And now for a little good news.
Most of the stories we read about retirement planning tend to be dominated by “unpleasant realities” and savings goals that can seem like Mount Everest. And then … the brakes go out on the car again.
Indeed, many people head into retirement with little money and little planning. And life has a way of throwing financial or health-related curve balls even when we have planned ahead or think everything is under control.
But the reality is that most people simply find a way to adjust.
Roger Burdette, a married 67-year-old living in Great Falls, Va., is a retiree who didn’t let planning go by the wayside. In his mid-50s, he started tracking how much he would need to live the lifestyle he wanted once he could walk away from the office.
But his investments took a beating during the financial crisis and have been slow to recover. When he retired a year ago from a job as a computer-systems engineer, he realized that if he wants to make his savings last, he needs to live on a tighter budget than he had hoped.
“You think back to when you go to college and you don’t have a lot of money, so you’ve got to find ways to make it go farther,” he says. “It’s the same approach for retirement.”
Mr. Burdette’s views found their way into a recent sampling of retirees published by T. Rowe Price Group, the mutual-fund company. The survey focused on individuals who had stopped working in the past one to five years and who had a 401(k) plan or an individual retirement account that had been rolled over from a 401(k).
Fewer than one in five said their post-retirement income matched their pre-retirement paycheck. Instead, on average, their retirement income was just 66% of what they had been making. “There’s a focus on whether you should target 80% or 85% of your pre-retirement income,” says Anne Coveney, a vice president at T. Rowe Price. But she says it was a “reality check” to see 52% of respondents say they were getting only 41% to 80% of pre-retirement income.
Along the way, 40% said they have discovered that they can adjust their lifestyle to match their income by a “great deal,” and 37% agreed that the same term applied to the statement: “I don’t need to spend as much as I did before I retired to be satisfied.”
David Hartness, chief client officer at Iron Gate Partners in Wilmington, N.C., says that when clients have to make adjustments, he urges them to consider a big-picture question: “Take a step back and ask, ‘What are the most important things in this new season of life?’”
Usually, the biggest drain on retirement budgets is housing. Mr. Hartness suggests to some clients that they look beyond just selling a big house and buying a smaller one, and consider renting.
“There are a lot of places where you can rent and have full amenities like a country club,” he says, without having to be responsible for the upkeep of a house.
He also has found that many clients can drop the hefty bills that come with golf-club memberships and still get in plenty of tee time. He tells of one client who dropped her membership and has ended up playing more golf since, as friends have invited her to join them.
In the background, current retirees don’t have to be as reliant on their savings as will likely be the case in years to come. Vanguard Group released a similar survey of retirees with investment accounts this year and found that 20% of household incomes in its sample were coming from pensions and 28% from Social Security.
“Everyone is talking about the new retirement,” where retirees have to fund their lifestyles out of savings, “but it’s not here yet,” says Steve Utkus, director of Vanguard’s Center for Retirement Research.
Mr. Burdette uses Social Security income as the base for his budgeting and has tried to adjust his fixed expenses down to match what he gets from the government.
Downsizing to a small house is central to his revised plan. “We’re going to have to live a little more modestly,” Mr. Burdette says.
He’s also looking at holding on to his current car longer than might have otherwise been the case.
But all told, Mr. Burdette counts himself as satisfied in retirement, having turned a hobby of numismatic research into an area to which he can devote more time.
In the T. Rowe Price survey, some 90% of respondents said they are “very satisfied” or “somewhat satisfied” with their retirement. Of course, many people do struggle, especially when retirement is forced on them earlier than expected for health reasons. And the T. Rowe Price survey found that unmarried women among respondents tended to have a harder time making ends meet.
But for the most part, says Ms. Coveney, “retirees are making it work and being flexible with their spending in the early years of their retirement.”
To Your Successful Retirement!
Michael Ginsberg, JD, CFP®