Retirement Realities

By Sandra Block
March 14, 2008 04:03 PM

Imagine receiving a check for a large sum of money—more than the amount some lucky winner took home last night on “Deal or No Deal.” Now imagine being told that you will need to make that money last for the rest of your life.

This is the real-life scenario facing millions of Americans who are approaching retirement. Unlike past generations, most of today’s retirees won’t receive a monthly pension check. Instead, they’ll retire with some combination of 401(k) plans, individual retirement accounts and lump sum payouts from their cash-balance pensions.  And making that money last will force people who haven’t balanced their checkbooks in 25 years to become money managers.

If this prospect sounds scary, it is.

A professional manager who has a bad year might not get his annual bonus. A retiree who makes poor investment decisions might not be able to afford groceries.

Making matters worse, many middle-income retirees with large lump sums to invest are easy prey for commission-hungry financial advisers and outright crooks. Fee-only financial advisers can offer unbiased advice, but many middle-class retirees can’t afford their services. And that’s where personal finance reporters can have a significant impact.

Below are ways we can help readers avoid common retirement sand traps: 

• Be a watchdog. Financial seminars for retirees and near-retirees are booming. But in exchange for a steak dinner, retirees are often bombarded with high-pressure sales pitches for variable annuities and other high-cost products. So if nothing else, we can earn our paychecks by reminding readers that there really is no such thing as a free lunch.
• Deliver hard truths. During the tech stock boom, I often interviewed people who said their primary goal was to retire at 55 and play golf. Some believed they could retire at 50.  Flush with phantom profits, they were convinced they could afford a long, comfortable retirement in a golf course community.
  Now, those profits have disappeared and many of people have seen their home equity dry up, too. That means many individuals will need to work until at least 65 to make up for the loss of traditional pensions and inadequate savings. This is not something someone with a soul-searing commute wants to hear. But working longer—even by a year or two—is one of the easiest ways to increase retirement savings, especially for workers who got a late start.
• Never overlook the cost of health care. In 2007, only a third of large employers offered retiree health coverage. That means most workers who retire before age 65 will need to find some other source of coverage until they’re eligible for Medicare. Individual insurance policies for older individuals are usually expensive, and retirees with chronic health conditions may not be able to buy individual insurance at any price.
  Also, we must remember that retirees’ health costs won’t disappear once they turn 65. Contrary to popular belief, Medicare doesn’t cover all health care costs. Fidelity Investments estimates that the average 65-year-old couple will need more than $200,000 over 20 years to pay expenses that aren’t covered by Medicare. And that estimate doesn’t include the cost of long-term care.
• Listen to your readers. My columns and stories about retirement tend to generate the most e-mail. I try to respond to most of them, and file the e-mails on an Excel spreadsheet (this has the dual advantage of providing a searchable database and keeping me current on Excel).
  These e-mails sometimes lead to stories and columns. A few years ago, I got an e-mail from a divorced mother of three who got a late start saving for retirement. At 70, she was still working as a legal secretary and trying to save as much as possible. But even though she had no plans to retire, she was required to start taking distributions from her IRA when she turned 70 ½. Her story led to a cover on how the mandatory withdrawal rules penalize people who postpone retirement, either by necessity or by choice.
  Sometimes, readers provide the best advice, too. A couple of months ago, we asked readers who were already retired to offer tips for future retirees. Here’s what Kevin Porreco of Gainesville, Va., wrote in an e-mail:

  I retired over seven years ago on disability retirement due to having multiple sclerosis. Several years later, my wife was diagnosed with breast cancer. What we've discovered is that a fantastic retirement has nothing to do with money. It's about realizing what's really important in life. Every morning, my wife and I have coffee in the living room. For about an hour we just talk. That's right, talk. This is what makes retirement!

 

* Sandra Block is a Personal Finance Reporter for USA TODAY

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism