Avoid the retirement trap
Larry Matthews, 70, works in the hardware department at Home Depot in Murrells Inlet. He’s surrounded by others of retirement age, back in the workforce.
This past January, the first Baby Boomers turned 62, marking a new era, as approximately 78 million of them move toward retirement.
Today, many retirees don't really retire. They keep on working into their 70s and beyond, just to make ends meet. For some, their pension plans didn't pan out the way they planned, paying only 30 to 40 percent of what they expected.
Scott Pyle, managing director of Pyle/Cunningham Wealth Management Group of Wachovia Securities, said it's quite a blow for these folks who've worked hard their whole lives, just to have to change strategies quickly at retirement time.
It forces them to "transition" into retirement, by working another 10 years and reinvesting their pension money, so that they can have enough money to live on when they do actually retire.
Pyle says this retirement generation faced two very big surprises: They're living much longer than they expected. And as a result they have to go back to work, or face cutting back on their lifestyle and their quality of healthcare.
It might seem like a daunting task, saving for retirement. Many people in their 20s, 30s and 40s don't do it very well.
"Statistics will shock you,” Pyle said. “When you look at being married at the age of 65, the probabilities of one of you living well into your 90s is very high. This generation of retirees quite possibly could be retired more years than they're employed. So they had to save a significant nest egg, and to have grown it through their retirement years to not outlive their money.”
And Pyle said if you think Social Security is your retirement plan, think again. "Many people that are putting into the Social Security Plan think this will be a retirement plan. But Congress can change any benefits as we see it,” he added.
Larry Matthews works in the hardware department at Home Depot in Murrells Inlet. He's surrounded by others of retirement age, back in the workforce. He's had a pretty impressive career path working for some pretty significant companies - as an airplane mechanic for the airlines, as an auto mechanic for a major auto maker, and as a tech rep for a French airplane company. But at age 70, Matthews has to work full time.
"I was moving around too much, never at one place long enough to get the benefits of a pension,” Matthews explained. He retired in 2002, but the money it takes to retire just wasn't there. "It wasn't even a thought. Even when it came up, I was 65 and ready to retire, but I wasn't ready. Financially, physically, nothing," Matthews said.
Pyle said that Matthews situation happens a lot. "Well you know that's a tough place to be, being in your 70s and working, mainly for healthcare benefits, or for the healthcare benefits and the income,” Pyle said.
Matthews needed quality healthcare, and so did his wife, so he was fortunate to find a job with health benefits. "We both had major health issues last year. It would've wiped us out. In the neighborhood of $500,000 would have been out of pocket. And I don't have that kind of money,” Matthews said.
Pyle broke it down in simple terms: “If you're spending twice as much or three times as much into healthcare, that means there's less money somewhere else.”
Fortunately, Matthews and his co-workers have health insurance through their work so they can make ends meet. But without this job, Matthews said, "We wouldn't be able to do anything besides live and eat a little bit. We wouldn't do anything; we wouldn't go anywhere."
He said he remembers as a teenager, his father advised him, that for every dollar you earn, save a dollar. "If you look at how much an account like that grows in 20, 30 years, I'd be sitting pretty. I just didn't do it," Matthews concluded.
Pyle has wisdom to share on the issue, as well. He advises everyone to seek a trusted advisor, ask for references, go to regulatory agencies, the Financial Industry Regulatory Authority at FINRA.org to see if the advisor you're talking to has any kind of regulatory issue. To calculate how much money you will need to retire, click on http://www.pylecunningham.com, and under the learning center tab, click on calculators.
Finally, Pyle has one simple word of advice - budget. He says it's the best way to avoid the risks that many retirees face today. "Over 80 percent of Americans do not have a formal written budget, and if you don't know how much you're spending, the money is just going to fall through your fingers," Pyle said.
Of course the younger you start, the more financially prepared you'll be for retirement. "Even if they're putting nothing away today, start at 1 percent next month and don't eat out or don't do a movie for the month,” he said. “Get on a budget and see where your money is going."
The qualified retirement plan in the workplace, like a 401-K, is the best place to start, Pyle added. He said most important, get good advice from a reputable financial advisor. Develop a written, trackable, monitorable plan to know you are on target.
On the Web:
Financial Industry Regulatory Authority: http://www.finra.org/index.htm
Retirement Calculator: http://www.pylecunningham.wbsec.com/
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