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Queens Chronicle

SENIOR LIVING GUIDE: Spring 2019 Anxious about outliving your savings?

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Posted: Thursday, March 21, 2019 10:30 am

After a certain age, scary is no longer a long walk in an empty parking garage or a knock on the door in the middle of the night.

Scary is the thought you may not have saved enough for retirement, that you may live longer than your money.

One of every four 65-year-olds alive today will live past 90, according to current statistics.

One in 10 will sail past the age of 95 with flying colors.

Data from the Centers for Disease Control and Prevention show that the average 65-year-old will live another 23.3 years.

How do you make sure you do not reach the end of the line before your money does?

The answer is simple really: Save more, spend less, work longer. Good night, everyone, get home safely, remember to tip your waiter.

But life — especially retired life — is rarely that simple.

Everything points to a simple reality. Most of us don’t have a clue about retirement.

Baby boomers have a median nest egg of $164,000. Millennials, naturally, have less but there’s time for them to catch up.

A survey by T. Rowe Price released just a short while ago found that two of three retirees say they “have concerns about their assets lasting.” That’s a lot of anxious people.

If you are reading this article, chances are you have something set aside besides Social Security for the day your paycheck stops.

How can you be reasonably sure it’s enough to last? And if you aren’t sure it is, what can you do about it?

1. Plan, plan, plan

Unless you hit the lottery sometime after age 65, planning is the first way to save yourself.

“And, obviously, the more planning the better,” said Kerry O’Shaunessy Montaigne, an estate lawyer in Rego Park.

First, saving is a kind of planning. The more you save, the easier everything else becomes.

Contributing the maximum amount — 15 percent of your salary before taxes — to an IRA or 401(k) account is probably the fastest way to build up savings for working people.

Next comes the paper and pencil part of a plan.

Go over your bills, what it costs to stay in your home and keep the lights and heat on every month. Nothing fancy.

Add the cost of food, health insurance and a car or monthly MetroCard. That’s your base number for living.

Meanwhile, an estate lawyer can help you protect your house and other assets if you ever need to go into a nursing home.

Estate lawyers can help even if you haven’t planned as well as you should have, Montaigne said.

In recent years, new rules permit retirees to “loan” their assets to the their children — a so-called Medicaid Compliant Promissory Note. When the kids pay them back, the income is well below the cap and Medicaid kicks in sooner, she explained.

2. Investigate other investments besides stocks and bonds

A second house is a luxury, for sure.

But a place in the mountains or at the beach — or even around the corner — can be an investment that pays off.

Nothing appreciates like real estate.

Investing in the education and equipment required for a retirement job — pet grooming, computer repair, pest exterminating, the kind of work that can be done part-time and on your own schedule — can make a big difference.

P.S. Avoid investing in collectibles — baseball cards, art, jewelry — unless you are a pro at it to begin with. The market for goods such as these fluctuates too much to be a reliable hedge, say the experts.

3. Lay down a floor for yourself

What can you count on coming in every month, rain or shine?

This is why Social Security was created back in the 1930s. If you worked all your life, you deserve something after you stop.

Find out what you can expect from Social Security if you apply for full benefits at age 66 or wait until age 70, when benefits will be higher.

In most cases, that won’t be enough to cover your rock-bottom needs (see 1. Plan).

Are you getting a company-sponsored pension? If so, add both together and see if they meet your monthly nut.

If not, you may have to think about purchasing an annuity. For a lump sum payment now, a bank or insurance company agrees to pay you an agreed-upon amount every month for the rest of your life.

An annuity is basically a bet between you and an insurance company or bank.

If you die soon after retiring, the bank wins. If you zoom past age 90, the bank is on the hook to pay you more than you gave it originally. You win.

P.S. Ask about ways to hedge your bet. Some companies will agree, if you die sooner rather than later, to refund your heirs the unused portion of your original investment. It costs a few dollars a month but it may be worth it.

And you don’t have to pay an annuity all at once. It can be done in payments over time.

Some financial companies have started offering something called a personal pension — a substitute for company pensions that have disappeared in the last few decades.

For a contribution today, the company agrees to give you a pension payment sometime in the future.

Unlike annuities with a hard-and-fast contribution requirement, a personal-pension payout simply goes up every time you contribute, no pressure.

4. Reduce debt before retiring

There are two ways to get rich: 1.) bring in a lot of money and 2.) spend very little.

Most people obsess over the first way and forget about the second.

A little-appreciated way to make sure you don’t outlive your retirement strategy is to reduce debt.

Mortgages, car loans and credit cards are for young people who have a paycheck coming in every week. Some can afford to drive a car beyond their means and live in a house that’s bigger than they may need. That’s because they have the promise of money coming in every week.

Retirement means shedding debt obligations as much as possible.

Eliminating debt in the months and years before you retire may require some sacrifice and maybe a lifestyle change — moving to another city, dividing a house and renting out a portion, dumping the lease on an expensive car and buying a used car. For cash.

The T. Rowe Price survey found that 72 percent of retirees pay their credit card balances in full when due. Among working people, the rate is 39 percent, the survey found.

Retirees find out quickly that the peace of mind that comes when debts are retired is worth it.

5. Anxiety is good

Sudipto Banerjee, a statistician for the Employee Benefit Research Institute, did research on how retirees actually use their money.

He discovered that the fear of outliving retirement money is so strong that people actually cut back more than necessary.

On average, a person with a nest egg of less than $500,000 spends just about a quarter of it during the first 20 years of retirement, he found.

The cost of healthcare and nursing homes is the No. 1 fear of retirees.

But the ERBI found that less than one in ten people are hit with nursing home costs that exceed $87,000. And the median out-of-pocket cost for healthcare for people over 70 was about $2,000 a year.

“I have a lot of clients who are very well off financially and live in trailers in Florida,” financial planner Brett Anderson told Reuters last year. “They are quiet millionaires.”

No matter how much planning people did — or failed to do — for retirement, the research seems to show that retirees modify their behavior enough to stave off disaster. At all income levels, retirement turns everyone into a fiscal conservative. at least with their own money, it found.

The evidence is so strong, one financial expert called the fear of outliving your money a flatout “myth.”

But better safe than sorry.

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