Without proper planning, secure retirement elusive

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By Brian Goslow

Maureen Smith, 65, of Peabody, can be considered one of the lucky ones in terms of having sufficient funds for retirement.

After working 33 years at General Electric (GE), she took what was intended to be a temporary leave from her job in Lynn to spend quality time with her mother, who had moved in with her after the passing of her father.

After her mother died, Smith grew weary of the responsibility of the upkeep of her home and decided it was time to move into a two-bedroom apartment in a senior community. The complex’s Realtor helped sell Smith’s house in an almost unheard of 18 days and having used the facility’s in-house services, it garnered her a $2,000 rebate off her moving costs.

Smith also benefited from a lifetime of saving — her father had insisted she open a savings and security account when she was first hired at GE. “He said put in as much money as possible,” she recalled. Most of that money remains untouched and re-invested, serving as her rainy day account should she need to supplement her monthly Social Security and GE pension payments or require long-term hospitalization or more expensive living quarters for health reasons.

Her hindsight contrasts with that of many other Americans whose retirement confidence level has reached its lowest point in over two decades, according to the results of the 2012 Retirement Confidence Survey (RCS) conducted by the Employee Benefit Research Institute (EBRI).

According to the survey, only 38 percent of respondents said they were “somewhat” confidant they would have enough money to live comfortably in their retirement years; 24 were “not too” confident while 23 percent were “not at all” confident they’d be able to retire comfortably. Only 14 percent were very confident they’d have the financial resources to enjoy their post-work years.

That’s compared to 20 years ago, when 73 percent of Americans were “very” or “somewhat” confident they were prepared for a comfortable retirement. The main contributor to the current lack of confidence is that many people are mired in debt, said Jack VanDerhei, EBRI’s research director.

“Those who have little or no debt report much higher levels of retirement confidence than those who describe their debt as a major or minor problem,” he said. “People know retirement is expensive. Workers say they are far more confident about being able to pay for ‘basic’ expenses in retirement than they are about having enough money to pay for medical expenses and long‐term care costs.”

Despite that reality check, far too many people simply ‘do not’ or ‘will not’ take the first basic step to ‘plan’ for a comfortable retirement, VanDerhei said. “More than half of workers — 56 percent — haven’t even tried to calculate how much they will need to save for a comfortable retirement. And as the RCS has consistently found, a distressingly large number of workers say they have virtually no savings and investments.”

That’s why one of the first things Mark Singer, president of Safe Retirement Planning in Lynn and author of The Changing Landscape of Retirement: What You Don’t Know Could Hurt You, does when meeting new clients is to get them working on their retirement roadmap.

“We establish what their goals are,” he said. It starts with finding out what the client wants from his or her retirement years and what their cash flow is expected to be like during that time.

“Cash flow drives retirement,” Singer said. That includes expected Social Security and pension payments, how much is in an investment portfolio and how that will be drawn from it, as well as other sources of revenue. “What are you bringing in, what are your needs, what’s the difference (between what you need and what you have) and where is it coming from?” he said

If someone’s not on track to reach his or her goals, the person will either have to see what it would take to get on track or change the way he or she thinks of retirement because otherwise it won’t be possible to get from Point A to Point B, Singer said.

One option is deferring retirement. The study found a growing number of folks are thinking short-term, focusing their attention on current job and financial security, having already accepted that they’ll keep working and not retire until later in life than past generations. Many also acknowledge they’ll have to work after they “retire” to supplement their income — if they’re able to find work.

Rick Fingerman, a certified financial planner and founder and president of Financial Planning Solutions in Newton, said 50 is a better age to re-evaluate retirement than 70.

“Fifty is a good time to look and project what they’re going to be spending and how much they’re going to need and how much they’re going to have,” Fingerman said. “Many times they can just cut back to a part-time employment situation when they have to work 15 hours a week for maybe five more years after retirement age, whatever that might be. For some it might be 62 or 65 and there are the lucky ones I work with who say I never want to retire.”

While Fingerman said 80 percent of the people he sees have very little debt and should be OK in retirement, the other 20 percent think about today in terms of purchasing cars and other items, vacations and moving into a new, post-children home with a brand new 30-year mortgage. “You would think that people in their 60s wouldn’t use a credit card and not pay it off immediately, but I find many of them don’t have a problem with having a balance,” he said. “They’ll play the jumping from card to card game, getting a zero balance interest rate for six months, then go to another card.”

When he does calculate what it would take to carry out a client’s retirement plan and the steps they’d have to take to reach it long-term, Fingerman said not everyone likes his answers. While he might advise against clients taking out as much as they’d like from their investments to travel to Europe or go to California to visit grandkids on a regular basis, they feel they’ve earned the right to spend their money as they see fit. “I can understand that, but if the dollars aren’t there to support that, it’s very difficult,” he said.

When clients find they don’t have as much as they need to live the life they choose in their later years, along with suggesting working longer, Fingerman will suggest they downsize. “A lot of people want to hold onto their homes,” he said. “They might have a four-bedroom home, but their kids are gone — they just don’t want to part with that house for some reason.”

One reason is the perceived stigma of “losing” one’s home. “A lot of people have said to me, ‘I feel like a failure because I’ve got to sell my house’ and I say there’s nothing wrong with downsizing,” Fingerman said. “There’s nothing wrong with making your life easier and not having to worry about the lawn and the snow and the roof and the paint and all those other things. When you become 70 and 80, even if you’re in great shape, you probably should not be up on a ladder cleaning gutters and those types of things.”

For someone entering retirement planning late in the game — after hitting 50 — there are few options to make up for lost time, the stock market being the biggest. While it’s a major option for a good sized return, nothing’s guaranteed — as many people nearing or at retirement age found in the past five years during the economic downturn that wiped out endless stock portfolios and severely cut into the resale value of many homes.

William A. Kelly, president of Kelly Financial Services in Braintree and host of the weekly Safe Money program on WRKO, said most people have forgotten what risk is.

“Risk is quantifiable,” Kelly said. “Risk isn’t (financial advisors) scaring the daylights out of you. Bank CDs and treasury bonds pay less than stocks, but are more secure.

“I like municipal bonds in the state of Massachusetts,” Kelly said. “I think it’s well run despite all the complaints we have about our government. We were early out of the recession, even though some people think we’re still there. Our unemployment rate is around 6. The bonds here go quickly when they’re issued; they’re snapped up because we repay them.”

Whatever investment route people take, Kelly suggests doing their own due diligence. If someone feels unsafe about his or her investments and feels at risk due to current market changes, it might be wise to consult with a broker about pulling out of the market. The key, especially for someone getting a late start in the retirement portfolio game, is preventing losses.

Kelly Financial starts its relationship with a client by giving them a risk tolerance test. “Usually it’s much different than they think,” Kelly said. “When they know their risk tolerance, we can plan accordingly.”

Meanwhile, Maureen Smith continues to plan ahead. She’s got her finances in place to assist her in every possible life situation. And, it helps that Smith’s retirement community offers residents such services as assisted and long-term care, short-term rehabilitation, and home, memory and respite care. “Of course, you need as much money as you can get,” Smith said. “I started thinking about this before I knew what I was thinking about. I formulated what I wanted before I needed it.”