How to Make Better Retirement Decisions
Sweeping generalizations about how men and women think about money have always rubbed me the wrong way. Obviously, these are deeply personal and unique feelings. Still, I like to rely on quantifiable evidence when possible, at the very least to help people confront general tendencies seen in each of the sexes. The Society of Actuaries (SOA) is a good place to start. The SOA’s report, The Decision to Retire and Post-Retirement Financial Strategies, which was prepared by polling group Matthew Greenwald & Associates, took a different turn: this study was about feelings, not hard data. It “was designed specifically to explore how individuals make retirement decisions in order to gain a better understanding of the process they used to make decisions, what steps were completed, how finances and other factors were considered in the decision and how successful they have been in their retirement years.” To understand how people think about retirement, the study created and interviewed eight focus groups of people who had retired voluntarily; and then separated the groups by asset level, sex and geography.
Guess what? The research strongly indicates significant differences between men and women. “The men appear optimistic, confident and more likely than women to think they will be able to adapt to any financial situation that arises. Women seem much more concerned about financial security than men and are more concerned about running out of assets, needing long term care, being a burden on their children, and impacting the financial success of their children.” The differences are seen most acutely around care giving -- men are rarely caregivers.
None of this is particularly groundbreaking, but of note was the exploration of why people retired. Despite self-identifying as “retiring voluntarily,” most participants said that they retired because work became too difficult for them, either because of the physical strains, the stress that work created or because they felt unappreciated. This finding confirms my previous experience as a financial planner and underscores why I believe that the retirement plan of “I’ll just work until I die” can be delusional and dangerous.
The study also found that most of the participants have a difficult time confronting and dealing with financial risk. Sure, there is always the idea that “I don’t want to outlive my money,” but the group tended to make decisions that undermined that fear. Few retirees factor in significant inflation, substantial long term care needs, and large unexpected medical expenses. Additionally, “many claim Social Security as soon as they can [retirees can claim Social Security as early as age 62, but doing so permanently reduces benefits], even though…they would be better off delaying claiming (benefits).”
And if running out of money is the big fear, few have created a strategy for managing and preserving their assets. Most did not have a plan to determine which retirement funds to tap first, nor did they change the way that they manage their money throughout their retirement years.
What is to be done to help people become more aware about their retirement choices? It makes sense to run the numbers before you are thrust into either voluntary or involuntary retirement, probably when you are in your mid-50s. At the very least, you can create a baseline game plan that you can adapt as you near retirement.
There are lots of online calculators and resources, but because the retirement planning process can be more emotional than figuring out how much to save for college or crunching life insurance needs, many may seek the human touch. I know that the cost is steep – probably about $300 an hour, with some sort of minimum, but given the importance of the issue, the money may be well worth it.
As always, I recommend engaging a professional who has earned the CFP® certification or is a CPA Personal Financial Specialist. You can ask for referrals from friends or colleagues or use the search tools offered by the Financial Planning Association and the National Association of Personal Financial Advisors (NAPFA).