you ready for retirement?
not talking about the feeling that you’d like to chuck
your job or the daily grind of commuting. Rather, do you
know if you have enough money to retire and how to
stretch what you’ve saved so the money lasts?
you are like most Americans near or in retirement, you
don’t have a clue. That’s the finding of a national
survey of people ages 60 to 75 by the American College
of Financial Services, a nonprofit that educates
financial advisers. The researchers found that just 20
percent of retirement-age Americans, with at least
$100,000 in savings, can pass a basic quiz on how to
make their nest eggs last throughout retirement.
the most disturbing finding is that most people are
fairly confident that they are on the right track. So
they are likely to retire and find out when it’s too
late that they’ve spent more than they should early in
retirement and are in a bind later.
those with financial advisers are in the dark,
suggesting that at least some advisers might be more
focused on selling products than educating their clients
about what they will actually need and how to make it
example, a rule of thumb followed by many certified
financial planners involves what’s known as the 4
percent rule. It pertains to how much you can afford to
remove from your savings each year of a 30-year
retirement and avoid the risk of running out of money.
Yet, despite the importance of not draining your savings
too quickly in retirement, the American College of
Financial Services quiz found that 69 percent of
Americans near, or in retirement, had no idea what was
safe to withdraw from their savings each year.
the 4 percent rule, a retiree removes 4 percent of
savings during the first year of retirement, and then
each year after that tweaks the amount slightly higher
based on the inflation rate at that time. So if a person
had $500,000 in savings, he or she could use $20,000 of
it for spending money during the first year of
retirement, and if inflation were 3 percent, could
remove $20,600 of savings for living expenses in the
4 percent rule was designed by financial planner Bill
Bengen of San Diego in the 1990s. He assumed that a
person would invest their nest egg 60 percent in stocks
and 40 percent in bonds and average an 8 percent return
on the money annually. Since that’s an average annual
gain, and some years are worse or even negative, he
tested whether money would last during a multitude of
30-year periods in history, and found it would. He also
found that people removing 5 to 6 percent a year would
be at risk of running out of money.
in the retirement quiz, 16 percent thought they’d be
safe using 6 to 8 percent of savings a year.
some studies have suggested that even the 4 percent rule
could leave people vulnerable in a period of low returns
on stocks and bonds. Some research suggests buying a
low-cost immediate annuity at retirement, or a deferred
annuity that kicks in at 80 or 85, could help cover
basic living expenses late in retirement. Yet, many
annuities include high fees and penalties, and given the
naiveté of people quizzed, there’s a risk they would
be sold annuities that were more advantageous to the
broker than the individual. Among those quizzed, 65
percent said they had little knowledge about immediate
course, the key to having enough money is to understand
upfront what likely expenses there would be. But only 39
percent said they’d given a lot of thought into their
retirement budget. And without that, they have no idea
whether they will have too much or too little money.
Further, since women tend to live longer than men and
almost half of married women live to 90, they are going
to be vulnerable because only 33 percent have thought
carefully about the impact that a spouse’s death will
have on their money.
death can mean that a person gets less, or nothing, from
a spouse’s pension, and Social Security also can be
reduced. Yet, people are failing to appreciate how much
control they can have over retirement money if they pay
attention to when they start collecting Social Security.
Only half of the respondents knew that it would be best
to wait until 70 to start collecting Social Security if
they could. This is especially important for people with
a long life expectancy based on their health and their
books that will help: "You’re Fifty-Now
What?" by Carrie Schwab-Pomerantz, "The AARP
Retirement Survival Guide" by Julie Jason and
"The Hard Times Guide to Retirement Security"
by Mark Miller.