Retirement age headed for a boost?

When the dust and/or mud settles after the presidential election, one question likely to be on the national agenda is whether to “reform” Social Security and Medicare and, if so, how.

Privatizing Social Security may be a dead duck, but other possibilities remain. One idea, raising the age for benefits, was the subject of this recent National Bureau of Economic Research (NBER) paper.

The NBER paper factors “age inflation” into the calculation, recognizing that people generally live longer now than when the rules were made. To illustrate, the authors say that if eligibility ages had been adjusted since these programs began, here’s what they would have looked like as of 2004 (the ranges reflect different methods of calculating the adjustment):

• Social Security early retirement age (currently 62) would have been 65.6 to 67.

• Social Security normal retirement age (currently 66 to 67): 73 to 81.8.

• Social Security delayed retirement age (currently maxes out at 72): 76 to 78.6.

• Medicare eligibility (currently 65): 70 to 72.

• Penalty-free IRA withdrawals (currently 59.5): 63.8 to 66.

What would a change like this mean to you? If you’re already retired or expect to retire in the near future, probably nothing. It’s unlikely that politicians would be so brazen as to change the rules of the game that quickly.

However, if your retirement is decades off, be forewarned. Pay particular attention to any moves to raise the Medicare age, unless you’re sure of having other health coverage past age 65.

Comments anyone?—Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.

R.I.P. for an early-retirement pioneer

L. Rust Hills, the former Esquire fiction editor who died on Aug. 12, was the author of, among other books, one called “How to Retire at 41,” based on his own experience in doing just that.

Although basically a humor book, it offers the most insightful discussion I’ve ever read about the tricky transition from 9-to-5 routine to the structurelessness of retirement. Hills’s answer, in part, was to create elaborate, multicolored to-do lists for himself, which he kept on a clipboard. “Once or twice a visitor would ask me if he could have a list he particularly admired,” Hills recalls in his book.

His eventual solution, though, may be even more instructive: He went back to work. —Greg Daugherty

PS: Some of our advice about early retirement (and reasons not to) here.

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.

Two tricks for saving more money for retirement

Last week, I invited readers to share any secrets that have helped you save for retirement or some other worthy goal.

Here, in that spirit, are two of mine:

1. For discretionary purchases like clothes, CDs, or electronic gadgets, I’ve found it helps to pause and consider whether I’d get more pleasure from possessing this thing, whatever it may be, or from having the money invested somewhere. It’s amazing how often the thing goes back on the shelf.

2.  Sometimes when I feel the urge to spend just for the sake of spending, I’ll instead write a check to a mutual fund. For me, at least, that seems to satisfy much the same craving. Writing a check to charity does the trick, too, but won’t do anything for your retirement.

What’s worked for you? Please let us know by clicking on Comments, below.—Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.

The not-so secret of retirement saving

A reader of our Money Adviser newsletter took us to task last week. Our “Ask the Adviser” page had answered a question from a reader who wanted to know if he could avoid taking required distributions from his 403(b) plan. He calculated them at roughly $113,000 a year—a happy hardship if there ever was one.

Why, the complaining reader wrote, were we wasting space on that guy’s “problem” when many Americans have no retirement savings at all?

The easy answer is because he asked us. But the complainer still had a point. What advice would we have for people in that more serious predicament?

Well, life being what it is, many of us will go through a rough patch or two (job loss, health problems, whatever) when saving for retirement becomes all but impossible. The last thing we need is a finger-wagging lecture about mending our wasteful ways.

But when we’re in a position to save, it’s a good idea to do so. And the best way I know is the obvious one: Spend less than you take in, invest the difference, and then don’t mess with it.

Our Web site has lots of tips on saving more by spending less, most recently this article.

Next week I’ll pull together some additional suggestions on saving for retirement. Meanwhile, we’d love to hear about strategies that have worked for you. Just click on Comments, below. All we ask is, no finger wagging, please. —Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.

The smart way to take your pension benefits?

For the dwindling number of us lucky enough to have a defined-benefit pension, there’s an interesting analysis in the June issue of the “Journal of Financial Planning” on how best to collect when the day comes.

In most instances you’ll have three choices:

1. Take a lump sum and (we hope) invest it.
2. Take monthly payments from the pension plan.
3. Take a lump sum and use it to buy an annuity from an insurance company to perform much the same function as #2

The study didn’t evaluate the wisdom of #1 vs. the other two, arguing that most people are better off with some sort of annuitized income stream. I’m not sure that’s true for real hands-on investing types, but no matter.

As to the question of #2 vs. #3, the analysis comes down in favor of #2—leaving the money in the plan and collecting benefits—because your monthly checks are likely to be larger.

One exception might be if your pension exceeds the limits of Pension Benefit Guaranty Corp.  coverage and you have reason to believe your plan is headed for termination. In that case you may be better off getting your money out ASAP and taking your chances with an insurance carrier.

Read more about pension safety in this recent article  from the Consumer Reports Money Adviser.
—Greg Daugherty

Greg writes the “Retirement Guy” column each month for the Consumer Reports Money Adviser newsletter.

Is worry a secret of successful retirement planning?

A new report from the Society of Actuaries points out an interesting difference between retirees and pre-retirees. The latter, it seems, are bigger worriers.

For example, 63 percent of pre-retirees “expressed significant concern” about inflation, while 57 percent of retirees did. Similarly, 63 percent of pre-retirees were concerned about affording long-term care, as opposed to 52 percent of retirees. And so on, down the list.

Several reasons for this disparity suggest themselves. For one, the retirees may simply be more content with their lot in life. Or perhaps pre-retirees really do have more to fret about, due to the shaky job market, the disappearance of traditional, defined-benefit pensions, etc., etc.

Of course it’s possible that a little worry is good for us pre-retirees if it motivates us to invest more and plan better (and doesn’t paralyze us into doing nothing). Heaven knows the financial-services industry is doing everything it can to fuel our fears.

What do you think? Please let us know, below. Or join the discussions at our online retirement forum. —Greg Daugherty

Greg writes the “Retirement Guy” column each month for the Consumer Reports Money Adviser newsletter.

The shape of retirements to come

From a recent report by the World Future Society comes this prediction of what retirement will look like in the not-too-distant future:

“People increasingly will work at one career, ‘retire’ for a while (perhaps to travel) when they can afford it, and return to school or begin another career. True retirement, a permanent end to work, will be delayed until very late in life.”

By 2015, the reports’ authors expect “the average retirement age in the United States to be delayed well into the 70s.”

No word about whether we’ll finally have flying cars by then, but one can hope.

What do you think? Please let us know, below. Or join the discussions at our online retirement forum.—Greg Daugherty

Greg writes the “Retirement Guy” column each month for the Consumer Reports Money Adviser newsletter.

Happier, healthier views of retirement

Despite all the gloomy predictions about Americans and retirement, two recent studies offer some reasons for optimism:

One study, published last month, enjoyed a burst of media attention for finding that as people get older they tend to become happier. But unmentioned in any of the newspaper accounts I saw was this related finding: Retirees tend to be happier than those who are working full-time. The study, by a University of Chicago sociologist, was originally published in the American Sociological Review.

Another study, released last fall, looked at the effect of retirement on people’s health, a subject of considerable folklore. The authors, from the University of Michigan and the Urban Institute, found no evidence that retirement was harmful and said it appeared, in fact, to have a positive health effect on men.

The two studies also align with our own survey of retired ConsumerReports.org subscribers, which found them to be a satisfied bunch, by and large.

So there you have it: Retirees are happier and, in the case of guys at least, healthier. What next: Smarter? Luckier? Better dancers? We await further research.

What do you think? Please let us know, below. Or join the discussions at our online retirement forum. —Greg Daugherty

Greg writes the “Retirement Guy” column each month for the Consumer Reports Money Adviser newsletter.

 

Are early retirees selfish and unpatriotic?

That’s the contention of a provocative opinion piece that ran in newspapers recently.

With what I’m guessing is a bit of exaggeration, the author not only declares early retirement “profoundly selfish and unpatriotic” but defines early as “55, 62 or even 65.”

You can read his argument for yourself if you want to, but the gist of it is that by staying in the workforce, early retirees could make a greater contribution to (and be less of a drag on) the U.S. economy.

As you might imagine, responses to the piece have been spirited and not especially sympathetic. Several have observed that the author is a college professor, not normally thought of as a physically punishing occupation unless one is, say, Indiana Jones. Might he feel differently if he’d spent the last 40 years laying sewer pipe?

Working longer has a lot going for it, including numerous financial benefits.  But in my experience, most retirees continue to do something productive even after they’ve left full-time jobs. Often they volunteer, without pay, for worthy causes. And that’s about as selfless and patriotic as it gets.

What do you think? Please let us know, below. Or join the discussions at our retirement forum.

—Greg Daugherty

Greg writes the “Retirement Guy” column each month for the Consumer Reports Money Adviser newsletter.

A time to put off retirement?

As if we needed more evidence of our national economic jitters, 41 percent of adults are postponing major changes in their lives due to financial concerns, according to a survey released the other day by the American Institute of Certified Public Accountants. The moves they’re delaying include such biggies as getting married, buying a home, having kids, and retiring. (That 41 percent is up from 30 percent in a similar survey last year.)

For anyone who’s considering putting off retirement until the economic clouds pass, the Consumer Reports Money Adviser newsletter offered this advice a while back. And the proverbial silver lining is that retiring later actually has some financial advantages, whether in good times or bad.

If you have an opinion on when to retire (early? late? never?), please join the discussion at our online retirement forum. —Greg Daugherty

Greg writes the “Retirement Guy” column each month for the Consumer Reports Money Adviser newsletter.

April 15 tax-filing and IRA deadline extended for some

Most of us have until April 15 at midnight to file our taxes and establish tax-deductible IRAs for tax-year 2007. But the IRS has extended the deadline for victims of several recent natural disasters. Folks in parts of Illinois have until May 6, those in parts of Georgia and Missouri have until May 19, and residents of parts of Arkansas have until May 27.

In addition, the IRS says, because members of the military and support personnel generally have a deadline extension until 180 days after they leave the combat zone, they also have an extension of their IRA contribution deadline. Beyond that, under the special HERO Act provision, the time window is still open for members of the military who received tax-free combat pay in 2004 or 2005 and wish to make IRA contributions for those years. The deadline for making these special back-year contributions is May 28, 2009.

Regardless of when you set up your IRA, consider in advance which works best for you: A tax-deductible, traditional IRA, or post-tax Roth IRA. Click here for our findings from Consumer Reports Money Adviser.

Contrary to conventional wisdom, retirees get wealthier

We Americans are scolded so often about not saving enough for retirement (usually by financial services companies with an obvious stake in the matter) that it’s always a treat when some positive news comes along.

Such is the case with this recent academic paper. It says that retirees, especially those in the middle- and upper-income groups, generally manage their finances wisely enough during retirement that their wealth actually tends to rise rather than fall. This being an academic study, it’s more complicated than the foregoing one-sentence explanation, but that’s the bottom line.

The study reinforces something we found when we surveyed several thousand retired readers for an article in the February Consumer Reports. The huge majority of our retirees, it turned out, were quite satisfied with their situation.

This isn’t to say that you should stop investing for retirement or party like there’s no tomorrow once you do retire. However, if you save conscientiously now and spend smartly later, you may not only enjoy retirement but have the added pleasure of proving the financial fearmongers wrong.

Do you have a retirement-related experience to share or a question to kick around with other readers? Join the discussion at our online retirement forum.—Greg Daugherty

Greg writes the “Retirement Guy” column each month for the Consumer Reports Money Adviser newsletter.

What’s Social Security worth to you?

Here’s another way of looking at Social Security, courtesy of a new report from the National Academy of Social Insurance: If you bought an insurance company annuity to create an income stream equal to your Social Security benefits, it would run you about $225,000.

That assumes a 65-year-old retiree collecting the average monthly Social Security benefit for 2007 of $1,045. The annuity’s payments would rise with inflation (similar to Social Security) and continue paying a surviving spouse after the retiree died (ditto).  We haven’t checked the report’s math, but its logic seems reasonable.

Of course, the value of your benefits will depend on many factors, one of which is whether you start to collect at age 62, at your “full” retirement age, or as late as age 70. We explored some of the pros and cons of that decision in this recent article in Consumer Reports.

If you’d like to weigh in on the value of Social Security, or any other retirement-related topic, visit our new retirement forum.

Self-serving survey of the week

And the winner is: The Guardian Life Insurance Company of America for its just-released “Consumer Attitudes: Whole Life Insurance & Retirement.”

We’ve become accustomed to surveys used to position various financial companies and their products as the answer to Americans’ retirement needs. A lot of money is currently up for grabs, after all. But even we were impressed by the big insurer’s attempt to hoist whole life insurance onto that pedestal.

Yes, whole life insurance, the kind derided for decades by consumer advocates as an overpriced, oversold blend of life insurance and an investment account.

The ancient advice to “buy term and invest the rest” still holds for the huge majority of people, in our view. Term insurance, you’ll recall, is the kind that simply pays off if you die--and it tends to be far cheaper than whole life when people most need it.

Indeed, many people won’t need life insurance at all when they reach retirement age. Unless you still have children or others dependent on you for support, there’s little reason to keep buying life insurance. (If you’re of retirement age and happen to have a whole-life policy you’ve been paying premiums on for years, deciding whether to keep it is another issue.)

Among other things, Guardian says its “research shows that 80 percent of individuals and families owning a whole life insurance policy believe they will have enough money to live comfortably during retirement, compared with 60 percent who do not own whole life insurance.”

Maybe so. But people who believe they own the Brooklyn bridge probably feel much the same. Plus, if they’re looking for a way to keep active in retirement, they can always set up a toll booth.

—Greg Daugherty

PS: Those who agree or disagree, vehemently or otherwise, are invited to comment below. You don’t have to leave your name but please indicate any affiliations, so other readers will know where you’re coming from.

Greg Daugherty’s “Retirement Guy” column is a monthly feature of the Consumer Reports Money Adviser newsletter.