Calculating Wealth For Retirement
The October, 2019 AARP Bulletin posted on its cover a somewhat controversial statement “Everything You Think About Saving for Retirement May Be Wrong” and follows it up with “Find Out Why On Page 8.” The article itself raises some interesting points and, as with most summaries, there are “Rules” with which I agree and others come with a “Yes, but…”
Case in Point regarding Rule Number One, I agree that “Wealth is not always a Dollar Amount.” This “Rule” I believe accurately reflects issues with the idea there is a magic “number” retirees should attain to guarantee a secure retirement. Once having determined this number in assets, the thought goes, then the job is to achieve it and, once having achieved it, there are no additional worries.
As with so many other ideas, the answer is “it depends.” For instance, a prospective retiree with guaranteed income composed of Social Security in a given amount and a generous and secure pension can be on a different footing than someone who is dependent almost entirely on savings. Also the assumptions that conditions will not change, that good health can be taken as a given, or that you will not be affected by changes in the market have been challenged by reality over and over again. Many workers who thought their pensions – and health insurance- were secure later found these assumptions not necessarily true. This point of instability is driven home in the article “New Rule Number 4,” which states “All Rules Should Be Turned Upside Down.”
From personal experience, in particular, I remember a statement made by a client about another person several years ago, “As far as I know he didn’t have much in income but he always seemed to have enough for everything he wanted.” How could this be? This article suggests some possibilities. One of them could be to be frugal within reason. Another I would suggest is to find other ways.
First, the article introduces some basic mathematical calculations and states “the wealthy person may not be who you think. Someone who is worth $1 million and who lives a lifestyle costing $200,000 a year has only five years of freedom and security. On the other hand, a person worth $200,000 who lives on $10,000 a year, plus Social Security, has 20 years of financial independence…”
Here is where I question. The article mentions in a sidebar on page 10 that average Social Security for retired workers is currently $17,500 per year. Even if you take advantage of New Rule Number 3, “He Who Hesitates in taking Social Security to age 70 cashes in,” and you receive more in Social Security, you still might only net a total of a few thousand dollars a month. Depending on your occupation, work history, and cost of living where you live, the idea of living on Social Security plus $10,000 could still place you in the almost poverty level.
Question raised: Do I have to be frugal? You might also ask “Do I need to continue working beyond the old age 65 retirement standard? Personal choice matters. It is very difficult to determine whether you are saving appropriately or skimping where it is unnecessary with so many unknows and unknowables.
There are some points where I agree with the article.
Colliton Rule Number One – I wholeheartedly agree with the idea of continuing to contribute to Social Security and also continuing to work – where feasible – later than the old considered age of 65. It gives more flexibility, keeps people active in the appropriate case, and means there are fewer years when you need to be concerned since there are fewer years to plan for.
Colliton Rule Number Two – Monitor your debt in retirement. Hefty mortgage and credit card debt can cause a person to feel insecure. It does not mean you cannot incur debt but the debt you experience should be felt overall to be manageable. Also if medical conditions are contributing to your debt it might be time to review with professionals – health care, legal, elder law, and financial – to see if there are other answers.
Colliton Rule Number Three – Stay aware of alternative ways to accomplish your goals. Do you need to buy the vacation home? Sometimes air bnb, rentals and visiting family and friends can work just as well.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.