01/26/15

How to Work Less as You Approach Retirement

Here’s how to make working in retirement more enjoyable.

Learning to say no at work can make delaying retirement more bearable.

Some people have managed to save enough to retire, but keep working simply to pad an already flush retirement kitty. While calculations point to the fact that we will be OK financially for the rest of our lives, we keep working just to make our finances a bit more secure. For those suffering from this one more year of work syndrome, here are a few ways you can make life more enjoyable even while you continue to work:

Say no more often. Working 9 to 5 can be extremely stressful because we are constantly being asked to produce more. As more responsibilities, more complications and ultimately more hours are added to our work day, a formerly pleasant job suddenly turns into a miserable grind. When you aren’t worried about losing your job because you can afford to stop working entirely, just start saying no. Say no to working weekends and overtime. Say no to uninteresting projects. Even say no to promotions. Obviously, you still need to do a competent job, but there’s no need to overdo it just to increase your future career prospects since you aren’t looking for better opportunities.

Speak up more at work. Don’t let the stress build up anymore and become an advocate for change. See something you don’t like at work? Voice your opinion. Take action to fix it. Many people are afraid they will be seen as the person who complains and end up losing their jobs, but people who have enough money in the bank to quit don’t need to worry about that anymore. If the worst case scenario happens and you are let go, someone just helped you pull the retirement trigger. But if you are successful with the fix, not only will your life at work be better, but the company will value you more and your peers will thank you too, making your work life a lot more enjoyable.

Take all your vacation and sick days. When was the last time you actually took all of your days off? Use those days to recharge. Schedule an annual checkup, watch a movie and go on a vacation. This might be a good way to test drive your retirement as well, since life without work will be quite boring if you can’t even find enough activities to fill up all your vacation and sick days.

Ask for reduced time. Many people never realize that working less than full-time with the same employer is possible. This could be the best of both worlds because part-time work can still bring structure to a person’s life, not to mention the continuous paycheck that’s still coming in to ease the anxiety of living off your savings. And if working part-time isn’t in the cards, at least ask for more vacation days or days you can spend working at home.

Lower your savings rate a bit and spend more of your salary. Since you are theoretically done saving, it might make working longer more enjoyable if you can spend more of the money you are earning those last few years. Just make sure you are spending on discretionary expenses that can easily be scaled back in retirement. Otherwise, you may get used to the higher standard of living and in turn need to raise the assets needed to support that annual spending, making the amount you have saved not enough anymore.

You don’t have to stay on the job once you have enough for retirement, but it’s still difficult to give up the security of a steady paycheck. If you decide to stick it out, at least take steps to make your life easier.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

01/19/15

Increasingly, Retirees Dump Their Possessions and Hit the Road

Some call themselves “senior gypsies.” Others prefer “international nomad.” David Law, 74, a retired executive recruiter who has primarily slept in tents in several countries in the last two years, likes the ring of “American Bedouin.”

They are American retirees who have downsized to the extreme, choosing a life of travel over a life of tending to possessions. And their numbers are rising.

Mr. Law and his wife, Bonnie Carleton, 69, who are selling their house in Santa Fe, N.M., spoke recently by phone from a campground in Stoupa, Greece, a village on the southern coast of the Peloponnese. He explained that they roam the world to “get the broadest and most radical experience that we can get.”

They recently decided to fold their tent. “Hey, we’re getting to be too old for this,” said Mr. Law about camping out. But they intend to continue what he termed their “endless holiday” in a more comfortable and spacious recreational vehicle.

Between 1993 and 2012, the percentage of all retirees traveling abroad rose to 13 percent from 9.7 percent, according to the Commerce Department.

About 360,000 Americans received Social Security benefits at foreign addresses in 2013, about 48 percent more than 10 years earlier. An informal survey of insurance brokers found greater demand by older clients for travel medical policies. (Medicare, with a few exceptions, does not cover expenses outside the United States). While many retirees ultimately return home or become expatriates, some live like vagabonds.

Lynne Martin, 73, a retired publicist and the author of “Home Sweet Anywhere: How We Sold Our House, Created a New Life, and Saw the World,” is one. Three years ago, she and her husband, Tim, 68, sold their three-bedroom house in Paso Robles, Calif., gave away most of their possessions, found a home for their Jack Russell terrier, Sparky, and now live in short-term vacation rentals they usually find through HomeAway.com.

The Martins have not tapped their savings during their travels, alternating visits to expensive cities like London with more reasonable destinations like Lisbon. “We simply traded the money we were spending for overhead  on a house and garden in California for a life in much smaller but comfortable HomeAway rentals in more interesting places,” Ms. Martin said by email from Paris.

On her blog, Barefoot Lovey, Stacy Monday, 50, a former paralegal and mediator who lived in Knoxville, Tenn., wrote: “I used to dream about all the places I would go as soon as I was old enough to get away. But then … life happened.” On May 1, 2010 – like many itinerant baby boomers Ms. Monday can quickly recall the date her journey started – she embarked on her dream trip. She “crisscrossed the U.S. three times” and visited Mexico, Ireland, France, Italy, Morocco, Spain and many other countries.

“I sold everything I had,” Ms. Monday recalled earlier this summer from San Francisco before she headed to Las Vegas, Dallas, Memphis and Knoxville. “I paid off all of my debt. I have no bills and no money.” She estimates that she now spends $150 a month – sometimes less if she is saving up for a flight – and earns a modest income through “odds-and-ends jobs,” as well as the tip jar on her blog.

To stick to her tight budget, Ms. Monday volunteers for nonprofits and organic farms in exchange for room and board or finds free places to stay through Couchsurfing.org. The company puts its membership of people 50 and older at about 250,000.

Ms. Monday monitors ride-share boards at Couchsurfing and Craigslist for free or inexpensive transportation, and she travels light. “I get away with a couple pairs of jeans, a pair of shorts, a skirt and four or five shirts and a pair of pajamas,” she said.

When she answers the ubiquitous question, ‘What do you do?’, Ms. Monday notices that most women respond with encouragement, while many men are less supportive. “They say: ‘You should be home. That’s not safe. You are old.’ I get that from a lot of the men,” she said.

Hal E. Hershfield, an assistant professor of marketing at the University of California, Los Angeles who studies the influence of time on consumer behavior, observes that many “pre-retirees” still assume retirement is a “decrepit, sitting on a porch, maybe playing golf, ice-tea type of life.”

But current retirees are “changing the way they think,” he said, “because they are still healthy and sort of young at heart.” In the last 50 years, retirement “wasn’t this period that we spent years and years in,” Mr. Hershfield continues. “It really, truly was the end of life.”

Galit Nimrod, a research fellow at the Center for Multidisciplinary Research in Aging at Ben-Gurion University of the Negev in Israel, says an extended post-retirement trip can assuage a sense of loss from ending a career. Travel can “act as a neutral, transitional zone between voluntary or imposed endings and new beginnings” and “serve as a healthy coping mechanism,” Dr. Nimrod said by email.

Gary D. Norton, 69, acknowledges that he felt “afraid of retirement” when he left his job of 34 years as a science professor at a South Dakota community college.

In 2002, he and his wife, Avis M. Norton, 67, a retired farmer, sold their house, bought an R.V. and started volunteering full-time for two nonprofits: Nomads on a Mission Active in Divine Service, or Nomads, and RV Care-A-Vanners, an initiative of Habitat for Humanity.

The couple typically rebuilds houses damaged by natural disasters, projects that usually last several weeks. Mr. Norton, who now specializes in drywall finishing, and his wife, who studied carpentry, say they cherish the chance to give back to society while seeing the country. “Now what we’re doing is so satisfying and fulfilling, even though we have some health issues, we say we don’t want to quit,” said Mr. Norton, who estimated that he and his wife had repaired damaged homes in 28 states.

The chance to volunteer on international conservation projects and the opportunity to live like a local inspired Danila Mansfield, 58, and her husband, Chris Gill, 64, to sell their house in San Jose, Calif., last year. They got rid of nearly everything they owned – the exceptions being two suitcases, clothing and a pair of guitars (Mr. Gill’s prized Gibson ES-335 electric guitar is stowed at a friend’s house, but he totes around a travel guitar) – and do not even rent a storage space.

The purge of possessions was “a little nerve-racking” at first, but ultimately “hugely liberating,” said Ms. Mansfield, who is currently in South Africa. She and her husband plan to volunteer on game reserves to protect endangered species and then study great white sharks.

So far, their travels have surpassed expectations. They drove from San Jose to Florida over five months, before cruising to Europe. High points included meeting a judge at a bar in Amarillo, Tex., who invited them to visit his drug court, catching crawfish with locals in Louisiana’s bayou country and making new friends in Austin, Tex., who invited the couple to stay with them in South Africa.

But Ms. Mansfield has also hit bumps in the road. In Galveston, Tex., and New Orleans, an acute respiratory illness required three visits to urgent care centers. “It was really dragging me down,” she recalled. At one point she cried for home, but then managed to brighten her mood. “I kept telling myself, ‘This is home,’ ” Ms. Mansfield said. “Where I am is home.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

01/12/15

Retirement: Is the 4% rule still relevant?

For the last 20 years there has been a steadily consistent rule of thumb by America’s financial planners when it comes to retirement – the 4% rule.

And what exactly is the 4% rule?

In short, it’s a guideline that helps retirees determine how much money they should take from their nest egg each year. The goal is to help make sure the money lasts.

In other words, if you adhere to the rule and have a nest egg of $500,000, you should limit your withdrawals for living expenses to 4%, or $20,000 a year.

So, the big question is, after 20 years, is the rule still relevant? Most planners interviewed say yes — but only as a rule of thumb, and certainly not for everyone.

“First of all, there is a misconception,” says Matthew Sadowsky, director of retirement and annuities for TD Ameritrade. “It is a rule of thumb, not a law. It is often misunderstood. In its purest form, if you withdraw 4% and grow with inflation, your portfolio should not run out for 30 years. It does not mean you will not run out of money.”

“It’s a good general guideline,” says Dan McElwee, executive vice president at CFP Ventura Wealth Management in Princeton, N.J. “It doesn’t work for everyone. They have to sit down, look at their situation, and say, ‘Does this make sense?’”

“Is it still valid?” asks Sadowsky. “If you believe the future looks like the past. The less comfort or certainty you have that the future looks like the past, the less confidence you can have in the 4% rule.”

Stephen DeCesare, president of DeCesare Retirement Specialists in Marlton, N.J., says he still recommends the rule. “I think it is a good starting point. It was well researched 20 years ago. And it addresses one of the most important things in retirement planning – the risk of losing out to inflation.”

Still, DeCesare says, while it’s good as a rule of thumb, “Each person’s plan is specific. I’m still recommending it as a good starting point,” he says. “It does address inflation.”

A key to making the rule work, says McElwee, is that people have to be honest with themselves. “I can’t tell you how many meetings we ask clients, ‘How much did you withdraw?’ They say 4%. I do a calculation, and it’s 7% or 8%. They bought a new car, did something for the kids. Sometimes is OK – the next year they can withdraw 2%.”

“Some can do it by themselves,” McElwee says. “Some need to do it with a professional. I do believe withdrawal rates need to be monitored continuously during retirement. It’s not something you just set up once and not look at again.”

Dan Keady, senior director of planning at TIAA-CREF, says his biggest objection is calling it a rule. And there are several things that are dramatically different today from what they were 20 years ago –  primarily among them, interest rates.

“If someone was earning 1% and they withdraw 4%, it would be depleted rapidly,” he says. The rule needs to be a guide. People still need to figure out their non-discretionary expenses, subtract Social Security and cover the difference by putting a portion of their assets into an annuity.

“We would say 4% is a reasonable withdrawal rate, but you should monitor values over time and course-correct based on what actually happens,” Keady says. “If someone was taking 4% and their assets were depleting faster, they need to cut back. If things are going well, they can give a bigger boost. It is not a rule. It is a guidepost for people to look at.”

Marcy Keckler, vice president of financial advice strategy at Ameriprise Financial, agrees that the rule is a great starting point.

“It’s something you want to apply judgment to on a case-by-case basis,” she says. “If someone has the good fortune of having pension income they can count on and having Social Security and potentially other sources of income, they may be in the fortunate situation where the majority of their living expenses are covered by income already coming in. They can think of withdrawals from their portfolios for fun stuff. They may be able to go higher (than 4%).”

You must also consider how the markets have performed, she says. “If you have experienced substantial losses, it may be time to dial down withdrawals. If your portfolio has performed well, it might be a year you can withdraw a little more.”

The key, she says, is to tailor your withdrawals to your personal situation as well as your recent portfolio performance.

One financial expert who doesn’t think the rule is still relevant is David John, senior strategic policy adviser with the AARP Public Policy Institute.

One analysis showed a fair number of times that it had failed – or when the account ran out before it was supposed to, he says.

“Like all good rules of thumb, it applies when times are good, but doesn’t meet today’s realities,” he says. “The low-interest-rate environment we’ve got right now means the fixed-income (part of the portfolio) is unlikely to come anywhere close to a 4% return,” he says. And, he says, stock market volatility makes it dangerous to assume that the equity portion of your portfolio would make up the difference on a consistent basis.

He says he prefers a 3% rule, or better, watching your withdrawals and timing them to the better market returns. And he says the problem with any retirement is you don’t know how long it will last.

For that reason, he says, if you have the resources, he recommends a longevity annuity, one that kicks in after a certain age.

“A longevity annuity guarantees you won’t run out of money towards the end,” he says.

There are exceptions to the rule, says Tim Courtney, chief investment officer at Exencial Wealth Advisors in Oklahoma City. “I would say that retiring in your 50s would lead you to begin with a withdrawal rate much lower than 4%, probably closer to 3%.”

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

01/5/15

What New IRS Rules Mean for Your Retirement Account

Starting in 2015, the rollover rules for IRAs will tighten. Before you move money between retirement accounts, consider the potential tax implications.

Sometimes, a loophole is too tempting. A few folks thought they could use their individual retirement accounts for short-term loans to themselves. The Internal Revenue Service was not amused. Starting in 2015, new rules apply for withdrawing money from an IRA with the aim of rolling it into another IRA investment, taking possession of the funds yourself in the process.

The short version of the new rule is that you can only roll over an account this way once every 365 days, investment advisors say. But the longer version is: Don’t even try to skirt this rule.

“The rollover rules have been tightened – a lot,” says Ed Slott, a certified public accountant and chief executive officer of Ed Slott & Co., which runs professional training courses on IRAs. “Everybody with an IRA needs to know about this because at some point, everybody with an IRA wants to change investments.”

“Any time you’re tempted to move money, talk with a financial professional, because tax rules are different for IRAs and 401(k)s,” says Doug Orton, vice president of MFS, a Boston-based asset management firm. “Don’t get fooled into thinking that a rollover is a no-fault transaction. Sometimes people make horrific mistakes by assuming there’s no penalty. “

Start thinking now about how this will affect the management of your retirement accounts, recommends David W. Smith, an advisor with Strategic Wealth Management in Bend, Oregon. If you were considering taking distributions from any IRA account this year, know the IRS has stated that existing rules apply through Dec. 31. After that, the new rules – which are still being fine-tuned – will apply.

The important distinction is that there are still no limits on rolling over IRAs and Roth IRAs from one institution to another. That’s called a “trustee to trustee transfer,” and you can do that as often as you want, Slott and other IRA experts say.

You can also shift money among different types of retirement accounts – for example: from a 401(k) to a Roth IRA – without complications. Of course, before making any moves, have a one-on-one discussion with a financial advisor to make sure you are well within the guidelines. You should also talk through the potential tax implications of shifting funds among accounts.

However, the new rules do apply to rollovers in which “you say, ‘I want to move the money, but give me the check,’” Slott says. “You can only do that once every 365 days.”

It’s important to note the rule specifies “every 365 days,” not once a calendar year. That means you can’t take cluster withdrawals, or closely timed withdrawals and deposits, giving yourself access to those retirement funds for two penalty-free 60-day periods in a row.

Although it has been relatively rare for IRA account holders to play roulette with their financial futures, the option was too much for a few people to resist. Most often, advisors say, those who used the 60-day rollover period inappropriately did so to fund business cash flow, college tuition bills and other big-ticket cash shortages.

It was never a commonplace gamble, but the ploy was sufficiently flagrant to elicit a strongly worded IRS slap down and stringent rules advisors expect will apply to all without exception or mercy. Translation: Take your money for a stroll and return it a day late, and you will face huge losses for the privilege.

The smartest way to sidestep rollover woes is simply to not take the money yourself. Always direct the money from one institution to another in a “trustee to trustee” transfer.

If you take a risk, trying to use rolling IRA funds for a do-it-yourself bridge loan as you buy one house before selling the other, you could pay a very high price. If the money is not re-deposited in another IRA within 60 days and you are younger than 59½, you will pay a 10 percent penalty. Also, the funds will likely be subject to income taxes.

You might get away with it. But you might not. As Slott says, “Why invite disaster?”

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP®