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Save This PageRetiree Jim Hesoun spends as many days as he can fishing along the waters of Cape Hatteras, N.C. He loves the sport. It was one activity that he was looking forward to increasing after his retirement in 2005.
"I've been fishing all my life and when I was working I didn't have the time to take off to go fishing during the week," Hesoun said. "Now that I'm retired I can leave anytime that the fish are biting."
Unfortunately, Hesoun's fishing gear has been lying idle since gas prices began skyrocketing to unprecedented levels. After retiring, Hesoun purchased a large four-door, four-wheel-drive pickup truck that gets about 13 miles to a gallon.
"I haven't gone fishing for the last six months because of the fuel prices," Hesoun said. "Even at home we're not going out as much to eat. We're staying at home. I'm not doing a whole lot and it's kind of boring for me."
. . .
The reality is that inflation can eat away at the financial foundation that you've built for retirement as easily as termites can destroy a home.
"You can't discount things like inflation," said Sri Reddy, vice president and head of retirement income strategies at ING Americas. "Fifteen years ago most people would not have predicted that gas would be $4 a gallon."
With today's advancements in health care, many people who retire at 65 can expect to live 20 to 30 years past retirement. During that span, the economy can change several times.
"Inflation can have a significant impact on your spendable income even if you take a conservative estimate of 3 percent inflation over 30 years," said Jason Pruden, investment adviser representative for John Hancock Financial Network.
Hesoun is careful with his money.
"The first two years after retirement I was making money through my funds, stocks and IRAs," he said. "I was watching my money grow and I was happy that I retired at the right time. Now suddenly the economy changes and I have to change."
. . .
When the economy started its downhill slide, Hesoun had to re-evaluate his finances. Since 2005 he had been receiving an automatic monthly check from his investments.
"I'm still taking money from my investments but it's more controlled," he said. "Now I write my own check when I need it."
Most people, Pruden finds, have some type of systematic savings plan for retirement.
"It could be through a co-sponsored 401(k) or an automated monthly contribution to a savings or investment account. Or, it could be an automatic withdrawal from a checking account to a savings account," he said. "I find that the less time and energy it takes to save, the easier it is to do."
. . .
How much you save varies depending on how much income you will need during your retirement years.
"If you are going to retire today, you have to think about the percentage of your income that you would like to replace," Pruden explained.
Often people save without a defined goal in mind. That worries Reddy.
"They don't have an end goal other than they know they want to retire," he observed. "If they have $100,000 or more saved, they are feeling good. But most people when they are looking at a lump sum of money don't have a good idea of what a safe withdrawal rate is."
Anyone nearing retirement should figure out how much they will need to live a comfortable lifestyle.
"Ask yourself, 'What's my vision?'" Reddy said. "What do you want to do? Are you planning on working part-time? Do you want to travel? These are questions that need to be answered."
. . .
While he hasn't suffered from the economic downturn yet, retiree Tim Williams does worry about the future.
"Right now we're trying to minimize our travel as best we can," he said. "I go to school and I teach at University of Richmond at the Osher Lifelong Learning Institute. I'm starting to look at how many courses I am going to take because it's a 32-mile drive one way to school from my house.
"It's not so much [about cutting back on] the necessities of life; it's about the other things we are doing. They will be impacted."
Being on a fixed income when the cost of living is increasing daily is a concern.
"It can be problematic," Williams said. "I'm fortunate because I have a military retirement check as well as retirement from my employer. The military check is pretty well inflation resistant. If the economy continues to worsen, I worry that the retirement check won't keep up with the pace."
. . .
One of the biggest challenges facing retirees is moving from wealth building (accumulation) to planning for a lifetime income (distribution).
"You have to transition from growth-oriented investments to income-producing investments," Pruden explained. "It's a major change in how people manage and view their risks."
According to Pruden, there are five risks that anyone nearing retirement needs to address. Those risks are:
When you address those five risks, you help to build a foundation that will protect the money you have saved for retirement.
"Those risks are more complex than what a lot of people face while they are building up their nest egg," Pruden said. "You have to create a sound strategy and plan."
. . .
If you are still 10 years away from retirement, you have time to create a plan and save for retirement.
"Examine what you have now," Reddy said.
If there is a gap in what you have saved and what you need to save, you can still close that gap. For example, you may have to work longer to allow your money time to grow.
"Not only are you saving more if you delay retiring but you are also not taking money out of your savings," Reddy said.
Reddy can't understand why some people don't take advantage of a 401(k) matching plan when they are employed.
"If you can afford to defer more to max that out, that's what you need to be doing," he said. "If you are over 50, the government increases the amount you can defer to a 401(k) or IRA."
. . .
Another way to close the gap between what you have saved and what you need to save is to look at your everyday expenditures and see if they can be reduced.
"It's not just saving to get to the number you need," Reddy said. "You can potentially reduce the target number and reduce your lifestyle to meet that. You have to look at all of your options."
When you are saving for retirement, be sure to diversify your portfolio. Look at your savings plan on a regular basis and don't be afraid to re-evaluate that plan.
"Don't put all your eggs in one basket," Reddy said. "If you are not invested in investments that can keep up with inflation, there might not be money to help you survive well in retirement."
. . .
The Stimulus Rebate checks the government began sending to taxpayers in May won't affect Hesoun, who sold shares of stock, making his income too high to receive the benefits. Williams, on the other hand, was glad to receive his rebate.
"We haven't really talked about how we will spend it but we are taking a trip this summer to Eastern Europe," he said. "We'll probably use some of that check for pocket money during the trip and we may also pay off a credit card."
Looking back, Hesoun thought he had planned well for his retirement. He had talked to an adviser who agreed that he had enough money to retire at the age of 60. But the economic downturn has taken a bite out of what he and his wife can do.
"I thought we had plenty of money to last until I got to my 80s or 90s," he said. "My wife is still working and we were hoping she could retire this year. Now it looks like she will have to work one or two more years."
Williams is also concerned.
"We're taking a hard look at the things we do now," he said. "Six months ago, we would just do them."
