Today’s bits: Millennials ask: What’s it like to retire?

image credit: Flickr/Keith Williamson

 

Today’s bits are all about retirement planning. When people hear that topic, oftentimes they stop listening, especially younger people. They think that retirement is so far off in the future, there’s really no reason to start thinking about it now. That’s probably the biggest mistake they can make. Younger people have one of the key determinants of financial success which older people don’t have: time. Retirement planning isn’t for those pushing 65, it’s for the young. The more time you have in the market, the better your chances of success are.

Below are summaries of and links to several current articles on retirement planning. The first one includes a video… College students — those people who have more time to plan for retirement than almost anyone — were asked to speak with retirees about their experience now and before they retired.

What’s it like to retire?

When you’re in college, retirement seems so far away. How do you even wrap your head around it? We asked journalism students from five colleges and universities to talk with retirees, and find out what they wish they had known when they were the students’ age. (NYT)

Think You’re Set for Retirement? Don’t Get Too Comfortable

When times are good, people get complacent. Since the market bottomed in early 2009, times have been very good. Other than a few bumps in the road here and there, the market averages have been on a tear. Since the market bottomed after the financial crisis, the S&P 500 has gained 225 percent, that’s nearly 16 annually over the past eight years. Even more of late, since Trump was elected four months ago, the S&P 500 is up more than 14 percent, that’s over 43 percent annualized. If you think the markets can continue to rise like this forever, think again.

Unless you’ve experienced sizable market declines, you truly can’t appreciate them. Many young investors today have never witnessed a major decline, like the 37 percent drop in the averages in 2008 or the halving of the market averages during the dot com debacle during the first few years of this century.

Young people who are investing today — those who are buying 26 year old who are buying up shares of Snap this week — were too young to really appreciate the market declines of the recent past. It’s great to be optimistic about the future. However, the dark side of optimism is overconfidence, a well-chronicled killer of wealth, memorably dubbed irrational exuberance by former Federal Reserve Chairman Alan Greenspan during the dot-com bubble.

Some academic studies suggest that the more information we get, the more confident we become in our decisions. Yet, with all the market noise, our decisions aren’t always a lot better than those of people without all that information.

According to Bloomberg, a survey commissioned by BlackRock suggests that many of those with money in workplace defined-contribution plans may be overconfident about future returns. The poll, of 1,002 plan participants with at least $5,000 saved in their current employer’s plan, looked at how confident workers were about being able to enjoy a nice retirement. More than half of the participants said they were on course to “retire with the lifestyle they want”—56 percent, up from the annual survey’s reading of 52 percent last year. Nearly 70 percent think they can save enough to meet their financial goals for retirement.

Helping Your Children Plan for Retirement, Even as You Plan for Yours

“I have definitely seen an uptick in younger people asking, ‘How much do I need to save?’ and ‘Where should I invest?’” said Walter Updegrave, editor of RealDealRetirement.com, who has been answering retirement questions online for 15 years. (NYT)

Workers Are Working Longer — and Better

After nearly 20 years as dean of continuing education at Wellesley College in Massachusetts, she thought she might go back into teaching, or move into development work, because fund-raising had been part of her job at the college. Instead, she decided to learn how to help others manage change: Since 2002, Ms. Leonard has been running her own coaching business, focusing on middle-aged women who are looking to make career and life transitions. (NYT)

Working Longer May Benefit Your Health

Are there health benefits to staying in the work force longer?

The scientific research is inconclusive, though it tends to tilt toward “yes.” This is particularly pronounced among people who find work fulfilling in the first place, who tend to be office workers, teachers and others whose workplace is not, say, a factory or a construction site.

Even disliked colleagues and a bad boss, we argue, are better than social isolation because they provide cognitive challenges that keep the mind active and healthy. (NYT)

10 Ways to Curb Taxes in Retirement

While you’re still working, much of what you owe in your taxes in any given year is preordained by your salary. The size of your paycheck is by far the biggest determinant of the taxes you owe on a year-to-year basis. Taxes are different in retirement. If you’re no longer earning a paycheck, the taxes you’ll owe will depend on your spending and where you draw your cash from: Social Security, your IRAs, etc. (Morningstar)

The Champions of the 401(k) Lament the Revolution They Started

The dominant vehicle for retirement savings has fallen short of its early backers’ rosy expectations; longer life spans, high fees and stock-market declines.

Image credit: WSJ

401(k)s gave individuals considerable discretion as to how and even whether they would save for retirement. Just 61% of eligible workers are currently saving, and most have never calculated how much they would need to retire comfortably, according to the Employee Benefit Research Institute and market researcher Greenwald & Associates. (WSJ)

What are you willing to sacrifice now to get your retirement planning on track?

The “course corrections” people say they’d be willing to make… A few examples of the course corrections pre-retirees say they’d be willing to make to have a more comfortable and secure retirement, in declining order (not good news for their kids or for charities):

  • Make healthier choices to save money later: 91%
  • Cut back on expenses: 90%
  • Cut back on everyday leisure: 82%
  • Limit or cut back on my donations to charities: 77%
  • Volunteer my time/skills more and give monetary donations less: 75%
  • Work part-time in retirement: 75%
  • Downsize my home: 75%
  • Cut back on financial support to children: 70%
  • Purchase long-term care insurance: 68%
  • Move to a less expensive location: 67%
  • Postpone taking Social Security: 64% (though 60% said they’d “take Social Security as early as I can” — puzzling)
  • Turn a hobby into an income source: 62%
  • Cut back on financial support to parents or in-laws: 59%
  • Take a housemate or become a housemate: 28%
  • Rent a room or part of my home on a short-term basis: 27%
  • Turn my car into a source of income: 24%

 

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