Rich Retirement - Smart Retirement

It’s time for a round-up of recent magazine offerings on the topic of retirement, a chief concern of most Baby Boomers I know. Money Magazine’s October 2010 issue includes their Retirement Guide 2011. Penelope Wang’s cover story, “Seven Secrets to a Richer Retirement,” examines the latest research in the field of behavioral finance (a blend of psychology, neuroscience, and economics) and offers up practical advice for long-term retirement planning.

The article’s suggestions cover two phases, “before retirement” and “in retirement.” Among the steps to take before retirement:
• Get a Good Picture of the Future You – Research suggests that it is difficult to visualize yourself at retirement age, but doing so in a realistic fashion may help individuals project the type of life they wish to have and better save for it. The article suggests you write down what type of retirement future you want, for example where you want to live, what you want to make time for, what your health concerns are, etc. According to research conducted by Hal Ersner-Hershsfield at Northwestern University, thinking of the grandparent of your sex that “you most closely identified with” can be a great proxy for your future self and calling that person to mind can lead you to budget better and save more!
• Try to Beat the Other Guy - Comparing yourself to others and utilizing your natural competitiveness has potential to assist in retirement planning. Whether it’s seeing how peers are saving or those same peers putting pressure on you to meet your goals, commitment strategies can help you build up your retirement nest egg. Two websites mentioned in this section are: StickK.com, a free website that lets users make a public or private commitment for any type of goal and INGcompareme.com, a public website run by financial services company, ING, where you can compare your financial status with those of nearly 140,000 other users of a similar demographic to you.
• Use Reminders and Checklists – Yale Professor Dean Karlan (one of the creators of the previously mentioned StickK.com) says, “Reminders are one of the simplest, lowest-cost ways to cut through distractions and stay focused on your goal.” He has worked with banks in other countries and looked at the impact of sending account holders text-message reminders (in the library world we call them e-notification), or by postcard. Savers that received the messages put away more money. Checklists are also helpful and many financial advisors use them to help their clients prepare for retirement. Arrange for automatic prompts sent to you at critical times in your life, e.g. tax time, at bonus time, using your digital calendar, and/or place a reminder where you will see it every day. The Money issue includes a “retirement checklist” in a handy foldout.
• Think Bite-size Pieces, Not the Whole Enchilada – Instead of focusing on the total sum you may want/need for retirement (sounds like a lot but typically people overestimate how long their savings will last), make your goal the monthly income you want, a figure more people can understand, so they save accordingly. You can estimate your monthly retirement income by using a calculator suggested at trowprice.com (there is a Retirement Income Calculator under “Tools & Resources” in the Retirement Section).

Strategies in retirement:
• Make Friends with an Annuity – Many retirees should consider investing in an annuity which kicks off a fixed, regular stream of income for life. While becoming more common, individuals are leery about insurers that sell these policies and fear losing control of their money since this type of investment requires an upfront purchase. The article cautions readers to follow standard investment advice – “it’s not all or nothing” – place just a portion of retirement savings into an annuity.
• Take Losses in Stride - This is a tough one as I’ve discovered during the last several years! People feel the pain of losses more strongly than the joy of gains, a phenomenon called loss aversion. Behavioral scientists have determined that loss aversion spikes with age and it can be a problem if it leads you to invest too conservatively. The article suggests combating this tendency by keeping up on your financial knowledge, adjusting your investment mix as you age, and getting some outside perspective in your older years.
• Protect the Future You – Your brain undergoes changes as you age that can affect how you manage money. You may follow the tendency to become more optimistic (the positivity effect) becoming more vulnerable to scammers and/or suffer a decline in mental abilities. Preparation now may protect you in the future. Advice here: stay active, simplify your finances, be hard to find, and arrange now for help later (e.g. establish a durable power of attorney).

The issue also has a helpful article on clearing roadblocks that provides advice on how to overcome challenges you may face in retirement (e.g. carrying a big mortgage, your portfolio hasn’t recovered, you won’t have health insurance, you’re still on the hook for college, and you’ve lost your job and time to save money). An interview with retirement expert, Alicia Munnell (head of the Center for Retirement Research at Boston College), investment advice, and a “best places to retire” feature round out the rest of the issue. Money recommends the five following college towns with notable lifelong learning programs as best places to retire: Hanover, New Hampshire (Dartmouth College); Lexington, Kentucky (University of Kentucky); Bellingham, Washington (Western Washington University); Durham, North Carolina (Duke University); Prescott, Arizona (Yavapai College).

The October 2010 special “How to Retire Smart” issue of U.S. News & World Report, available in hard copy at the Library and through the Library’s EBSCO full-text magazine database, also focuses on how to get the most out of retirement.  Beginning with a pro/con discussion about raising the retirement age as a means to fix social security, and also including a “Best Places to Retire” feature, this issue encourages Boomers to explore starting a business or to embark on a second, or encore career.  Providing data from a 2008 survey conducted by Civic Ventures, the “Baby Boomers’ Next Act” article has a table that projects where to find encore careers, those later-in-life work opportunities that combine income with social impact.  The article also suggests that Boomers that want to continue working will need to adapt to stay relevant.  Jeanne Meister, coauthor of The 2020 Workplace, points out that the generation that will overtake Boomers in the workplace, the millennials (those born between 1977-1997), will most likely manage and meet co-workers in cyberspace, so marketing and communicating via social networking sites will be increasingly important in the future.  Boomers – if you don’t already have a Facebook or LinkedIn page, now may be the time to start creating your profile!

One interesting concept described in the Next Act article is that of “cohousing,”  an alternative housing model wherein residents in a development agree to socialize frequently, such as by eating meals together several times a week, and to govern the community jointly with some decisions requiring a consensus by everyone.  The homes in the development are typically clustered around pedestrian-only areas and a shared “common house” where social activities take place.  Living in these close-knit communities enables residents to age in place since neighbors can help one another.  According to the article, 119 such communities have been built in the United States.

Other articles focus on savings and investments, including second home bargains, and the U.S. News & World Report  “best places to retire” feature is tied to best places to launch a second career.  Among the locations suggested are:

• Ames, Iowa
• Harrisonburg, Virginia
• Lincoln, Nebraska
• Lubbock, Texas
• Madison, Wisconsin
• Manhattan, Kansas
• Oklahoma City, Oklahoma
• Richland, Washington
• Rochester, Minnesota
• State College, Pennsylvania

The remainder of the issue focuses on health and fitness during retirement with data and targets from the Healthy People initiative cited.  Anti-aging treatments and overmedicating are also covered, as well as destinations to visit in retirement.  U.S. News partnered with TripAdvisor to identify places that most sparked wanderlust among middle and retirement-aged Americans.  Their top selections overall were:  Sydney, Australia; Anchorage, Alaska; Grand Canyon National Park, Arizona; Yosemite National Park, California; Havana, Cuba.  The article also has separate top destinations for culture and sightseeing, food and wine, outdoor and adventure, beach and sun, relaxation and spa, romance, and emerging destinations such as Reggio de Calabria, Italy.

If you are one of the 76 million members of the Boomer generation that is approaching retirement, there are great resources available to help you learn about your options and make informed choices.  In addition to reading this blog, don’t forget to visit your local library where all the books, magazines, databases, etc. are free.  And, if you have discovered a retirement resource you’d like to recommend to others, please share by posting a comment below.