How to be a successful retiree - Lifetime Investment Guide: part 4

Black Enterprise, Dec, 1997 by Donald Jay Korn

The key to retirement is replacing worry with a solid portfolio. Here's how to structure your investments to carry you through the golden years.

PART FOUR OF THE LIFETIME INVESTMENT

Guide looks at how investors in their 50s and 60s can shape their portfolios to prepare for a long, enjoyable retirement. Forget the old rules about shifting all your assets into income-producing investment like bonds: you'll need at least some stocks to help you conquer inflation.

Bill Picott is 57 years old but he's not intimidated by the big six-O. "In three of four years, I want to have the option to retire," says Picott, who works as director of technical support for Digital Equipment Corp. in Littleton, Massachusetts. "I'm not saying that I will, but I want he'll need for the years ahead--$1-$1.2 million by his estimate.

Wait a minute. Sounds like an astronomical sum? Intimidating or not, Picott is being realistic according to financial planning experts. "Not that long ago, there was a consensus that you wouldn't need more than $300,000 or $400,000 in savings for a comfortable retirement," says Percy Bolton, an asset allocation consultant in Los Angeles who has been recognized by Worth magazine as one of America's best financial advisors. "Now, many people will need $1 million or even $2 million to maintain their lifestyle."

Does that mean you'll have to scrap retirement altogether if you haven't squirreled away a cool million? Not necessarily. "Don't be intimidated by those huge numbers," says Dee Lee, a financial planner in Harvard, Massachusetts, who says retirement boils down to balancing expenses and savings. "You can retire with a smaller amount of savings, but that may mean scaling back your expenses, perhaps to half of what you spent while you were working," she points out. On the other hand, she says, if you're wedded to your current lifestyle, you have no choice but to amass a large retirement fund, a fact that is especially true if you're planning to retire young and healthy enough to travel or spend time pursuing expensive hobbies.

THE NUMBERS GAME

If you've followed our Lifetime Investment Guide so far, you know that we've stressed the importance of steady, regular saving--at least 10% of your gross salary, but realistically more if you can do it. If you've laid a solid foundation rooted in a good savings plan, determining what you'll need for retirement and how you can bridge any gap now becomes simply a matter of mathematics. And for the calculations you'll need, we'll refer you to our fourth worksheet. In short, it will help you figure out how much you spend each year while you're working and estimate how that's likely to change after you retire. "The standard is that people will need 70%-80% of their pre-retirement income in retirement," says Bill Harris, a financial planner with Asset Dynamics in Toledo, Ohio. "Some people, though, want 100% of their working income--they're just not willing to sacrifice their lifestyle."

Next, project how much cash flow you can expect in retirement from these sources:

Work. Yes, a working retirement is an oxymoron but it's becoming a common experience as more Americans realize they're living longer. "Reportedly, 54% of men in their 50s and early 60s work after retirement," says Randy Thurman, a CPA and financial planner in Oklahoma City, who notes that retirees under 65 in 1997 could earn up to $8,640 without losing any Social Security benefits. Between ages 65 and 69, the allowance rises up to $13,500, while those 70 and over can earn any amount and still receive full benefits. Every other year, those threshold amounts rise to reflect inflation.

Working isn't just about making ends meet, though. Some retirees find it helps them maintain a routine and a sense of purpose in their lives as well. "I retired two years ago at age 48," says Melvin Carrington Smith of Hoover, Alabama, who worked 27 years for Bell South and rose to the level of director of marketing. "I always wanted to teach, so I found myself speaking at churches and community organizations, explaining how to reach retirement goals," he says. After he left work, Smith decided to turn a pastime into a second career: he's now a financial planner with First Financial Group in Birmingham, Alabama.

Social Security. Uncle Sam's retirement benefits won't keep you in steak and lobster, but they can provide you with a steady income. In 1997, the average monthly check was $745 (nearly $9,000 per year), while the average retired couple received $1,256 per month (over $15,000

The greater your earnings, the greater your Social Security benefits will be. This year, a 65-year-old retiree who regularly paid the maximum Social Security taxes would receive $1,326 a month (nearly $16,000 per year).

You can receive Social Security retirement benefits as early as age 62, although that means accepting smaller checks. If your regular (age 65) benefit would be $1,000 per month, for example, you'd receive only $800 monthly if you retire at 62. On the other hand, deferring retirement entitles you to bonus benefits: some retirees now receive over $1,800 per month (nearly $22,000 per year) because they waited until age 70 to take benefits.