No pensions. Roller-coaster retirement accounts. Longer lives and higher health care costs. Aging parents. Children in college. A will to work but fewer jobs to be had.
It is a familiar and potentially disastrous mix for the generation now entering retirement. And worse, most do not have a clue how to plan for it, according to experts like Anna Rappaport, chairwoman of the Society of Actuaries Committee on Post Retirement Needs and Risks.
Putting it even more bluntly, “The baby boomers are going to have to figure out how to have enough money to live on in retirement on their own,” said Joan Entmacher, vice president for family economic security at the National Women’s Law Center, an advocacy organization in Washington.
Lately there are signs that at least some of those on the brink of retirement are getting the message. And increasing numbers are seeking out people like Marsha G. LePhew, a financial planner and certified public accountant who is also certified as a life counselor by the Kinder Institute of Life Planning.
Just how many people engage life planners as they face retirement is not certain, but in the last five years, the number of planners who have participated in at least one program offered by the institute has more than doubled to more than 2,000. About 300 planners have received the Registered Life Planner designation, up from 100 five years ago, according to Maryellen Grady, operations and accounting manager at the institute, based in Littleton, Mass.
Clients are people like Melissa Birdsong, 64, a former retail executive who lives with her husband in Davidson, N.C.
For three years before she retired this spring, she wrestled with what life would be like.
“It was an avoidance behavior on my part,” she said. “I was going to work forever.”
But then things changed at the company where she had worked for 18 years, and Birdsong decided to make her move.
“It was just time,” she said. “We did the math.”
And then they called LePhew.
With LePhew, “We painted some scenarios,” Birdsong said, figuring out some contingencies for the first year.
“I knew what retirement would look like ahead of making the decision,” she said.
Knowing they could pool their resources — Birdsong’s husband, already retired, has a pension and teaches at a community college nearby — the couple focused on creating a detailed budget for what they expected their lifestyle to cost. They used spreadsheets to map out their anticipated monthly spending, including categories like home, utilities, entertainment and travel.
“We tend to eat out frequently. We wanted to know: What are we spending on that per month?” Birdsong said.
They decided they would pay off their mortgage so they would know exactly what their monthly housing expenses would be. She decided to heed the oft-repeated advice to postpone taking Social Security and will delay it until at least 66.
Birdsong had toyed with building a small art studio on her property. But LePhew urged against anything radical in the first year.
“Put the studio on hold,” she said.
LePhew also advised budgeting more for medical expenses.
“Health care is becoming a bigger line item than what people expect it’s going to be,” she said.
Traditionally, there are two ways to calculate how much you’ll need for retirement, experts say. One is to assume you will need 75 to 80 percent of your pre-retirement gross income, and the other is to create a budget. The first approach assumes your expenses will decrease if, for example, you no longer commute to a job and you take fewer clothes to the dry cleaner. The 80 percent rule of thumb is “just something to get you started,” said Mary A. Wallack, a financial consultant with Brown Miller, a wealth management group of Wells Fargo Advisors.
It doesn’t factor in whether you have paid off your mortgage, if you intend to sell your house and downsize, if you’re going to relocate to a less expensive market and what kind of lifestyle you want to have.
Creating a budget does. It’s a “spending plan going forward,” Rappaport said. “Are you going to move or are you going to stay put?” Downsizing can save you 35 percent or more on housing costs, she said. “You really need to think about the long run.”
And for those in their 60s, that can be 20, 30 or more years, based on longevity calculators.
“Depending on what you’re spending, $1 million isn’t necessarily going to get you through life,” Rappaport said.
For those in the 55-to-64 age range, whether they have saved well or not, it’s a propitious time to plan, retirement specialists say. The approach can be “How can I readjust my lifestyle so that I can afford it?” Rappaport said.
Most agree that the earlier you start planning, the better. Yet, even for those who planned, many Americans became aware after the recent recession that “life is very uncertain these days,” said Jean Setzfand, AARP vice president for financial security.
Even if you are just five to 10 years from your target retirement date, there’s still time to adjust your spending habits, save more and create a plan that can work for you. One key to success is to assess where you are financially, and where you would like to be within a particular period of time, whether it’s five, 10 or more years.
Understanding the times
“Recognize that we’re in a new paradigm,” Wallack said. In a low-interest environment, even those with significant assets have to reconsider their strategy. “You have to modify your approach to retirement,” she said.
Wallack and others note there are various streams of income available depending on your financial situation. Yet, by their late 60s, about half of Americans get most of their money from Social Security, said Virginia P. Reno, vice president for income security policy at the National Academy of Social Insurance, a research organization in Washington. After 80, three-quarters get most of their income from Social Security. If you have a pension, you may believe you’re set. Yet, experts caution that you need to consider inflation if you enter retirement at 62, with a potential life expectancy of 85 or more.
Birdsong said she had a “head full of ideas” of things she would like to do: build her studio, continue to work in her field, focus on her art and design. As her last day of work approached, she had taken a photography class to learn how to use her new digital camera and plans to take a two-week course in woodcut printing at the Arrowmont School of Arts and Crafts.
“I’m still a woman on a mission,” she said.