The Employee Benefits Research Institute (EBRI) is a pretty good organization, but their latest survey on retirement is ridiculous. I hope they didn’t spend too much money on this survey. Their findings are so obvious as to be comical. For example, the survey found:
- Retirees with guaranteed sources of income like Social Security and a pension were more comfortable in retirement. I laughed out loud when I read the press release that proclaimed this finding. Of course, a retiree with one or more guaranteed sources of income feels more confident. The #1 worry for retirees is outliving their money in retirement. If a retiree has some of their income guaranteed, this problem goes away.
And here’s the kicker about this survey result: a retiree has almost zero control over whether they have a pension or are eligible for Social Security. The only control a worker has is whether she/he takes a job with an employer who offers a pension plan (rare and becoming more so) and participates in the Social Security program. It’s not like these are optional benefits. No employee gets a choice about a pension plan as they do about an employer’s savings plan like a 401(k) plan.
- If a retiree is mortgage-free with little debt, he/she is more comfortable than a retiree who is a renter with “unmanageable debt” like credit cards or medical bills. Again, this is so self-evident, it’s not newsworthy at all. A retiree who has no debt and a paid-up mortgage is going to feel more comfortable. Plain and simple and not very difficult to understand.
- Many retirees struggle with their retirement spend down approach. We know from decades of working with retirees, compared to saving for retirement, figuring out how to spend down savings is many times more difficult. Throw in the challenges of Medicare, Social Security, RMDs and the cost of long-term care and the average retiree is overwhelmed. Again, it doesn’t take a survey to figure this out.
One finding from the survey that is not so ridiculous but is not news either is this: employees often stop working sooner than they expected. In the latest EBRI Retirement Confidence Survey, 46% of those surveyed reported they retired earlier than expected. This is a surprisingly high percentage of workers who stopped working before their target dates.
Rantings aside, what can we take from the EBRI survey that is useful? Here are five points to ponder:
- Paying off a mortgage before you retire might not be the best answer from a financial planning standpoint because a low-interest mortgage is using other people’s money effectively. However, the psychological benefit of having no mortgage is important to consider too. Not to the detriment of your retirement savings, but if you want to have no or a low mortgage in retirement, you need to start paying it off early.
- If you’re within five years of a planned retirement, consider paying off other debt as soon as possible too. And, of course, don’t take on new debt.
- You might want to create a retirement plan based on retiring earlier than you would like. For example, assume you retire at 63 instead of 65. This might require you to work part-time in retirement or living on less in retirement or a combination of these tactics. You might also want to see what you can do to make yourself so invaluable at work that your employer doesn’t even consider you if there is a reduction in force mandate. Mindset is so important too. Be prepared for an early exit in case it happens and it won’t be such a shock.
- While most of us cannot add a guaranteed source of income like a pension or Social Security, you can make best use of these programs if you have one. For example, you can maximize Social Security, ponder a pension pay off instead of a lifetime payment. You can also obtain your personal Social Security statement and make sure all your earnings history is included in the history the Social Security Administration has. If you have not, please sign-up for your online Social Security account access at www.ssa.gov.
- Create a plan for how you’re going to spend down your savings in retirement. This is the #1 tactic you can follow as you get close to retirement. The challenges of retirement spending can be overwhelming, and they are complex. The sooner you get started by hiring a competent financial advisor who is knowledgeable, experienced, and skilled in this area the better off you will be. If you want a retirement with less anxiety and more ease, you need to have an effective retirement income plan.
If you want to discuss any of these suggestions with a fee-only and fiduciary financial advisor, please make an appointment with one of our advisors. Just click the “make an appointment” button on our website and you can book a free 30-minute Get Acquainted session with one of us.