Rajiv: Traditional “Ready to Retire” Guidelines Are Not Enough!
If you’re “of a certain age,” there’s no doubt you’ve wondered many times when you might be ready to retire. Certainly, there’s no shortage of articles that attempt to help you answer the question, “Am I ready to retire?” Sadly, while some of these articles might contain pearls of wisdom, all too many are either one-dimensional or self-serving, or both.
Here at the Blog, we think this recent article from CNBC, written by reporter Ira Wilder, is a case in point. It’s not that Wilder’s information is necessarily wrong, says Rajiv Nagaich – instead, the problem with the article is that it parrots the financial industry line that all you need for retirement readiness is to buy whatever product it is that they’re selling. This represents yet another article suggesting that having plenty of money means a happy and fulfilling retirement.
Is that true? Rajiv says, definitely not. Let’s first dive into the CNBC article, then we’ll give Rajiv the last word.
Ready to Retire in Times of Financial Uncertainty
“Retirement used to be a three-legged stool,” Wilder observes in his CNBC article – “one that rested on pension checks, personal savings and Social Security benefits. But today, that stool is a little wobblier.” The reasons are clear: “Social Security seems less secure, pensions are a promise of the past for most Americans, and the lion’s share of retirement finances are now personal savings.”
With that in mind, says Wilder, “you have to weigh a lot of different factors before deciding you’re ready [to retire].” For his article, Wilder talked with financial experts for their insight on how, in his words, to compile “a list of milestones you need to reach before leaving work behind.”
Full disclosure: this article appeared in a section of the website called CNBC Select, which is partly supported by “affiliate partners” including many banks and financial institutions. Perhaps that’s why the article reads like an ad for the financial services industry.
With that in mind, here are Wilder’s six triggers that say you’re ready to retire.
#1. You’re Ready to Retire When You Have Enough Money
Sounds basic, doesn’t it? But this seems to be the essential point of Wilder’s article.
“Figuring out how much money you need to have saved before you can quit working is a job in and of itself,” he writes. Some say that you should save at least 10 times your annual salary by the time you’re 67. Others point to the 4 percent rule, which states that you should be able to comfortably live off of about 4 percent of your investments in each year of retirement, thus allowing you to cover expenses for about 30 years.” In other words, advice will vary.
“One of the first questions would be ‘What does retirement look like for you?’” financial planner Jackie Koski says. “So, for some people, that doesn’t mean that they want to do anything but play with their grandkids and travel.” Your retirement lifestyle will have a significant effect on your financial needs.
Wilder offers this rule of thumb: take your annual retirement budget and multiply it by 25 – the estimated length of the average retirement. “Just remember this is only an estimate,” he adds, “and that it’s better to save too much for retirement than too little.” Sounds arbitrary to us.
#2. You’re Ready to Retire When You Have an Emergency Fund
“One of the biggest mistakes a retiree can make is not having an emergency fund,” Wilder writes, and here we agree. “In retirement, a lot of your investments and sources of income are less liquid than cash, since you can’t just go to your bank and withdraw cash from your account instantly when your money is invested in the market.”
So, what’s the solution? “A great place to keep your emergency fund is in a high-yield savings account, which lets your money safely earn interest while still enjoying FDIC protection,” says the article. Conveniently, he goes on to link to several banks with whom it would seem that CNBC has advertising ties. We suggest you shop around for the best savings return you can get with the least amount of risk and a good degree of liquidity.
“No matter what account you choose to put it in, your emergency fund should remain easily accessible and shielded from the ups and downs of the stock market,” Wilder warns. As Fidelity advisor Joe Buhrmann told CNBC, “You don’t want to say ‘Honey, you can’t have that heart surgery because our accounts are down 20 percent.’ You want that [fund] to be safe and secure.”
#3. You’re Ready to Retire When You Have a Diverse Portfolio
“It’s not a good idea to put all your eggs in one basket when it comes to creating sources of income for retirement,” says Wilder. “You mitigate risk by spreading your savings and investments across multiple streams of future income.”
Wilder quotes Houston financial planner Scott Bishop who offers his advice on how to shift your investment risk as you get closer to retirement, focusing on “safer but slower-growing accounts like certificates of deposit, treasury bills or money markets” as you age.
Wilder also recommends working with a good financial planner. Here we would emphasize that the planner you want is someone who will help you develop a financial dashboard – a tool that lets you see a wide range of outcomes based on assumptions about your rate of saving, spending, and investing. Instead of working with a commission-based planner, we urge you to seek out an objective professional who will help you, not take advantage of you. Contact us and we’ll gladly send you some trusted recommendations.
#4. You’re Ready to Retire When You Understand the Role of Social Security
Planning for ways to optimize Social Security benefits – for yourself and your spouse – is a big part of retirement readiness. Financial planner Scott Bishop told CNBC that the absence of a guaranteed lifetime income is a major source of financial stress, and Social Security can help provide some stability, along with an annuity, or perhaps a pension if you’re entitled to one.
According to Bishop, some of his clients have taken early Social Security benefits only to wish later that they hadn’t. “I’ve had clients that have made those decisions and regret that now because they’re getting $1,500 or $1,600 a month from Social Security, where they could have had $2,400 or $2,500 a month if they waited a few years,” he told CNBC.
For more on Social Security claiming strategy, check out this recent article on the Blog.
#5. You’re Ready to Retire When You’ve Planned for Healthcare
In the face of rising medical costs that tend to come with age, retirees generally have said good-bye to company-paid healthcare. This leaves them open to potentially out-of-control long-term care costs.
Fidelity’s Buhrmann told CNBC that he recommends a combination of Medicare coverage plus a health savings account (HSA), which he calls “a triple tax-advantaged way of saving for upcoming medical costs.” With an HSA, interest builds over time and can be used to reimburse you for qualifying medical expenses. “To get the most out of your HSA, you need to invest in it as soon as you can and not wait until your retirement is around the corner,” says Wilder.
But in this section, Wilder seems to skirt the issue of long-term care entirely. We’re not certain if he has even thought about the peril of uncovered long-term care costs, which Rajiv would argue is the greatest problem most retirees will face.
#6. You’re Ready to Retire When You’ve Eliminated “Bad Debt”
Here Wilder differentiates between what we assume is acceptable debt, such as a mortgage, and “bad debt” which he defines as high-interest consumer debt such as credit card balances. “You should take care of this before retiring and strongly consider adjusting your spending habits before ending your working income,” he admonishes.
Of course, he then recommends a debt consolidation loan and conveniently links to a few preferred providers who will gladly complete the transaction. While such a loan may have its place in your plan, we strongly urge you to get good, objective financial advice before borrowing more money. Here again, a financial dashboard can show you solutions to your indebtedness that you might not have considered.
Rajiv: Being Ready to Retire is About More than Money
We asked Rajiv Nagaich for his view of this article. As you might expect, he minced few words
“So-called retirement advice like this is the reason why we have such miserable retirement outcomes,” he says dismissively. “This CNBC article simply says, if you have enough money, you’re ready to retire. Ready for what? How many people with plenty of money have been miserable in their old age because they thought their bank account was the answer to everything? It’s bloody frustrating!”
Rajiv shakes his head and adds, “Consumers are sleep-walking into an almost certain disaster, largely because we are being told that this kind of approach is what is needed for proper retirement planning. It’s crazy.”
Instead, in his professional focus, Rajiv offers a true, holistic retirement solution in the form of LifePlanning. “How about this?” he asks. “You’re ready to retire when you have a plan on how you will meaningfully engage with life – how you will stay relevant – how you want your life to look when you are no longer independent. That’s just for starters. Finances are just one part of the picture.”
We hope you’ll want to find out more about how your retirement can be satisfying and fulfilling – and lived out on your terms!
Breaking News: Rajiv’s New Book is Here!
We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public. As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.
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Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.
Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.
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(originally reported at www.cnbc.com)