10/24/17

Worried you’ll run out of money in retirement? Then don’t make these rookie mistakes.

By Katie Young & Sharon Epperson, April 13, 2017, CNBC.com

Being newly retired is definitely a reason to celebrate — and spend — some of the hard-earned money you’ve saved over the years.

Yet with Americans living longer, experts say you need to plan for a retirement that could last 30 years or more. Add in ever-rising medical costs, mostly stagnant Social Security checks and all of a sudden that pile of cash doesn’t look so big.

The issue of outliving your money is a real threat. To avoid having that happen don’t make these classic new-retiree mistakes.

Spending too much too soon

Making the transition from earning money to spending money when you first stop working is tricky. Especially if you’re healthy and eager to enjoy all that new free time.

“We get this all the time, where recently retired clients will do a trip to Europe or Asia, then spend four weeks in the Caribbean, saying, ‘When we get older we’ll slow down,’” said Chris Schaefer, who leads MV Financial’s Retirement Plan Practice Group, Bethesda, Maryland. “They’re eating so much of principal in early retirement that they don’t have enough to last.”

Schaefer suggests that working with a financial planner to create a withdrawal strategy for your retirement accounts is key. He says a good starting point is taking out no more than 4 percent of your total nest egg a year.

Overspending on the house

Wanting to be debt free is an admirable goal and one that works for many retirees. However, if you haven’t paid off the mortgage yet, rushing to do so may not be your best move.

As long as you have the cash flow to comfortably make the payments, Schaefer says don’t sacrifice your retirement savings by using a big chunk to pay it down. Instead keep it invested where it should continue to grow.

Plus having a mortgage offers tax benefits you can still claim as a retiree.

Overspending on the kids

Once you retire it’s time to let the 35-year-olds take care of themselves.

“Over the last 10 years we’ve seen this more and more with millennials not able to get out on their own,” Schaefer said.

So, if you’re paying rent for your adult children, or their cellphone bill, car payments or other recurring costs, it’s time to sit down with them and tell them it’s over.

Making smart decisions early on will help stretch your money further so you can retire well.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

10/17/17

Americans Underestimate Long Term Financial Needs

By Javier Simon, September 2017, Plansponsor.com

Despite being confident about their current financial situation, a large portion of Americans significantly underestimate the projected costs of living in retirement, according to a recent survey by independent adviser Financial Engines. The study found that 58% of respondents at least 65 years of age and 76% of those between the ages of 55 and 64 believe the average married couple retiring at age 65 would need between $50,000 and $200,000 for health care. Financial Engines estimates the actual figure is $266,000.

Moreover, 64.9% of respondents to a financial literacy quiz offered by Financial Engines did not know they could defer claiming Social Security benefits until age 70, potentially earning between 6% and 8% in additional lifetime benefits under current conditions for each year they delay between ages 62 and 70.

And even though 47.3% of respondents said they felt “somewhat or much more secure” about their finances compared to five years ago, only 8% of those people passed the financial literacy quiz. Overall, only 6% passed the quiz, which covered topics around financial decisions people are likely to make during their lifetime.

“It’s not surprising that Americans are feeling better about their financial situations given low unemployment and a record-breaking stock market,” says Andy Smith, CFP and senior vice president of financial planning at Financial Engines. “But as our quiz shows, there’s a persistent problem with financial literacy in this country. When it comes to your finances, poor decisions you make today can cost you for the rest of your life.”

Financial Engines found that people struggled most with quiz questions regarding long-term financial decisions such as paying for health care in retirement. And as the health insurance industry undergoes ongoing uncertainty, studies show many Americans are highly concerned about health care costs in retirement. Many workers currently facing increasing costs have stomached the blow by cutting into their retirement savings.

But managing health care costs is not the only long-term financial issue many people are having trouble with. The Financial Engines survey found more than half (51.4%) of people significantly underestimated how much life insurance they should have, which is recommended to be 10 times their annual income. Several survey takers also undermined expected longevity in retirement. Plan sponsors may be able to help employees alleviate the financial downside of living longer by introducing longevity annuities to investment menus.

Financial Engines notes, “While no one knows exactly how long they will live, many people underestimate standard assumptions for life expectancy, which can lead them to save much less than they need. Nearly three out of four people (72%) were unaware that the typical 65-year old man can expect to live about another 20 years, on average, with 61% underestimating longevity by at least five years. The Social Security Administration estimates that a man age 65 today can expect to live, on average, until the age of 84.3 years old. A typical woman age 65 today can expect to live, on average, until age 86.6.”

Smith adds, “Often, people don’t have a realistic idea of their cost of living or how expensive things will be in retirement. While each person has a unique financial situation, it’s important to remember that you are not alone. Take advantage of helpful online planning tools and if you want more personalized help, reach out to a financial professional you trust – someone who can help clarify complex issues and guide you through the financial planning process.”

For its study, Financial Engines surveyed 1,000 individuals between the ages of 18 and 65 who are employed full-time, part-time or self-employed. The survey and panel were both fielded using the Survata Publisher Network. Fielding was executed in July 2017.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

09/5/17

3 Stupid Retirement Moves

By Maurie Backman, Aug 19, 2017, The Motley Fool

Retirement is a milestone that countless workers look forward to. But if you’re not careful, the wrong decisions could spell trouble for your golden years. Here are a few glaring retirement mistakes you’ll want to avoid at all costs.

1.    Waiting too long to start saving

It’s easy to make excuses for why you’re not setting money aside for retirement early on in your career. Maybe you’re not earning all that much money, or you’re struggling to keep up with your student loan payments. What many people don’t realize, however, is that by holding off on retirement plan contributions for even a few years, you’re giving up a world of growth. Thanks to a concept known as compounding, those who save for retirement steadily through the years can grow their nest eggs into sizable sums, even if those individual contributions are relatively small year after year. The following table, in fact, shows how much you stand to gain if you start saving just $200 a month at various stages of life:

If You Start Saving $200 a Month at Age… Here’s What You’ll Have by Age 65 (Assumes an 8% Average Annual Return)…
25 $622,000
30 $413,000
35 $272,000
40 $175,000
45 $110,000
50 $65,000

You can’t help but notice the difference between giving yourself a 40-year savings window versus a 15-year window. And, yes, if you start saving money that much earlier, you’ll end up spending more out of pocket to build your nest egg, but in our example, that $622,000 you’d get by starting at age 25 comes at a cost of just $96,000 in contributions. That’s a $526,000 gain! The point here is that holding off on retirement savings can really limit your ability to take advantage of compounding, so even if your monthly contributions aren’t much to write home about, they’ll help your savings efforts over time.

2.    Banking on Social Security alone

There’s a reason more than 40% of near-retirees don’t have any savings to show for — they’re convinced they’ll be able to get by on the income they collect from Social Security. The reality, however, is that most seniors can’t live on Social Security alone. That’s because those benefits are only designed to replace roughly 40% of the average worker’s pre-retirement income.

Most people, however, need at least 80% of their previous earnings to cover their expenses in retirement, and without independent savings, you’re likely to fall short. And if you think you’ll manage to get by on just 40% of what you used to earn, consider this: The average healthy 65-year-old couple today will spend $400,000 or more on healthcare costs in retirement. Over a 20-year period, that’s $20,000 a year on medical bills alone. Given that the average Social Security recipient today collects just $16,320 annually, it kind of makes you rethink how far those benefits can be stretched.

 3.    Not having a plan

While not having to report to a job might seem like something to celebrate, losing that structure and schedule could end up throwing you for a serious mental loop. According to the Institute of Economic Affairs, retirement increases the likelihood of clinical depression by 40%, and a big reason is that many seniors struggle to find their purpose once they no longer have a job to go to. Not only that, but for many people, work serves as a key social outlet, and losing those connections later in life could impact your well-being.

That’s why it’s critical to go into retirement with not just a financial plan, but a road map for what you’re going to do with your newfound free time. Of course, your available income will play a huge role in dictating the latter. You can’t, after all, say you’ll travel three months out of the year if your savings can’t support that lifestyle. But if you come in prepared with a realistic means of occupying your days, you’ll be less likely to regret the decision to retire in the first place.

Retirement isn’t the sort of thing you want to mess around with, so it pays to start thinking about it as early on in your career as possible. If you begin saving at a young age, understand what you’ll get out of Social Security, and map out a plan for your senior years, you’ll avoid the mistakes that cause so many people to wind up cash-strapped and unhappy down the line.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

07/10/17

Retirement is a Journey, Not a Destination

By David Adams, June 23, 2017, Financial IQ.com

As advisors, we’re trained to help clients set some magic number for how much they need to save by age 65. Then they can retire, start taking Social Security and live off their investments. Only then can they start to travel and live life. But after 15 years of working as an advisor, I had an experience with my father that led me to change my entire perspective on retirement.

My father was an example of the typical retirement pattern. He worked in retail for 40 years. In his 60s he was still working 80 hours a week. One day while moving boxes around at work he fell and hurt himself. The injury wasn’t serious but I became concerned about his health. I told him he needed to slow down or retire but he kept telling me he needed to keep working to a certain age to be sure he had the money he needed to retire.

Six months later he was rushed to the emergency room because it appeared he was having a stroke. Thankfully it turned out to be high blood pressure instead. Once again, he insisted he needed to go back to work. I went to see him and begged him to quit, saying, “Dad, I’m not losing you to retail.” But he kept insisting he couldn’t leave his job because he didn’t have enough money to retire. I told him, “You can always have more money, but if you wait another two years to retire you may not be healthy enough to enjoy it.” We went back and forth like this for several days until finally he agreed to quit.

Like my father, many of my clients approach retirement from a place of fear. I tell these clients that financial planning is important, but it’s equally important to find a balance where you enjoy life along the way. They need to make retirement a journey and not just a destination.

For example, I have a client with about $1.8 million in his retirement account who was wearing himself out working awful hours. He had been telling me he wanted to quit for years but kept insisting that he couldn’t. We talked about potential solutions, such as taking a pay cut or getting a lower-pressure job that would cover the bills and still allow him to spend more time with his wife. But he was always too afraid to pull the trigger — until his wife got really sick. That was a wake-up call for him.

He finally did make the transition away from his high-stress job and today he’s very excited. He’s going to take on some consulting work and make about a third as much as he was before he quit. But he’s let go of the idea that he needed to save $2.5 million before he retired.

When clients insist they need to keep working to save a little bit more money before they retire, I tell them there’s never going to be enough to make them feel fully secure. They’re never going to feel totally comfortable, no matter how much is in their accounts, if they approach saving for retirement from a place of fear.

I encourage them to change their thinking about retirement and stop thinking about it as a static dollar amount or age deadline, but rather as a dynamic process. Going through this very same experience with my own father taught me how important it is to support clients in finding ways to live life now so they can think of retirement in a more balanced way.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

05/30/17

Try Mental Accounting To Make Your Retirement Dreams Come True

By Robert Powell, April 5, 2017, USA Today

You might not know what it’s called, but odds are high you do it – you craft systems that enable you to make countless decisions about money without breaking into a sweat. Or at least so writes Diane Garnick, the chief income strategist at TIAA and the author of a just-published white paper, Income Insights: Mental Accounting in Retirement.

According to her paper, this system – more formally referred to as mental accounting in the world of behavioral finance – “is an economic concept that suggests people code, categorize and evaluate activities based on a variety of subjective criteria, ignoring that funds are transferable.”

Others share that point of view. “Mental accounting is essentially the household equivalent of financial accounting, but it is often done without conscious thought,” says Richard Thaler, a professor at the University of Chicago Booth School of Business and author of Misbehaving: The Making of Behavioral Economics. “A primary insight is that people treat various mental ‘buckets’ of money as non-fungible, meaning that there are implicit rules against taking money from one account – the children’s college savings account – and spending it on something else, like a new TV.

And this system, according to Garnick’s paper, holds the possibility of delivering tremendous benefits. “With the right architecture, it can save us precious time, economize our thinking and increase our self-control,” wrote Garnick, who is also a board member at CFA Institute Research Foundation.

How so? Well, to understand ‘how so’ requires a bit of background. Prior to retirement, people routinely allocate some portion of their money to many buckets, and often over commit ourselves — 25% to housing, 25% to food, 25% to loans, and of course, another 50% to entertainment. “We don’t necessarily make the best decisions, but if we make a mistake we have time on our side,” Garnick wrote.

In an email, Garnick noted that mental accounting enables people to immediately discover which retirement goals they will be able to achieve. “This framework enables a 30-year-old to quickly see if they are saving enough to enjoy hobbies in retirement or if they will be just scraping by, ” she wrote. “The insight offered by mental accounting can be powerful since it gives people time to adjust their savings to meet their needs.”

Mental accounting in retirement

But come retirement, your mental accounting requires a change in mindset, wrote Garnick. Among other things, you no longer have time on your side should you make a mistake with your money.

So, rather than allocate some funds to many buckets all at once, Garnick proposes fully funding one bucket before moving on to the next. “This framework offers transparency into the age-old question of how much guaranteed lifetime income each household needs while simultaneously offering savers insight into which goals they are on track to meet,” she wrote.

For instance, instead of allocating 25% to housing, allocate a portion of your retirement income to funding necessities (housing, transportation, personal items, entertainment and taxes), then fund health care expenses, then emergencies, then fun or what some call discretionary, and lastly bequest.

And this change in mindset won’t be easy. “I think the most difficult aspect of mental accounting and retirement savings is when households switch over from saving up for retirement to spending down,” says Thaler. “This requires an entirely new mindset. Most of our lives we live on a budget: Spend less then you earn, and put some aside for later. Then they are confronted with the much more difficult task of taking a pile of money and making it last over an uncertain lifetime. Hard!”

Would a budget be better than mental accounting?

On the surface, it might seem a budget would be better than mental accounting. But that’s not necessarily the case. “While creating a detailed budget is ideal, many of us don’t invest the time necessary to start one, let alone maintain it with all of life’s unexpected expenses,” wrote Garnick. “Mental accounting provides a framework that enables people to make decisions at the margin without placing their economic future at risk.”

The four-box approach

To be fair, mental accounting resembles what some call the four-box strategy whereby you use guaranteed sources of income (such as Social Security, a traditional defined benefit plan, a guaranteed lifetime income annuity) to fund essential expenses, including recurring health care expenses, and risky assets (your retirement accounts) to fund discretionary expenses and bequests.

And that approach has merit too. “When it comes to retirement there are two kinds of people in the world,” wrote Garnick. Those with old-fashioned pension plans and those in the YOYO generation, which stands for ‘you’re on your own.’”

And both kinds of people, Garnick said, can be well served by securing guaranteed income that covers their necessities. This includes social security, a pension if you have one, and guaranteed lifetime income for the YOYO generation.

As for matching risky assets with discretionary expenses an expert said it’s a good strategy too. “If (investors) treat retirement accounts as long-term investments that should remain untouched, they are more likely to reach their financial objectives,” said Victor Ricciardi, a finance professor at Goucher College and co-editor Investor Behavior: The Psychology of Financial Planning and Investing.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

04/17/17

Worried you’ll run out of money in retirement? Then don’t make these rookie mistakes

By Katie Young & Sharon Epperson, April 13, 2017, CNBC.com

Being newly retired is definitely a reason to celebrate — and spend — some of the hard-earned money you’ve saved over the years.

Yet with Americans living longer, experts say you need to plan for a retirement that could last 30 years or more. Add in ever-rising medical costs, mostly stagnant Social Security checks and all of a sudden that pile of cash doesn’t look so big.

The issue of outliving your money is a real threat. To avoid having that happen don’t make these classic new-retiree mistakes.

Spending too much too soon

Making the transition from earning money to spending money when you first stop working is tricky. Especially if you’re healthy and eager to enjoy all that new free time.

“We get this all the time, where recently retired clients will do a trip to Europe or Asia, then spend four weeks in the Caribbean, saying, ‘When we get older we’ll slow down,’” said Chris Schaefer, who leads MV Financial’s Retirement Plan Practice Group, Bethesda, Maryland. “They’re eating so much of principal in early retirement that they don’t have enough to last.”

Schaefer suggests that working with a financial planner to create a withdrawal strategy for your retirement accounts is key. He says a good starting point is taking out no more than 4 percent of your total nest egg a year.

Overspending on the house

Wanting to be debt free is an admirable goal and one that works for many retirees. However, if you haven’t paid off the mortgage yet, rushing to do so may not be your best move.

As long as you have the cash flow to comfortably make the payments, Schaefer says don’t sacrifice your retirement savings by using a big chunk to pay it down. Instead keep it invested where it should continue to grow.

Plus having a mortgage offers tax benefits you can still claim as a retiree.

Overspending on the kids

Once you retire it’s time to let the 35-year-olds take care of themselves.

“Over the last 10 years we’ve seen this more and more with millennials not able to get out on their own,” Schaefer said.

So, if you’re paying rent for your adult children, or their cellphone bill, car payments or other recurring costs, it’s time to sit down with them and tell them it’s over.

Making smart decisions early on will help stretch your money further so you can retire well.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

03/20/17

How Not To Retire

By The New Zealand Herald, Feb. 3, 2017

Election years are always interesting because the topic of retirement age comes to the fore. We all have a vested interest in who receives what and when. When I think about the retirement age, I often recall a conversation with a client who employed a “re-potting strategy” throughout his life. While he would be at retirement age now, I doubt he has considered retiring.

His strategy has been to “re-pot” every 7-8 years. He retires one aspect of his life and embarks enthusiastically on a different path. For him, re-potting involved making a significant change in his life to refresh and gain a new perspective. His re-potting journey before I met him had extended to a new country, a new career, new friends and associates, a new wife and a new house. He had plenty of ideas to pursue in the years ahead to ensure sufficient re-potting opportunities to keep him interested and interesting.

He was about as far away from the traditional idea of retirement as I could imagine. But, as we are all living longer, retirement for many will simply be a change of some aspects of life but not others. The traditional approach to retirement is relatively straightforward. You save and invest as much as you can for as long as you can, starting as early as possible to accumulate enough retirement savings so you don’t need to work anymore.

For those who can’t save enough, the Government pension provides a retirement safety net. For everyone else, the more and faster they save, the earlier they can retire and the more leisure time can be enjoyed. At retirement, work ends and leisure begins…or so the theory goes.

However, a growing body of research finds the traditional retirement journey is less and less common. Fewer people actually want a retirement of all leisure and no work. Retirement is regarded as boring for many!

Apparently only half of today’s retirees (in the US) state they never intend to work again and only 30 per cent of pre-retirees intend to give up work indefinitely in retirement. Instead, whether it’s part-time work or starting a business, an encore career or some other path, retirement is less about not working at all and more about finding a different kind of engagement. Re-potting, you might call it.

Retirement for some might be semi-retirement, with a period of working part-time and potentially continuing to earn. For others, it might be a series of “temporary retirements” or sabbaticals in between periods of work. The significance of these changes is that it might not take nearly as much to retire as commonly assumed.

Some retirement lifestyles might simply need some savings to provide a buffer for the transitions between work. Some people might be able to retire earlier with a small pot of retirement savings, since that pot will be replenished at odd intervals with earnings from part-time or periodic employment.

If we’re not all going to retire according to the modelling – and I’ve never bought the concept that suddenly golf courses and cruise boats are going to be teeming with retirees – then the argument about the retirement age becomes easier.

A retirement age band, offering flexibility to those who wish to retire earlier and later, could be palatable for many. But it is election year, so who knows how the debate will unfold?

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

02/14/17

Older Veterans Often Miss Out on Long-Term-Care Benefits of Up to $2,210 Each Month

By Kevin Richards, January 2017, Kiplinger.com

Many older war-era veterans and surviving spouses over the age of 65 across America are missing out on a major element in securing their retirements: the Aid and Attendance benefit for long-term care.

The Aid and Attendance benefit is available to veterans and their spouses to help offset recurring medical costs and some of the costs for home care and assisted living care. This is a benefit for senior veterans who served during wartime—World War II, the Korean War, Vietnam and the Gulf War—for at least 90 days of active duty and who are 65 or older, as well as their surviving spouses. It doesn’t matter if the veteran served stateside or internationally, saw combat or didn’t, was wounded or wasn’t. If the veteran’s doctor—not a VA doctor—affirms the veteran or spouse needs assistance, then he or she may be eligible for Aid and Attendance, regardless of Social Security, Medicare, pensions or other benefits.

These benefits can be quite substantial, even if they are a variable number. Under Aid and Attendance, a veteran living alone can receive as much as $21,456 annually, or $1,788 a month. A married veteran can receive as much as $26,550 annually, or $2,210 a month. A surviving spouse is eligible for as much as $13,788 annually, or $1,149 a month. These benefits are paid directly to the veteran or surviving spouse and are tax-free. Payments are retroactive to the date of application.

Many veterans and surviving spouses are not aware of the Aid and Attendance benefits they have earned, or they are confused about them. Too many veterans are told they can’t have a certain level of income or assets to apply for Aid and Attendance. That’s simply incorrect. As long as the veterans and surviving spouses meet the criteria, they are eligible for those benefits for the rest of their lives.

Some of this confusion and lack of knowledge is perfectly understandable, since the application process can be complex. The U.S. Department of Veterans Affairs (VA) cannot give veterans legal or financial advice on how to get qualified for the Aid and Attendance benefits. Even worse, if a veteran asks about the benefits, the VA will simply tell them to apply. The VA will not tell veterans the requirements or how a veteran can qualify based on the rules. Only around 20% of veterans who apply on their own for Aid and Attendance benefits ever receive them.

However, if a veteran follows the rules, they are able to receive the benefits. That’s why it’s important to get the facts about Aid and Attendance benefits from credible, unbiased sources with the ability to provide the correct information. The VA cannot and will not do that.

There are billions of dollars already set aside in Aid and Attendance benefits that veterans and surviving spouses have earned. Veterans and their families should not feel guilty about having earned these benefits through their noble efforts and service.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

12/12/16

3 Ways to Boost Retirement Income

By Linda Backus, Oct 19, 2016, MotleyFool.com

A whopping 52% of working American households are “at risk” for not being able to live as comfortably as they did before retirement, according to the findings derived from the 2014 National Retirement Risk Index published by the Center for Retirement Research at Boston College. That’s a sobering statistic considering retirement is classically considered a time when people get to enjoy the perks of a lifetime of hard work.

Whether it’s finding the cash to take the trip of a lifetime or simply finding the money to make ends meet, there are a myriad of ways to quickly fatten your wallet, and in the process, enrich your quality of life.

How much can I make?

The first step for any retiree seeking more income should always be to know the rules when it comes to Social Security benefits. For those who are 62 or older and receiving benefits but haven’t reached full retirement age, the limit for new employment income is $15,270 per year without facing penalties, according to the Social Security Administration. Any amount above that will be deducted from your monthly checks based on a calculation that factors in your age and how much you are making. But when you reach “full retirement age” you can earn as much as you want and still receive your full benefit check each month.

Once you’ve determined how much you can safely make without impacting your benefits, the sky is the limit in terms of what you can do to boost income. Here are three simple ideas that can improve your financial status quickly without too much hassle.

Seasonal work is plentiful for seniors

Working a couple of months a year can increase income in the short term leading to long term financial benefits. Industry analysts were quick to point out as the holiday season approached that jobs are plentiful, and could translate into year-round employment.

Job posting giant Monster staffer Lily Martis made it a point to highlight the findings of global outplacement consultancy Challenger, Gray & Christmas, Inc. which predicted companies across the country are poised to take on 700,000 seasonal employees to deal with the rush of holiday shoppers this year. But the jobs aren’t all in retail, said John A. Challenger, chief executive officer of Challenger, Gray & Christmas in a press release.

“The big change we are seeing, however, is that while seasonal retail jobs remain flat or shrink, there has been a marked increase in seasonal job gains in other sectors,” he said. “The sector with the biggest increase in holiday hiring in recent years has been transportation and warehousing, as more and more holiday shopping is done online.”

When checking out possibilities for seasonal work, don’t forget to consider the perks. Some positions at higher-end department stores include discounts on items you purchase or commissions for sales. As many as 20% of seasonal hires are retained for work throughout the year, according to Martis — which you may or may not want — and many seasonal workers come back during the next year’s holiday rush.

Retirees can teach

Retirees have a wealth of knowledge that can easily translate into more income. Teaching is a great way to share skills and stay engaged in learning while saving for a big vacation or finding new revenue to invest. Depending on your specialty and preferences, teaching can be an incredibly flexible job choice as well.

Consider tutoring or consulting in your old field. Most colleges and universities will allow tutors to post flyers on campus or information on online bulletin boards.

Another flexible way to make extra money on a part-time work basis is to work as a substitute teacher. School systems across the country are continuously looking for a stable of people who are willing to be on-call when a teacher is sick or takes a personal day.

The range pay varies by state and district. In the Northeast, substitute teachers can make anywhere from $75 to $150 per day depending on the district and the level of experience. Do your homework, however before considering this option. Some districts require that subs have a Bachelor’s degree to be considered, and you will likely be asked to undergo a background check including fingerprints. Subs can agree to work every day, a few days a week or even half-days. (Let’s face it, having the summers off isn’t a bad deal either.) The National Education Association has an excellent state-by-state summary that can help you get started.

And, it’s worth noting that teaching does not have to be in traditional subjects. There may be money to be made teaching bridge, chess, sewing, or countless other skills you may have developed during your life that you can share with others in retirement.

Sell things you don’t need

There’s no point in hanging on to items that have out-lived their usefulness, especially when you’re looking for a fast way to improve your financial outlook. One of the easiest ways to make some quick cash while cleaning out your basement or attic in the process, is to call on a reputable auction house to come cart the stuff away. While this option will only work once to boost your income, it’s basically like getting paid to have someone else clean your space. Owners will get a percentage of the purchase price. It’s often well worth the money to take a lower percentage if the auction house is willing to do all the work. The National Auctioneers Association provides a list of reputable auction houses in your area.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

11/21/16

Before Retiring, Take This Simple Test

By Shlomo Benartzi & Martin Weber, Oct. 26, 2016, Wall Street Journal

For some people, the prospect of getting an immediate reward is simply too difficult to resist. One of the most important financial decisions people make is when to retire. It’s also one of the worst decisions many people make. Specifically, they retire too early, resulting in serious financial shortfalls in old age.

The good news is that, according to a new study by Philipp Schreiber and Martin Weber at the University of Mannheim in Germany, there’s a simple two-question quiz that can help predict whether you’ll regret the timing of your own retirement. Here are the questions:

Question 1: You just learned that you are due a tax refund. If you’d like, you can get the $1,000 refund right away. Alternatively, you can get a $1,100 refund in 10 months. Which do you prefer?

Question 2: You just learned that you are due a tax refund. If you’d like, you can get a $1,000 refund in 18 months. Alternatively, you can get a $1,100 refund in 28 months? Which do you prefer?

The two questions are nearly identical. Each poses the same kind of choice. But the second question postpones the two options for delivery by 18 months, while the first offers an option for immediate delivery.

Time will tell

The point of the exercise is to measure the consistency of a person’s time preferences. Someone with consistent time preferences should answer both questions the same way—choosing the early option both times, or the delayed option both times. Such consistency is a requirement for making financial plans that you stick with.

Some people, however, choose inconsistently. They will take the larger tax refund if both refunds require a delay, as in the second question. But they choose to accept the smaller amount when it is available immediately, as it is in the first question. For these people, the prospect of getting an immediate reward is simply too difficult to resist.

The respondents with inconsistent answers exhibit a tendency known as present bias, or hyperbolic discounting. They strongly prefer rewards that arrive right away. While previous research has linked present bias to a lack of retirement savings, this new study, which tallied results from more than 3,000 Germans, shows that present bias can also lead people to retire before they are financially ready.

The researchers found that people who give the most inconsistent answers tend to retire significantly earlier (about 2.2 years on average) than those with consistent preferences. This leads to a roughly 13% reduction in their monthly benefits. Over time, these people are also far more likely to say they regretted the timing of their retirement.

Help steering

This research helps us better understand why people choose to retire early. It can also help us find ways to stop people from retiring too early. For instance, many workers now benefit from automatic savings programs that rely on default payroll deductions to help them save for retirement. These programs generally use a one-size-fits-all approach, recommending the same savings rate for all workers.

While these defaults have boosted savings for many Americans, they could be even more effective if they were personalized according to the results of the two-question quiz. Consider a person who exhibits a strong bias for receiving rewards in the present. Given the likelihood that she’ll be tempted by an early retirement, she might want to be defaulted to a higher savings rate during her working years. This will help her avoid future regret over the timing of her retirement decision, since she will have sufficient savings.

We can also redesign the Social Security enrollment process to minimize the possibility of regret. The program is structured so that you can start receiving payments at any time after the age of 62. However, the monthly payments will be larger for every month you delay signing up to receive benefits, at least until you turn 70. For instance, a person who can expect to receive $1,000 per month if they retire at 62 will see his benefits increase to approximately $1,750 per month if he can wait until he’s 70 before collecting.

A number of economists have argued that waiting for the larger payment is usually a much better deal. Nevertheless, most people aren’t willing to wait. According to an analysis by Alicia Munnell and Anqi Chen at Boston College, the most popular age, by far, to start Social Security is 62.

Fewer regrets

With the new research from Germany, we can come up with strategies to encourage better decisions. One approach is to ask people to estimate their preferred retirement age when they are still working. Because retirement benefits are far off, they probably won’t be tempted by the smaller/sooner amount and will likely predict an age well past 62. While this estimated age isn’t binding, it will allow Social Security to personalize communication with that person in a way that might reduce their future regret. (The monetary amount itself won’t change, just the way the options are presented.)

Let’s say, for instance, that a person stated a preferred retirement age of 70 during his working years. When presenting his retirement options, Social Security could describe the benefits he’d collect at 62 as a relative loss of approximately $750 per month, at least compared with the benefits he’d receive if he waited until his preferred retirement age. Such framing could make the possibility of starting benefits right away far less appealing.

Nobody wants to regret his or her retirement choices; many of these decisions cannot be undone. By identifying those workers who are planning for a late retirement but are likely to succumb to the temptation of an early one, we can take steps to prevent mistakes before they occur.

 To Your Successful Retirement!

 Michael Ginsberg, JD, CFP®