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Late in Life Retirement Planning for Boomers

Photo courtesy of 401(k) 2012

A number of clients approach me (often they are referred) worried about a retirement shortfall. Often it’s someone around age 60-64 who for whatever reason, has not saved significantly for retirement. Reasons often include:

  • being a lower income earner
  • typical savings procrastination
  • thinking they were saving adequately (as long as markets returned 12%/year)
  • being out of work for an extended period (former stay at home mothers who experienced divorce or widowhood for example)

No matter what the cause, there’s a problem to deal with – uncertainty about retirement security – and we need a solution.  So if this is you, here is a 3 step plan to make sure you won’t be eating dog food in your later years. 3 Simple pillars:

  1. Social Security
  2. Moderate Savings
  3. Work Part Time
We also have to make a few assumptions (not exhaustive). And let’s use a test case of someone who is age 62, has only $65,000 in her 401(k) and earns $45,000/year.
  1. You are age 62 (born 1/1/1950), earn $45k, and have $65k in your 401(k)
  2. You will work past 67 (likely to 70ish)
  3. you will start saving or save a bit more
  4. You might have to claim social security later

Social Security

If you’ve been working a while, even with a break for a few years being a mom full time, you likely have a social security benefit of roughly $1,500 at age 66 .  Furthermore, it’s likely that if you are starting late, we have to be honest and assume that you’ll be working past age 67. Your benefit would be $2,182 if you wait to take it at age 70. That’s one pillar.*

Moderate Savings

If you indeed have $65,000, and you can save $300/month from age 62 to age 70, what will you have at 70? At 8% return you’d have $163,000 saved. And at age 70, you have the choice of withdrawing cash regularly or as needed to supplement your lifestyle. Or you could shop immediate annuities and get a guaranteed monthly payment for your lifetime (and spouse if married). If you assume a 5% return from age 70-90, you could withdraw $1,076.85/month from this account for twenty years until it runs out. That’s not a bad catch up plan and second pillar, especially if you are 62 and thought you were dead in the water! An extra thousand a month  is not something to sneeze at (using an annuity instead could offer a guarantee if you live longer than 90).**

Part Time Job

If you’re open-minded enough to work part time perhaps doing something you love, it could give you the $500 extra per month needed for you to enjoy your social life. 12-15 hours per week at $10+/hour gives you that amount. You may not want to work, but this is supposed to be a realistic retirement rescue scenario. You may not be able to quit your full time job and rely solely on social security and savings. But you could mitigate the need to work by doing something you enjoy and realizing it’s better than the dog food option right? And it makes a handy third pillar to diversify income risk.

Summary

This generic scenario paints a picture for a case I see often enough in my small practice.  Someone on their own with an average salary, below average savings and worry on their mind. We constructed a hypothetical game plan for over $3,000/month in

Photo Courtesy of 401(k) 2012

retirement income combining social capital sources (social security), financial capital (investments) and human capital (ability to work). This is realistic and even though it doesn’t mean luxury, you could make this work, especially if you can control living expenses (this is not the income to afford expensive cities).

If you need a late in the game financial game plan, consider contacting us. We serve the New England area from our Medford, MA office (Al one of our associates, lives in Westborough making him convenient to central and western New England), Florida and the San Francisco Bay Area. Feel free to call 781.393.0021 or drop us a note online using our contact form.

*The Social Security Online Calculator was used for a person born on 1/1/1950 with income starting in 1990 of $39,000 and increasing $1,000/year every three years until $45,000.

**This example reflects no particular investment or annuity program. Rates are hypothetical. Annuity guarantees are backed by the financial strength of the annuity company and are not FDIC insured.

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