Will I Outlive My Money? What To Do When the Answer Is Yes

Last month, we discussed how to answer the question, Will I outlive my money?” In this issue we are going to discuss what to do if you got the wrong answer—if your money will run out before your life is over.

One of my clients, in his own words, lives large. He’s in his late 50s and starting to think ahead to retirement. He makes a lot of money—about three quarters of a million dollars last year. The problem is, he spends almost all of it. He owns a very expensive home on a golf course. Every month he has big mortgage payments and big car payments for his $150,000 Mercedes. But that’s only the start of it.

He spends enough money that, were he to retire today, his rather small retirement savings would run out in less than a year.

If you have determined that you do not have enough money for your retirement, there are really only two things you can do—reduce your living expenses or increase your money. In most cases, a combination of both strategies will be necessary.

How effective reducing expenses will be depends on your current lifestyle. In the case of my client, he has abundant opportunities to reduce his spending.

But what if you already live a relatively simple, low-cost life and you still don’t have enough money to retire?

Postponing Retirement

I am a Chartered Retirement Planning Counselor, so you may find my advice ironic and surprising. One of the very best ways to acquire more money for retirement might be to delay retirement. Consider the following advantages of this simple strategy:

1. Every additional year you work is one fewer year of retirement you have to fund.

2. Until age 70, every year you delay taking Social Security can mean an 8 percent boost in your eventual benefits.

For example, if your expected Social Security benefit at age 66 is $2,000 per month, that can go up to a minimum of  $2,875 per month just by waiting until you are 70 to start taking Social Security. This calculation includes COLAs (Cost of Living Adjustments) at the same 2.8 percent average rate as in the past. If you want to retire some time in between ages 66 and 70, increases are pro-rated monthly. That means that for the rest of your life, you could collect more each month than if you had claimed at age 66.

3. As you continue working, you can build up your retirement savings.

Other Reasons to Delay

There are more than potential financial benefits to delaying retirement. Many people identify themselves with their careers. They think of themselves as a teacher, or a farmer, or a programmer. When the day comes that they are not that thing anymore, an identity crisis can come in.
Another client, let’s call him Rick, had been looking forward to retirement with great anticipation and joy. In his mind, I think, retirement looked like a vacation, only this one would never end. He told me that people were warning him that he wouldn’t be able to do just nothing, to which he was answering, “Just watch me.”  He said this with a very large smile.

I recently met with him only two months after his retirement. Somehow the subject of the emotions involved in dealing with loss came up. We were discussing different kinds of loss, such as loss of a loved one, loss of money, loss of a relationship, etc., when he piped up, “What about loss of identity? I’m having an identity crisis now that I’m retired. Retirement is not all it’s cracked up to be.”

Maybe You Like Your Job

For some, the lack of a career means an end to being important, to being useful and meaningful to others.

I recently heard an interview on NPR with Rosa Finnegan on the occasion of her 102nd birthday. Rosa had worked into her 80s and she said that leaving that last job was the worst mistake of her life. She further said that now when she wakes up in the morning, she wonders what she’s going to do to fill another day.

Consider Warren Buffet. He’s certainly not working because he needs the money.  Or consider Irving Kahn, who from his office on Wall Street manages $500 million, mostly for family and a few clients.  Mr. Kahn works every day. He’s 108 years old.

Explore Your Options

My point is, there are many reasons, financial and otherwise, to delay retirement. If you don’t like your job, or if you have other things that you are eager to do, and you have sufficient money available, then certainly, retire and enjoy. Many of my clients are very happy retirees.

But if you like your job, and especially if money looks a little tight, I suggest that retirement might be delayed at least until 70, and possibly longer.

Your best and most powerful option to improve your retirement financial picture, then, is to retire later. But what if that’s not an option for you?

It is difficult, but there are a few things that can be done. In a future issue we’ll discuss investment plans that are designed to help augment income in retirement.

Also read Joan Masover’s  Strategies for Claiming Social Security

Hal Masover is a Chartered Retirement Planning Counselor and a registered representative with, and securities and advisory services through, Financial West Group member FINRA/SIPC.  Comments and questions can be sent to hmasover@fwg.com.