A friend of mine had been a pediatrician for a few years before he had his first child.
“Now that you’re a father,” I asked, “has your advice to parents changed?”
“No,” he said. “But I am more empathetic when I give it. I now realize things are not quite as easy as I made them sound.”
When it comes to providing advice about saving for retirement, I can relate.
I had co-authored a couple of books on the subject — one when I was in my 30s and another in my 40s — but now that I am north of 60 and retirement is a far less abstract concept, I look back on what I wrote in a different light.
No, I wouldn’t change any of the advice. I told people to start saving aggressively while they’re young and to diversify their holdings — it was good counsel then, and it is good counsel today. I also remain a steadfast believer in index funds and in keeping investment costs as low as possible. That’s how I have invested just about all of my retirement savings.
But I would have provided not only more empathy, but more real-world advice as well.
Let me give you three examples of what I should have said:
Example One: Working longer to save more for retirement is a good idea. But when people start to get serious about retirement planning, they are almost always shocked and dismayed for two reasons:
One, they discover that they simply haven’t saved enough. According to the Employee Benefit Research Institute’s 2017 Retirement Confidence Survey, 45 percent of workers ages 55 or older have less than $100,000 in savings and investments. That won’t go very far once they’ve stopped working.
The institute — an independent nonprofit with no political partisanship — is quick to stress that the figure does not include any equity people may have in their home, or if they have a traditional pension. But only 13 percent of baby boomers do have the latter, according to a Pew Charitable Trust study released this year.
So, a lack of savings is problem one. Problem two? Most people don’t think they have much more time to save. Just about everyone bases retirement projections on quitting work at age 65.
My typical suggestion for solving both these problems? Retire at age 70 instead.
It sounds so simple, right? You have five more years of job income, five more years during which you can save and five fewer years that you will have to pay for all your expenses out of your retirement savings.
On top of all that, delaying when you take Social Security yields greater monthly benefits. For a baby boomer born in 1962, “full retirement age,” according to the Social Security Administration, is 67. Your benefits increase 8 percent a year, every year, until age 70, if you defer. (There is no increased benefit for waiting beyond that.)
All these factors make a huge difference, as I was always quick to point out.
By working five more years, a husband and wife who are both 55 today, earning a combined $120,000 a year with retirement savings of $75,000, would end up with 47 percent more a year to live on at age 70. That’s assuming they continue to save 10 percent of their income each year, and withdraw 4 percent of savings each year in retirement.
A huge part of that 47 percent increase comes from higher Social Security benefits. If our hypothetical couple apply for Social Security at age 65, they are in essence penalized for not waiting two years. They would each receive $3,348 less a year.
So, I wrote it was just a no-brainer to work until age 70, if you can.
While my math was right, what I now realize is just how hard it is to keep working as you age. My job doesn’t require much more than typing all day long, and I find myself getting fairly tired by day’s end. I can’t imagine I am going to have more energy a decade from now.
Example Two: Implicit in all my retirement advice was the assumption that everything in life moves in a straight line. For example, once you begin saving, you keep saving. But as the father of four, I have come to realize life is not that orderly.
For instance, I used to believe that people edging closer to retirement usually had the ability to save more, since child-rearing expenses were no longer a factor. So, I blithely wrote, you could take all that money you had been putting toward college, for example, and invest it for retirement.
Well, our “baby” graduated five years ago, and now all that tuition money is going to … home repair. While the children were still in school, we put off every major expense we could in order to fund the very expensive colleges of their choice. In the process, our home went from shabby chic to simply shabby. A new roof, a paint job (inside and out), upgraded air-conditioning, a new driveway and the like will eventually take care of that. But all that is going to cost money that could have otherwise gone toward our retirement. I glossed over situations like this when I was writing my retirement books.
Example Three: Remember all those things you want to do before you retire? Maybe go on a big trip or pay for a child’s wedding? In our case it was a big trip that involved a wedding.
Our oldest got married 3,000 miles away in Sonoma Valley, California, a couple of years ago, and not only did we fly in various family members who would have otherwise been unable to attend, but we rented a huge house for a week and hosted anyone and everyone who wanted to come by.
I wouldn’t have had it any other way, but again it is not the sort of thing I covered in any detail when I was writing about retirement planning.
Based on what I know now, I have put an addendum on the retirement advice I give to people: “And no matter how much money you think you are going to need, save another 15 percent, just in case.”