Wrinkles and Wisdom

Ask a dozen people what retirement means to them, and you’ll likely get a dozen different answers. Some may dream of around-the-world cruises, yet for others, the ideal retirement might simply mean a new fishing pole and a bucket of worms.

No matter the scope of your next chapter, getting there requires foresight and laying some responsible groundwork.

Carly Mackenzie learned at a young age the value of having a deliberate financial plan. “My father had a goal of ‘retiring’ at age 55 but had a massive heart attack and died at 54 ½ years old with three kids in college,” recalls Mackenzie. “My parents’ retirement planning made it possible for my brothers and myself to complete college without debt. My mother was also able to maintain her lifestyle, do considerable traveling and pursue hobbies in her retirement.”

Simplistically, retirement planning starts with basic math. How much do you spend? How much retirement income can you expect? Which one is bigger?

If your answer is, “Uh oh,” you’re not alone. A surprisingly large percentage of Americans aren’t financially prepared. 

The aim of a comprehensive retirement plan is to be equipped for whatever curveball comes your way – a medical issue, stock-market downturn, failure of a business.

“A lot of people are behind, or haven’t started at all,” says David Camarillo, wealth advisor at Smith Anglin. He says part of the issue is they fail to look at the long game. “Some don’t even have five-hundred bucks set aside for emergencies.”

To make matters worse, the retirement landscape has changed. Gone are the beefy company pensions and interest-bearing savings accounts your parents enjoyed.

“Probably the biggest difference we have to account for in our profession today is increased life expectancies,” Camarillo adds. “Based on life expectancy charts, it’s possible to have a 30-year retirement — or longer. Part of retirement planning is the math of it all, and this increased variable in the formula can have a big impact on outcomes.”

Extreme Retirement

The new reality means that somehow during a 40-year working career you have to come up with a viable plan and enough funds to support another 30 to 40 years of retirement. “Often,” Camarillo says, “retirement just doesn’t take priority. Life events — education, health, divorce — all can derail our plans.”

Mackenzie, 58, (not her real name) understood firsthand how forces beyond your control can upend the best-laid plan and was resolved to start her retirement fund with her first job out of graduate school. “I put $20 a pay period through payroll deductions into a 403(b). I have also taken some investment classes so I have a fuller understanding of options and risk tolerances.” Her husband, 60, opened an IRA when he was 18 years old.

But saving for, and even thinking about retirement is unusual at such an early age. For many, socking away retirement dollars never becomes a priority. Retired CPA Max Legg, points out how an extremely high percentage of people ignore or avoid retirement planning until it’s too late.

“Assuming ages 40 to 59 are the best earning years, the average 401(k) balance for age groups 40 to 49 and 50 to 59 are $103,000 and $174,000, respectively. However, the median balance for each group is $36,000 and $61,000, respectively,” he says. “If people are going to live for 20 to 35 years after retirement, these 401(k) balances plus social security won’t hack it.

“My guess is that 75- to 80-percent of people will not think about retirement until it’s financially too late to do anything meaningful about it,” says Legg.

Like many retirees, Max Legg and his wife Loren, ages 66 and 64, had not initially sought the advice of a retirement planning expert. “We thought we were financial gurus in our own right, until the tech bubble burst. Then we started using financial planners,” says Legg, who lives in Washington state with his wife.

Unlike most retirees, Max and Loren each began contributing to 401(k) plans while still in their twenties. “Primarily because 401(k) plans were available, and Loren’s company had some matching money to entice employees to participate. My firm started a 401(k) plan shortly after I started there in 1980.”

For sure, starting early with 401(k) contributions is a good first step to ensure that your retirement fund grows throughout your working life. Retirement planning works best over time. But what if you didn’t start in your 30s or 40s? What are the options? Arethere options? Do you have to work into your 70s to compensate for that? It depends.

Creative Solutions

Of course, some may choose to continue working — some may not have a choice but to delay retirement to save more, to continue contributing to their retirement plan or perhaps take a more aggressive approach with their investments. But there may be other options, as well.

Stan King, 71, and his wife, 67, are half retired. He is, she not yet. King (not his real name) started retirement savings when he was 40, somewhat late in life. “Over 30 years with the same company — even through buyouts, takeovers, and bankruptcies —helped in the long run as far as retirement was concerned,” he says, while admitting he got lucky with some of his investments, and always put bonuses, raises and per diem toward his retirement.

“I’ve always taken the aggressive growth approach in investing,” King says. “However, I’ve tapered that approach to a more conservative one since I retired in 2012. We have a two-pronged retirement plan — her retirement portfolio is aggressively directed toward stocks and mine is mostly cash with a few index funds. Hopefully, this approach will allow us to take some risk, and yet save us from being completely wiped out should a severe recession ensue.”

The Kings travel a lot, something they enjoy, thanks to taking advantage of airline and hotel deals, bonus miles, free nights, gold-status perks, and often traveling offseason.

Another choice: Downsize or move somewhere with a lower cost of living.

Jim and Margie Fowler, ages 65 and 58, (not their real names), have lived in Hawaii for many years, but the steep cost of living in the islands is a big burden. With eyes on retiring soon, they purchased a retirement home in Las Vegas where the cost of living is dramatically lower. “We want to be able to live simply but active, have the ability to travel at least once or twice a year, and have a home where family can come for the holidays,” says Margie, who has an MBA and currently works as a loan officer. Their assets/ income sources include several condominiums they still own in Hawaii.

 “Down the road in our retirement, I might look into volunteering in the financial industry possibly as an educator for seniors or soon-to-be seniors,” she adds.

Carly Mackenzie and her husband live in California and are newly retired. With the advice of their CPA of 25 years, a specialist in growth investing, and another professional who manages “safe” investments, along with their rule of “living below our means” — including not buying the newest cars or the latest gadgets — the Mackenzie’s longtime retirement plan enabled them a wide range of options to consider. One such option was to hang on to Carly’s parents’ home in San Luis Obispo. “We had to take out a loan to buy my brother’s share, but we knew we wanted to live closer to the ocean and this might be an option we would want in retirement,” she says.

The couple sold their Silicon Valley home of more than 20 years, (infusing their retirement fund with the proceeds) and are now living in Carly’s family home. They plan to travel more, and give back to the community, helping seniors, animals and the environment.

“I have always been a bucket-list person,” says Carly. “Retirement afforded us to be able to spend more time with people, try new things and do more activities we enjoy.”

Bumping up Your Cash Reserves

If you’re looking for money, you might not have to look too far. Homeowners may not realize you have additional options. For those sitting on $500,000 to $1 million or more in trapped equity, it would be nice to have easy access to that money, if necessary.

Roland Shar, branch manager at Paramount Residential Mortgage Group, says “Even if you had a great paying job and stellar credit, it may be more difficult to qualify for a loan on retirement income.” He suggests sitting down with a mortgage professional and opening up a home equity line of credit at least five years before retirement. “Our generation likes to pay off their mortgage so it is free and clear,” he adds. “But what happens if all of a sudden they need cash after they retire and cannot qualify for a loan?”

With HELOCs, homeowners can tap into their equity, if needed, and there are usually no points or fees and no interest (payments) until you draw on the loan.

Traditionally, paying off all debt has been the holy grail of retirement planning. But consider this: Mortgage interest rates have now been sub-5-percent for nearly 10 years. If you have a 3.5-percent mortgage interest rate, it may be smarter to hold onto your cash reserves for emergencies — you’ll likely never find a rate as low again.

Of course, if you need to pay off the mortgage for the sake of the budget, definitely do that. Or, another option, if there isn’t enough cash to pay it off completely, consider paying the mortgage balance down as much as you can afford. Then ask the lender to re-amortize the loan. If you originally had a 30-year loan, and you’re only 20 years into it, pay the principal down and re-amortize the remaining balance over the remaining 10 years. Monthly savings can be significant.

Create supplemental income. Single, empty nester Juanita Brown, 70, (not her real name) lived in the same home for nearly 40 years. Now, her home was really too big for one person. She decided to advertise for a renter and cushion her retirement income with the collected rent.

Time to Travel

Visualizing retirement often includes time to travel. But the reality is, travel can be taxing, on our bodies and our budgets.

Ron and Paula Simmons, 57 and 55, (not their real names) are doing retirement, some might say, backwards. “We’re not putting off living life to the fullest until we retire,” says Paula. “We don’t want to take for granted the good health we have now, and are getting our travel in while we have the energy and can afford it.”

Ron is a commercial airline pilot, based at an international hub near Seattle, Washington. He still has eight more years before retirement, but these two are off on exotic adventures regularly. In the past three years, they have been to Zimbabwe to see Victoria Falls; Marrakech, Morocco; Havana, Cuba; to the Bamboo Forest outside Kyoto, Japan; the pink-sand beaches in Bermuda; through the Panama Canal; and Rwanda to hike the Virunga Mountains to see the mountain gorillas. “Seeing the gorillas in Rwanda is one of the coolest things we’ve ever done,” says Paula.

In addition to the Gorillas, they’ve seen the aurora borealis in Lapland Finland, which Paula says was spectacular, visited the Keukenhof Gardens near Amsterdam and been on several safaris. Sounds like a lot, but they have a strategy.

After Ron retires, they plan to move to Sedona, Arizona. Paula says 95 percent of their retirement angst is eased by the group that handles their retirement accounts. “I’m not sure what percentage of people use investment companies, but a lot of nail biting could be avoided if people had someone they could trust keep a close eye on their accounts to make sure they are on track,” she says.

Once settled in Arizona, with the exception of some occasional domestic travel to a national park or to visit family, they aspire to be homebodies. “We’re surprisingly content at home, cooking and just enjoying each other’s company.”

So, how much money do you actually need to retire and feel comfortable?

There is no one-size dollar amount to fit every scenario. Wealth advisor Camarillo, says there are so many variables, the answer involves computing all the facets of a couple’s financial profile — assets, income sources, living expenses, liabilities, even estimated long-term care costs — including their retirement age and life expectancy, the factors having the biggest impact.

Where you retire and reducing the cost of living is part of the equation, but retirement may also necessitate some belt tightening and strict budgeting.

“We could take two people on the same street and if they have totally different spending habits,” says Camarillo, “it is going to be a totally different plan.”

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About the writer

Freelance writer Lisa Scontras lives in Honolulu, Hawaii. Her articles have appeared in the Honolulu Star Advertiser, Hawaii Business magazine, Historic Hawaii magazine, Pacific Business News, Island Homes Collection, Travel Weekly and Hawaii Home + Remodeling. She is also a frequent contributor of online content to hawaiiairlines.com. When not writing, she finds balance in life with yoga, travel, good company and her husband/best friend of 30 years and their new Bordoodle.

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