When to retire is typically a tough decision Larry Hungerford: When to retire: Typically, a tough decision

Winston-Salem Journal |

Given the large number of baby boomers (people born between 1946 and 1964), about 10,000 Americans turn 65 each day. More and more aging boomers are asking themselves: "Is it time for me to retire?"

Sometimes that decision is made by the employer who may be closing a business or even offering an attractive buyout package to its older employees. However, in most cases, it is an agonizing personal decision. Current statistics indicate nearly half of all retirees stop working earlier than they expected to.

I think there are three key questions to ponder:

How satisfied am I with my job?I know what I am retiring "from," but do I fully understand what I'm retiring "to"?Do I have enough sources of retirement income to fund my "vacation forever" lifestyle?

Certainly, plunging job satisfaction is usually the main reason that most people begin to seriously consider retiring. I argue that life is too short to be forced to work at a lousy job each day. However, I have met with people who like their job but are considering retirement because their demanding jobs required far more than 40 hours a week.

Asking for a job transfer or taking a pay cut to work part time may be a solution. But the final decision to retire also depends on careful planning that envisions what you will do with all your "free" time and whether you have the financial resources to finance your chosen retirement lifestyle.

One author, from the excellent website www.can iretireyet.com, suggests 10 possible retirement themes to give your new lifestyle purpose and meaning.

Recreation. Catch up on the fun you have missed - but too much emphasis here may make retirement "shallow and meaningless." Hobbies. Pursue your passion for creating and collecting, which often offers opportunities for connection and service and perhaps even earning some income. Homesteading. Owning, decorating, remodeling or even moving to downsize provide opportunities to enhance your residence. Travel. Retirement opens up all the time needed to travel. It is by far our personal choice, given that Sue and I have traveled to 77 countries. Fitness. All the research proves that regular exercise is a key to a longer healthier life. Current guidelines call for at least 150 minutes a week of moderate exercise (i.e., walking) or 75 minutes or more of vigorous activity (i.e., jogging, swimming). Learning. Retirement provides the perfect opportunity for learning and self-improvement

in whatever dimension appeals to you

. Encore career. This is a chance to indulge your "inner entrepreneur." Even if you make only a little money ($14,000), you can use that to fully fund a Roth-IRA for you and your spouse ($7,000 per person this year). Giving back. Volunteer your time and talent in

addition to the monetary contributions we all make

to worthy charities. Caregiving. Often this is not a choice as aging parents in their 80s and 90s need help from their families. Also, many grandparents consistently offer free baby-sitting for their grandchildren. Spiritual growth. "Finally, the clean slate of retirement is an opportunity for many to revisit, rethink and redesign their belief system." You have time to "dig deeper," perhaps pursuing "a fresh spiritual path, freed from earlier constraints."

Hopefully, for those considering retirement, the above list provides a possible road map that can help clarify your "after retirement lifestyle" before you make that fateful decision to quit your job.

Finally, answering the last question about financial resources is very difficult, given the particular circumstances of each individual. The standard rules of thumb are that the average retiree should have income equaling at least 75% to 80% of his/her preretirement income and that retirees should only withdraw 4% to 5% of their portfolio annually. A study in 2017 reported that an estimated 60% of U.S. households will be unable to generate 75% of their preretirement income when they retire.

Saving for retirement is critical. Current guidelines recommend having three times your annual salary saved by age 40, six times by age 50, eight times by age 60 and 10 time by age 67.

Research indicates that older Americans spend quite conservatively. A study conducted by T. Rowe Price, an asset manager and mutual-fund company, discovered that 18 years after they retired, its clients with $200,000 to $500,000 in savings still had 75 percent of their portfolio remaining and that those with $500,000 or more saved were down only 12%.

My personal experience reinforces that. My older clients tend to oversave rather than overspend. They worry they will outlive their money. (There is a 25% chance the average 65-year-old male will live to 93 and a 65-year-old female to 96.)

To alleviate their concerns, I often recommend delaying Social Security (8% annual increases plus cost of living adjustments until age 70) and if they are healthy, buying an income annuity that pays out lifetime income. They may begin income immediately or wait until as late as age 85. One poll found that "only 46 percent of investors realize that annuities provide guaranteed income for life." (Income annuities are the only annuity contracts I endorse.)

Readers may remember my column here nearly three years ago where I recommended a special income annuity called a Qualified Long Term Annuity Contracts, or QLAC that avoids the required minimum distributions of individual retirement accounts until it begins to payout - no later than age 85. (We bought one for Sue, given that her dad lived to 95 and her mom died at 99.) One expert argues that a QLAC is a "no brainer when building a retirement plan for a client that does not have a pension plan."

I argue that having two streams of guaranteed income - Social Security and an income annuity or, if fortunate enough, an employer pension - lowers your overall financial risk so that you can invest most of the rest of your savings into stocks and stock mutual funds. (In 1975, 88% of employees had defined employer pension plans; today that number is only 33% and many of them are frozen - employers are not adding to them.)

In essence, your income-annuity substitutes for money normally allocated to bond investments. Bond mutual funds are low risk but poor investments when payouts are low and interest rates are likely to rise.

Making the retirement choice is certainly one of the life's major turning points. Hopefully, this column has provided insights that will prove helpful when it is time to make that decision.

Contact Larry Hungerford at 336-998-7000 or larry@wcamg.com.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer



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