Step 2: Estimate Your Income from Savings

How much annual income can you prudently take from your savings and investments? To get the answer, there’s a surprisingly simple rule of thumb:

Add up the current value of your spendable assets, such as bank accounts, mutual funds, stocks and bonds. Include both retirement and nonretirement savings.
Subtract from that total a cash cushion to help cover near-term expenses.
Then take 4 percent of what remains.

That’s the “safe” amount of your assets that financial planners say you can afford to spend in the first year of retirement without running the risk that your savings will run out. In each subsequent year, take the same dollar amount plus an increase for inflation.

Example: Say you have $100,000 invested (plus a cash cushion). In the first year of retirement you could spend $4,000 of that money. If inflation is running at 3 percent, your second-year withdrawal would be $4,120 — the first-year amount plus an inflation increase. Follow this pattern in each future year.

Under this system, known as the “4 percent rule,” your savings should last at least 30 years and probably more. That forecast is based on the pioneering work of planner William Bengen, who tested 30-year spending rates against the historical returns of U.S. stocks and Treasury bonds. Some years the markets are up and some years they’re down, but the 4 percent rule takes that into account. As long as you keep withdrawing a steady amount of money, plus increases for inflation, you won’t run out. This rule would have protected your annual income even during 30-year periods that included the Great Depression of the 1930s and Great Stagflation of the 1970s. In better periods, savings lasted for many years more.

Step 3: Total Your Income

Add that “safe” 4 percent amount to your annual guaranteed income. For example, if you’re due $20,000 from Social Security and take $4,000 from a $100,000 nest egg, you’ll have $24,000 that you can safely use for living expenses, including any taxes.

Step 4: Set Your Budget

Finally, divide your expected yearly income by 12 to get your available monthly cash. And that’s it. Don’t worry about inflation; your income should keep up with inflation, thanks to Social Security’s cost-of-living increases and the annual increases you take from savings.

Special Factors

You’re Married

Calculate your spendable income three ways: once as a couple, once assuming that you die first, and once assuming that your spouse dies first. Don’t skip this analysis! Couples generally get two Social Security checks — one per spouse. The survivor will get only one. If you get a pension, it, too, might go down or go away when you die. Each spouse should know what might change after the other’s death.

You’re a Homeowner

Worried that these numbers won’t fund a decent standard of living? You might want to tap your home equity.

Home equity loans, however, can be hard for retirees to get. Instead, if you want to stay put, you might get a reverse mortgage: a loan against your home with no payments due until you leave it permanently. The debt is usually settled via proceeds from your home’s sale. Costs are high: If your house is worth $260,500 — the median U.S. price — a $50,000 credit line might carry $13,000 in one-time fees. (That money comes from your home equity, not your pocket.) Another option: Take in a renter. Or you could downsize, adding your home-sale proceeds to your investments.

You Fear Stocks

The 4 percent rule rests on the premise that you invest about half of your nest egg in low-cost funds — index mutual funds or exchange-traded funds — that hold big-company stocks and track the market’s moves. The other half is in Treasury bond funds. If you also hold funds with smaller stocks, Bengen says it’s safe to start at 4.5 percent.

If you avoid stocks, however, and own only bonds and CDs, 4 percent is too high. Your initial safe withdrawal rate is more like 3 percent, says economist Wade Pfau of the American College of Financial Services in Bryn Mawr, Pa. You might also start with that number if you retire early or own individual stocks, which are riskier than market-tracking mutual funds.

On the other hand, you might go higher. The original 4 percent rule was designed to protect you from the worst of times, says financial planner Jonathan Guyton of Edina, Minn. But most 30-year periods do just fine, and you might find that you’re skimping while money piles up. Guyton suggests starting with 5 or 5.5 percent. But do that, he says, only if you have at least 60 percent of your investments in stocks and you’re willing to cut back a little — say, 10 percent of your planned annual withdrawal — when markets fall. Five percent also makes sense if you want only 20 years of income — for example, if you don’t quit work until you turn 75.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Retirement Planning and the Younger Spouse

Adjust savings and withdrawals with the age gap in mind

Retirement planning advice for married couples tends to assume two things: You’re pretty close to each other in age (with the husband perhaps a year or two older), and the husband has always been the primary breadwinner. But in this age of late marriages, divorce and second marriages, what if there’s a much younger spouse? Large age gaps between spouses require planning.

I asked several personal-finance advisers what their advice would be. Here are their thoughts.

Expect to work longer

You may have to stay employed past the typical retirement age in order to build up a larger pot of savings. If, for example, your spouse is 55 and you die, your nest egg may have to fund your spouse for 40 years. For investment growth, allocate a higher percentage of your financial assets to stocks. If that makes you nervous, you’ll have to plan on a lower level of spending — which is the hardest thing for clients to understand, says Alex Feick of Paragon Capital Management in Denver.

Plan to spend less

If you are a typical retired couple, you can afford to spend 4 percent of your savings in the first year and give yourself a raise for inflation in each subsequent year. But with a much younger spouse, you should drop your withdrawal rate to perhaps 3 percent, says Aaron Parrish of Triad Financial Advisors in Greensboro, N.C.

Reduce withdrawals

At 70½, you have to start taking money out of an individual retirement account. If your spouse is more than 10 years younger, you can reduce the required withdrawals — and stretch your savings — by using the IRS’s joint life expectancy table to calculate the amounts.

Mind the insurance gap

If the older spouse carries the couple’s health insurance and switches to Medicare at 65, the younger spouse will need to buy an individual health policy. Currently, it’s an uncertain market, with premiums going up.

Adjust your Social Security

Spouses with big age differences should generally approach Social Security as if they were single, says Bill Reichenstein of SocialSecuritySolutions.com, a website that helps you maximize your benefits. If you have health issues and don’t expect a long life, take Social Security at 62. Otherwise, wait until 70.

Consider life insurance

If you haven’t saved enough, look into a 20-year term life insurance to cover your spouse’s future needs. You can get it even at 65, if your health is good. Check the rates at term4sale.com.

Plan your pension

If you’ll get a company pension, don’t take the lump sum payment when you retire unless your spouse is already well provided for. Instead, take the maximum joint and survivor option. It will pay your surviving spouse 100 percent of your pension for life.

The younger spouse might find his or her career interrupted and savings slashed due to the needs of an aging spouse for medical and personal care, warns Susan Pack of Pomeroy Financial Planning in Cincinnati. It’s something to account for in your financial planning — and all the more reason to manage your spending and save the max.

(Originally published in The AARP Monthly Bulletin.)

NextAvenue.org

How to Make Your Money Last in Retirement

From January 2016: Jane Bryant Quinn’s latest thinking from her new money book

(The following is excerpted from How to Make Your Money Last: The Indispensable Retirement Guide by Jane Bryant Quinn. Copyright © 2016 by Jane Bryant Quinn. Reprinted by permission of Simon & Schuster, Inc. All Rights Reserved.)

I started this book because my head was popping with questions about the life phase we call “retirement.” After decades of working, we’re finally free — but free to do what? A whole generation is reinventing itself as it moves away from the role of earner toward the new status of “engaged and interested citizen, retired.”

As we gradually find our footing, we’re also trying to find a way of paying for it. None of us knows how many years we have ahead — 20? 30? More? Last year, my family celebrated my mother’s 100th birthday. (She’s sharp and happy, thank you for asking!)

Reason to Worry

Centenarians are rare, but our lengthening life expectancies continue to surprise us all. On average, you’ll reach your mid-to-late 80s. The 90-plus population has tripled over the past three decades. So we have every reason to worry that our money will run out before we do.

I was shocked when I looked at the menu of so-called “safe” investments we’re being offered. They’re loaded with hidden costs and risks.

When you enter retirement’s door, suddenly you have to take the money you’ve saved and turn it into a reliable income for life. These regular withdrawals from your savings and investments amount to “homemade paychecks,” landing in your bank account just the way your working paychecks did.

How large will the income provided by these paychecks be?

In a perfect world, you’ll work on this question well before you leave your job. The answer will tell you when (and whether) you can afford to quit. In today’s imperfect world, however, you might be pushed into retirement unexpectedly. Then, you’ll need to figure out, pronto, how to manage with what you already have.

Key Questions to Answer

As you contemplate retirement, you’ll want to answer some key questions: What kind of standard of living can you afford? Will you have to keep working? And how do you stretch your savings to make the money last?

When I started asking those questions for myself, I looked around for information. There isn’t much. I did, however, find plenty of bad advice from financial firms and their salespeople (a.k.a. “advisers,” “financial consultants,” and brokerage firm “vice presidents”).

I was shocked when I looked at the menu of so-called “safe” and “guaranteed” investments we’re being offered. They’re loaded with hidden costs and risks. Maybe the firms are unscrupulous, maybe just careless. Either way, people like us — with savings that we need to both hoard and spend — are walking around with targets on our backs. We’re where the money is and, believe me, they’re coming for it, or trying to.

What Surprised Her

What surprised me — really surprised me— is how simple a retirement income plan can be. So simple that you can manage the investments and withdrawals yourself.

I also learned, while researching this book, that people are often leaving money on the table, particularly when it comes to Social Security. I found people taking it at age 62 — not because they had to but because it was there. They had no idea how much their monthly benefit would increase if they waited a few years to collect.

Then there’s the question of what percentage of your retirement savings to put into stocks (or, rather, stock-owning mutual funds — the best bet for you and me). There’s a lot of research linking the percentage you hold in stocks to the size of the sustainable income you can withdraw from your savings for life.

Having read it, I’ve come to think of retirement as being split in half.

For the first half — the near-term 10 years or so — holding safe or low-risk CDs or bond mutual funds makes a lot of sense. You need a reliable source of money in case stock prices decline.

But to fund the second half of retirement — starting 10 or 12 years from now — you’ll need to own investments that grow, by buying and holding two or three well-diversified stock-owning mutual funds. When you do this, you’ll still be an “income investor.” Future capital gains create spendable income just as interest and dividends do.

Why She Changed Her Mind

While working on this book, I changed my mind about a few things.

For example, I developed a new respect for immediate-pay annuities that convert a lump sum of savings into an income for life. They offer a higher monthly income than you can prudently withdraw from investments that you manage yourself. (Don’t confuse “immediate-pay” with the variable annuities that promise lifetime benefits. “Lifetime benefit” annuities are on my “no” list due to high costs and misleading sales.)

Another example: I learned a new use for reverse mortgages. These loans against home equity are often a poor deal for people in later age, especially for those who have almost run out of cash. But if you take the loan earlier, in the form of a credit line, you can use it to increase the size of your monthly income. The credit line grows every year, which gives you a nice hedge against potential inflation.

What a Homemade Paycheck Should Do

A homemade paycheck isn’t intended to cover everything. You need it only to fill the gap between your retirement expenses and your other sources of income, such as Social Security, a pension, rents, part-time work and whatever. Figuring out that gap is the entryway to retirement planning.

Don’t feel bad if you have to trim your expenses so as not to take too much from your savings every year. Almost everybody trims, whether they confess it or not. Peace of mind is finding a way of life that works.

The biggest thing I learned, after digging into this subject for a couple of years, is the significance of our sense of self as we approach or enter this change of life.

We need to find a new way of being — a fresh identity, different passions and pastimes and a deeper involvement with family, community and friends.

We’re not on the shelf (yet!). We have lots to contribute and the time to find our place. What gives us this freedom of mind and action is having an income that we’re sure will last for life. After you build that income, adventure calls.

(Originally published on NEXT AVENUE.)

AARP Article

The Spousal-Benefits Puzzle

Social Security can be as complicated as marriage

What do I get the most mail about? Winner by a mile is the question of when to file for spousal (or divorced spousal) benefits. Lots of you misunderstand the rules, with the result that you’re leaving money on the table.

So here is your guide to spousal benefits. I’m writing from the point of view of a wife filing on her husband’s earnings record, but the same rules apply to either spouse.

First, what is a spousal benefit?

It’s a payment originally designed for women who left the workforce to raise children. You need 10 years of work (40 quarters) to claim a retirement benefit of your own. If you worked less (or not at all), or your earnings were very low, you can get a spousal benefit based on the earnings of your husband.

How much is the spousal benefit?

It depends on your age when you claim it. If you wait until your full retirement age (somewhere between 66 and 67), you’ll get half of what your husband could get at his own full retirement age. If you claim earlier, you’ll receive less.

What if you worked 10-plus years and earned a Social Security retirement benefit of your own?

Here’s where claiming gets tricky. If your husband has not retired, you can file for a benefit based on your personal earnings. When he finally quits work and goes on Social Security, the spousal amount you can receive depends on your personal benefit’s size. If it’s higher than what you’d get as a spouse, you’ll continue to receive that same, higher amount, says Philip Moeller, coauthor of Get What’s Yours: The Secrets to Maxing Out Your Social Security. If your personal benefit is smaller, it will be topped up to the spousal level.

If you file when your husband has already retired, Social Security will normally assume that you’re claiming your personal and your potential spousal benefit at the same time. You will receive the higher of the two.

There’s an exception for people who were born on or before Jan. 1, 1954. If you put off your claim until full retirement age, you can file a “restricted application” for a benefit based on your spouse’s earnings, without also claiming the personal benefit you’re owed. At age 70, you can switch to your personal benefit, which will have grown at 8 percent per year plus the inflation rate.

What if you’re divorced?

You get the same benefits as a current spouse, if your marriage lasted at least 10 years and you are now single. Also, you can claim the spousal benefit even if your ex has not retired, provided that he is eligible for benefits and you have been divorced for at least two years. If you’ve been working, however, you will probably find that sticking with your own benefit is the better deal.

Special rules cover the disabled or retirees with children who are under 18. But for most of you, this road map works.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Should You Pay Down Your Mortgage?

More and more older homeowners are carrying mortgages into their retirement. The dollar amounts are much larger than they used to be, and the average loan term is longer by several years. Is this a crisis? That depends.

Normally, the larger your debt, the greater the risk that your retirement standard of living is likely to fall. But some retirees keep large mortgages by choice. Others find it possible to carry even an unwanted mortgage because interest rates are low. Either way, retirees have options for reducing the debt.

It’s not clear that the recent surge in mortgage indebtedness is a risky trend, says Alicia Munnell, director of the Center for Retirement Research at Boston College. The most recent data comes from the 2013 survey done by the Federal Reserve. Between 2001 and 2013, the share of homeowners 65 and older who still had mortgages rose by 13 percentage points. Only 61 percent owned their homes free and clear in 2013, compared with 74 percent 12 years earlier. The median loan had 17 years remaining, compared with 13 in 2001. The story is similar for homeowners 55 to 64.

But this data reflects the housing bubble of the aughts, when optimistic spenders refinanced their homes and took out gobs of cash. It may be that your ardor for mortgage debt has cooled. We’ll learn more, Munnell says, when the 2016 survey is published later this year.

So how do you want to handle mortgage debt when you get to your retirement’s starting gate?

HOLD a large mortgage. This might make sense for people with high income who can deduct mortgage interest, who are comfortable with risk and who invest heavily in stocks. Your long-term returns are likely to beat your mortgage costs, after tax. If your income is modest, however, you’re probably using the standard deduction, so the tax break on mortgage interest doesn’t do anything for you. Your mortgage is simply an expense.

Pay down the debt faster. You might make double payments, or refinance into a 15-year mortgage. Prepaying is easiest when you’re still working and earning a paycheck. Postretirement, it works best for people with comfortable incomes who can afford the extra monthly cost. But prepay with taxable income; don’t take money out of a tax-sheltered retirement account. And don’t tackle the mortgage until you’ve paid off any lingering credit-card debt.

Sell and buy something cheaper. You might buy the new place for cash, if you’ll have enough money left over to live on. If not, take a mortgage with lower payments than you’re making now. The sooner you act, the more money you’ll save. And by the way, banks count Social Security income when evaluating your creditworthiness.

Sit tight. If you have only a few years left, just run it off.

Aim for being free and clear. Even many wealthy people get rid of their housing debt. If bad things happen, you know that the home is yours. And remember, property taxes and insurance premiums can continue to rise, long after your mortgage has been paid off.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

To Buy or Not To Buy

Leasing a car makes less sense after retirement

Need a new car? The question is whether — given your budget and lifestyle — you should buy or lease.

Here are the two classic rules.

1. To pay the least over the long run, buy the car outright.

2. But lease if you want to drive a better car than you can afford to own.

Down payments are lower when you lease, compared with taking an auto loan, and monthly payments are lower, too.

No rule is forever. You might have a different opinion in your 50s than in your 70s. Before that discussion, however, you need to weigh some other pros and cons of leasing a car versus buying it.

When you purchase a car, you pay off an auto loan in an average of about five years. After that, you drive “free” for as long as you like. You become responsible for all repairs, once the car comes off warranty. To save money, consider a factory “certified pre-owned” car that has been inspected and refurbished and carries a manufacturer’s extended warranty.

When you lease, by contrast, you never own the car. You pay for its use over a limited period of time — say, three years. The warranty should cover basic repairs. Maintenance costs may be covered in the contract. At the end of the term, you can buy the car at a price predetermined by the contract. Or you can return it to the dealer and lease another car, brand new. For those who go from lease to lease, car payments never stop.

Which approach best fits your needs?

People still working often find it attractive to lease. Driving a fancier car might be good for business (or good for the soul). And constant car payments don’t feel burdensome when there’s a steady paycheck coming in.

Before signing the lease, be aware of the many incidental fees (such as for acquisition, documentation and title). For example, you’ll pay penalties for driving more than 12,000 or 15,000 miles a year unless you buy additional mileage in advance. If you want to give up the car before the end of the lease, you’ll owe early termination fees that might run to several thousand dollars.

A crash that totals the car is considered early termination; to protect yourself, always buy gap insurance to cover that unexpected cost. At the end of the lease, there might also be a fee for unusual wear and tear.

Are you currently leasing a car? At retirement, you might rethink. There’s good reason to own rather than lease once out of the workforce. For one thing, you probably won’t be driving as much, so the car will last longer. As an owner, you’ll be able to use it, reliably, for perhaps 10 or 15 years, while making no monthly payments at all.

For another thing, owners are better off on that day when you have to give up driving for safety’s sake and start dialing car services for rides.

If you’re leasing and turn the car in early, you’ll owe the big termination fee. Owners can sell their cars and pocket the cash. Nice.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Don’t Rush Social Security

If you can afford to wait until 70, you’ll be better off

I usually encourage people to wait until age 70 before taking Social Security retirement benefits. By waiting, you get the maximum payout. Your monthly check will be at least 76 percent higher than if you started as soon as you qualified, at age 62. If you’re married and die first, waiting will also provide your spouse with a larger survivor’s benefit.

Many people need the money, so they start their benefits at 62. But what about those with substantial investment portfolios? Even if they can afford to wait, would they come out ahead if they claimed at 62 and invested those benefits for growth?

I put this question to Bill Reichenstein, a professor of finance at Baylor University in Waco, Texas, and cocreator of one of the most powerful Social Security calculators. He adjusted for various taxes (for example, the probable tax on a higher-income investor’s Social Security income) and assumed a 2 percent annual cost-of-living increase in benefits. After running several cases at the national average life expectancy for people who are 62, he found that they all produced the same answer: Financially, it’s better to wait.

For example, say that you claim at 62 (accepting a much smaller check for starting early) and put the money into a nest egg invested half in stocks and half in bonds. You decide not to tap your savings to replace that Social Security income. You’d rather hold your income down so you can build your investments up. At 70, you start drawing on that nest egg, taking the monthly benefit you would have gotten if you had waited until 70 to collect. How long will your invested Social Security money last, after tax?

Oops, only until age 81. That just about matches national life expectancy. But on average, people in the top two-fifths of the income range live longer than that. For a 50-year-old, that’s nearly 89 for men and 92 for women. Roughly half of the well-to-do will probably exceed even that extended age. Your invested nest egg will run out, leaving you only the discounted Social Security benefit that you took at 62.

Here’s another example. Say that, at 62, you decide to start your benefits and invest them but hold your income level by drawing an equal amount out of your IRA to help pay your bills. The result is about the same — your nest egg will run out before you reach your average extended life expectancy. What’s more, claiming at 62 could raise the percentage of your Social Security benefits subject to tax, Reichenstein says.

You might think you can beat the system by investing more of your Social Security benefit in stocks and less in bonds. Maybe stocks will soar, creating a nest egg that lasts until you’re 88 or older. But there’s also a greater risk of earning even less than Social Security would pay.

You might consider starting at 62 and investing the benefits if you and your spouse are sure you’ll never need the money. That way, your heirs will inherit the account if you die early. If your health is poor, you might also start at 62, assuming your spouse will never need a larger survivor’s benefit.

But if you think that investing your benefits will beat the lifetime returns that Social Security pays, well, you can always dream.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Make a Plan While You Still Can

Don’t put off critical life decisions until a crisis

Most of us think about retirement as the last big plan we’ll ever have to make. But there’s one more thing that’s perhaps even more important. You need a plan to protect yourself against the risk of making poor decisions in your older age. Like it or not, we aren’t as sharp at 80 as we were at 60, even when we think we’re fine.

For example, Terrance Odean, a University of California, Berkeley finance professor, tells me that his father, weakened from a fall, decided to cancel his long-term care insurance at 85. He never asked his son’s advice. Two years later, he wound up in a nursing home, uninsured. “Dad was no longer thinking clearly, but didn’t know it,” Odean says.

Margaret King, director of the Center for Cultural Studies & Analysis in Philadelphia, wrote to me about an ill and widowed neighbor, age 76. She has no close relatives and zero plans for future health care or financial management. “Her friends can’t devote their lives to her needs,” King says.

Loss of powers might come on us gradually or suddenly in a crisis. The better prepared we are, the safer we’ll be.

Item one is to simplify your finances, says attorney Martin Shenkman of Fort Lee, N.J., to make it easy for someone to take over. Consolidate any scattered CD accounts and IRAs, set up automatic payments to a credit card for regular bills (card companies provide fraud protection) and create good financial files, including user names and passwords.

Then choose an agent who’ll help you with your finances if you become uncertain or unable. Give him or her your durable financial power of attorney after having a heart-to-heart about what you expect. Or consider a revocable trust. Chat with your agent about even small money decisions, in order to get in the habit. Any financial advisers should have someone to contact if you start doing odd things (for example, making big gifts to a hired caretaker).

Another power of attorney should go to the person you’d want to make medical decisions for you in case you can’t make them yourself.

When your medical and financial stand-ins are not the same person, the financial document should order the financial agent to pay for any kind of care that is chosen by the health care agent, Shenkman says. Draw up a living will that covers your wishes for continuing, or final, care.

Decide where to live next. You won’t necessarily be able to stay in your home, especially if you’re married and lose your spouse. Now is a good time to investigate independent or assisted living possibilities instead of leaving it to your worried children after a crisis.

Think about when you’ll give up driving. (Hint: It should be before your kids start demanding the keys.) Does your current neighborhood offer sufficient public transportation for you to get around?

It’s hard to identify with a future image of ourselves, King says. But that older person is someone you’re responsible for. Save yourself and your children grief by setting up guardrails now.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Is It Time to Splurge?

Having a nest egg is great, but don’t sacrifice needlessly

Here’s a surprising question. Do we become too frugal when we retire? Those of us who have spent years pinching our pennies to fatten our nest eggs often find it hard to get out of the habit. At the age when we ought to start spending those savings, we become afraid to touch them.

There are reasons for caution. We don’t know how long we’re going to live; we fear unexpected health care costs in later age; we are earning practically nothing from savings and worry about losing money when stock prices fall. But there’s evidence that we sometimes worry too much — and risk depriving ourselves of pleasures that we can afford.

I’m thinking of the friend who flies to see her grandson only once a year because she wrongly believes that an extra visit would knock her nest egg out of whack. Or the one who has enough money to buy hearing aids but is so shocked by their cost that she stays partially deaf.

Are you stuck, too? Could you spend more on hobbies, grandchildren, charities, fun, without that nagging dread that the money will run out?

For those of you who have only a small amount of savings and live on Social Security and perhaps a small pension, these questions are probably moot. You likely already spend all your income and need your savings for emergencies.

For those who are better fixed, however, overcaution might be crimping your style. A 2016 study from Vanguard’s Center for Retirement Research finds that, on average, savings continue to rise after people retire. A similar study from Texas Tech University finds that even people taking required minimum distributions from their individual retirement accounts tend to save some of that money, rather than spending it all.

Maybe you want to leave more to heirs. But those of you with discretionary income might also underspend because you’re unsure how much of your money you can afford to use.

Here’s one way to figure it out: Add up the income that you can reasonably count on in retirement in the form of regular checks, excluding interest and dividends. That would include Social Security, any pensions or annuities, and any other lifetime sources. To that, add 4 percent of the value of all your financial assets, including stocks, bonds, mutual funds, CDs and cash. This effectively includes your interest and dividends. The total is roughly the amount you can spend each year and still feel sure that your money will last at least 30 years. If you’re spending less than that amount, you can afford some extra grandchild visits, a family visit to Disneyland or Yellowstone, or a week abroad.

There’s no harm in spending even more of your disposable income in early retirement (the go-go years) because you’ll inevitably cut back later (the no-go years). As you get older, it’s normal to worry about running out of money. But don’t worry so much that you forgo joy.

(Originally published in The AARP Monthly Bulletin.)