Ask Real Deal Retirement
My wife and I are retired, have a comfortable income and a substantial nest egg. We have a nice home and no debt. Still, I worry constantly about our financial future. What can we do to better enjoy the retirement we’ve worked and saved for?
Plenty of people have good reason to be concerned about their retirement security. Their nest egg simply isn’t large enough to allow them to maintain the standard of living they enjoyed during their career. But research shows there are also lots of retirees like you who appear to have more than enough resources to live comfortably, yet still feel anxious about their financial future.
For example, a new study by investment adviser United Income titled “Living Too Frugally? Economic Sentiment and Spending Among Older Americans” finds that we become less optimistic about the stock market, the economy and our future financial health as we age, a shift that may lead us to focus so much on preserving our wealth in retirement that we don’t enjoy it as much as we could.
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And while some earlier studies may not have homed in on why many affluent retirees seem reluctant to draw on their nest eggs, they have demonstrated that many seniors find it difficult making the transition from saving to spending. Last year, for example, researchers from Texas Tech and William Patterson University documented what they called “a retirement consumption gap,” or the fact that many retirees were spending much less than they could actually afford based on the size of their retirement accounts plus income from Social Security and other sources.
Similarly, a 2015 report on retirement spending from Vanguard estimated that retirees with $100,000 or more in 401(k)s, IRAs or other retirement accounts spent only 60% of the money they withdrew from those accounts and ended up reinvesting the remaining 40%.
In short, for whatever reason—increased anxiety about the future, fear of running through their nest egg too soon, trouble shaking a deep-seated tendency toward thrift—many retirees simply may not be enjoying retirement as much as they should be given the financial resources at their disposal.
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So how can you, if not eliminate, at least reduce this sense of foreboding and start leading a happier and more satisfying post-career life?
I’d suggest you begin by getting a handle on where you actually stand financially. That way you can at least determine whether there’s a rational basis for your financial concerns.
You can do this on your own pretty easily by going to a retirement tool like T. Rowe Price’s retirement income calculator. Just plug in such information as your age, the amount you’re receiving from Social Security, how much you have in savings and how much you expect to spend each year, and the calculator estimates the probability that you’ll be able to continue spending that amount without depleting your nest egg during your lifetime. (The calculator assumes you’ll live to age 95, which I think is reasonable for planning purposes, but you can override that assumption if you like.) Or, you can leave Social Security out of it and just see how long your nest egg is likely to last at different withdrawal rates.
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You’re getting estimates here, of course, not guarantees. No tool or software can predict the future. But by running a variety of scenarios with different levels of spending and a range of investing strategies from conservative to more aggressive and repeating his process every couple of years, you can get a good sense of how much of a margin of safety you have if you continue spending at your current level—and you can see how that margin may grow or shrink as you change how much you spend or how you invest.
If you don’t like doing this sort of number-crunching on your own—or, you’d just feel more comfortable having a second opinion—you can have a financial pro do the analysis for you. For a job like this, it probably makes more sense to hire a financial planner on an hourly basis rather than sign up for long-term relationship. You can find planners willing to work for an hourly fee by going to the Garrett Planning Network site.
Another move that might allay some of your anxiety is to turn a portion of your savings into guaranteed income. You and your wife are already getting guaranteed income from Social Security, so you don’t want to overdo it and end up with more guaranteed income than you need. But research shows that retirees who receive annuity-like income in retirement tend to be happier than those who don’t. So perhaps the knowledge that you’ll have another source of income beyond Social Security that will keep flowing in the rest of your life regardless of any turmoil in the financial markets will provide some peace of mind and give you a greater sense of security.
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If this idea appeals, you might consider two options. One is an immediate annuity, which, as its name suggests, begins delivering guaranteed lifetime income immediately after you purchase it. Today, a 65-year-old couple (man and woman) who invests $100,000 in a “joint and survivor” immediate annuity would receive about $470 a month as long as either one is alive. The second option is a longevity annuity, which starts making payment at some point in the future. So, for example, if that same 65-year-0ld couple were to invest $50,000 today in a “joint and survivor” longevity annuity that begins making payments in 15 years, they would collect about $700 a month for life once they hit age 80.
You can get payout estimates for both immediate and longevity annuities based on your age, gender and the amount you invest by going to this annuity payment calculator. Be aware, though, that in addition to their many appealing features, annuities also have serious drawbacks.
Finally, you may want to at least consider the possibility that you might obsess less about your financial situation if you had more going on in other areas of your life. So ask yourself: Are you sufficiently socially connected? Retirees who stay in touch with a broad network of friends and family tend to find retirement more rewarding than those who are more isolated. Perhaps taking on a part-time job, doing some charity work or throwing yourself into a new project such as writing a blog or starting a new hobby might make you less apt to dwell on your financial concerns. In short, maybe you should set aside some time to do the kind of “lifestyle planning” that I usually recommend people do before they retire.
Obviously, there’s no way that you or anyone else can have a totally trouble-free retirement. Life has too many uncertainties, too many twists and turns. But you seem to have done enough saving, investing and planning to put yourself in the position of having a financially secure retirement. I hope that by following my suggestions above, you’ll be better able to kick back and enjoy it.