Money Matters: April 2018
By Chuck Dudley
How we normally approach retirement
First, we have to look at our traditional approach to retirement. Use your company 401k, contribute to an IRA of some type, buy some equities or mutual funds for growth, save………….invest in real estate, invest in your own company………..and a favorite of mine: life insurance as a diversification of your asset diversification.
Wonderful to do all these things if you have plenty of discretionary money to spend on retirement. The reality is we have kids which means school, school and more school……..mandatory spring break vacations, and the daily grind of just keeping up with life.
Then, if you do have enough to invest, you must negotiate the “risk” minefield. Market fluctuations, of course. Then we have inflation risk, interest rate risk and tax risk to deal with.
What’s a reasonable person to do?
At times, with the knowledge we are living longer, the task seems daunting and mostly overwhelming. Normal human behavior is to rationalize away the decision making process………..”I’ll start on it next year when I can get these current obligations taken care of.” Sound familiar?
Maybe there’s a little different way of approaching the retirement process.
How would retirement delay help?
In our American society, the standard for so many years for retirement has been age 65. Mainly because 50+ years ago that was close to the end of a life.
No longer is that the case. Modern medicine has prolonged living and thus the need for retirement income to support us in those ending years.
In the January 23, 2018, edition of the Financial Advisor publication, there was a very interesting article supported by some research that might be useful.
The information comes from a new working paper from the National Bureau of Economic Research entitled: “The Power of Working Longer”. The authors are all Stanford educated and include Gila Bronshtein, Jason Scott, John Shoven and Sita Slavov. Want to make sure to give them proper credit.
Here is an example of their research:
You’re 49 years old, you make $113,000 a year and you’re starting to get worried about financing your retirement. You could take the drastic step of upping your retirement savings by 10% of your salary. Or you could achieve the same result by retiring two years and five months later than you had been planning to.
Some remarkable research findings.
The authors looked at scenarios for different incomes, living arrangements and rates of return…..so a very thorough exercise in research. But the findings all pointed to the same general direction:
The basic result is that delaying retirement by 3-6 months has the same impact on the retirement standard of living as saving an additional one-percentage point of labor earnings for 30 years.
Sounds reasonable, as we already know that delaying Social Security until age 70 could give you an additional 32% more than normal retirement age income.
The article goes on to say that the working longer effect is strongest for those with lower incomes. And their research indicated that the less educated and less affluent had shorter life expectancies, thus a greater need to begin taking income sooner.
Look at it this way: For every month that you delay retirement, you’re (1) increasing the amount you are able to save, and (2) decreasing the number of months you can be expected to live after retirement. #2 sounds terrible, and it’s not necessarily true, given that there’s some evidence that working longer actually leads to increased life spans.
Whether or not this works for you is personal and dependent upon many factors in your life not considered here. But it is something worth considering, and maybe a way to continue to enjoy your lifestyle into your 70’s working, and doing something you like.
If you really want to learn how delaying retirement might help you, we will listen. We’ve been able to help families and businesses learn to use money wisely, and we’d like to help you too. We would be honored to visit with you about how to help you and your business. My number is 501-318-0010, or you can send me an email at firstname.lastname@example.org.
An hour of your time spent analyzing your situation might make a lifetime of difference.
Arkansas Insurance Producer # 1005698
That’s all for this month! If you’ve enjoyed what you read, please forward Money Matters on to a friend, family member or loved one.
Contact Chuck Dudley at (501) 318-0010 or email@example.com.