If you’re approaching retirement—or even made the leap from work to leisure already—you’ve been bombarded with stories, studies, and tales of how unprepared your compatriots (and by implication you) are to finance your golden years. Google ( (GOOGL) - Get Alphabet Inc. Report) “retirement crisis” and close to 390 million hits appear. No wonder nearly one in two Americans tell Gallup that they fear not having enough money to fund a comfortable retirement. (Megan Brenan “U.S. Retirees’ Experienced Differs From Nonretirees’ Outlook,” May 28, 2021, Gallup)
You can relax. You certainly have problems in your future, but paying your bills isn’t among them. This so-called crisis is akin to the global overpopulation crisis of the 1970s that has not only disappeared but morphed into its opposite. The experts now fret that we aren’t having enough children. I’m here to tell you that if you’re reading this article, there is no “retirement crisis” in your future. Your problem will be giving yourself permission to enjoy your money. I’ve got a strategy for that. But first, let me support my countercultural assertions.
Let’s start with the half of working Americans who are worried about retirement. Gallup started collecting this data in 2001 and got similar responses. Those early folks are now retired. Guess what? Eight in ten report that they are doing just fine. (Megan Brenan “U.S. Retirees’ Experienced Differs From Nonretirees’ Outlook,” May 28, 2021, Gallup)
This rosy picture is supported by the people at the Employee Benefit Research Institute (EBRI) who’ve been studying retirees for decades. A recent report found that eight in ten retirees report themselves as doing well. (“2021 Retirement Confidence Survey” Employee Benefit Research Institute and Greenwald Research.) Another EBRI study found that only 20 percent of retirees even make withdrawals from retirement plans prior to being required to do so. Once required to withdraw, eight in ten take only the minimum required. (Jack VanDerhei, Kelly Hahn, Katherine Roy “In Data There is Truth: Understanding How Households Actually Support Spending in Retirement,” Employee Benefit Research Institute, June 25, 2021.)
No wonder: the older the American, the more likely they'll be wealthy. Americans over age 70 have assets valued at $35 trillion. That includes Warren Buffet, of course, but not Elon Musk, Jeff Bezos, Mark Zuckerberg, or Peter Thiel’s $5 billion Roth IRA. (Ben Eisen and Anne Tergesen, “Older Americans Stockpiled a Record 35 Trillion. The Time Has Come to Give It Away,” Wall Street Journal, July 2, 2021.) Even after a lifetime of required withdrawals, a substantial portion of people die wealthier than they retired.
Don’t feel guilty if you have a few dollars saved when you read about your destitute compatriots. They likely aren’t destitute. All those stories you read that ten percent of seniors are in poverty and one in three rely solely on Social Security for income? They are bogus, according to American Enterprise Institute fellow Andrew Biggs, who takes the time to fact-check the reports.
Those reports are based on surveys, yet Biggs and other researchers dug into IRS data—on what people and institutions report and on the taxes they actually pay—and found as far back as 2008 that retirees self-reported far less income than hit their bank accounts. Retirees reported collecting $250 billion from investments. But IRS data on the same people show that $450 billion hit tax returns. (Andrew G. Biggs, “At last, some action on misleading retirement income statistics,” Forbes, April 29, 2021.)
Biggs, citing other research by Census Bureau economists and the IRS using similar methods, shows reported median retiree household income as $41,000 versus actual income of $52,000, a 27 percent jump. This drops the percent of retirees relying on Social Security for at least 90 percent of their income to 14 percent. The poverty rate for seniors drops to less than 7 percent. (By way of comparison, the U.S. government says 16 percent of children live in poverty.)
There are no doubt pockets of financial pain among American seniors. But the norm is financial and life success, not failure and misery.
Back to you. It’s likely that you resemble most of my boomer clients. You are a responsible citizen who took advantage of the myriad saving and investing opportunities that emerged over your working life. You funded your employer-sponsored defined-contribution plans and Roth IRAs when they appeared from a massive tax overhaul in 1997. You may have a pension, which certainly helps. But if not, you’ll likely have made it up from personal savings.
Here’s my general impression, not knowing your situation. You’ll do well to replace “or” with “and.” This is advice I recently blurted out on a check-in call with a long-time client, who was asking questions about what to do with required minimum distributions from retirement plans.
Do whatever you want, I said.
Here’s what I mean. In this case, I knew that my clients like travel and dining out. I used a food example and counseled, when perusing the appetizer menu at their favorite restaurant, don’t ask whether to get the oysters, clams casino, or Caesar salad. Instead, put an “and” in the sentence and order the oyster, clams casino, and the Caesar salad.
I’m not trying to fatten you up, I explained. You don’t have to eat it all – take the leftovers home and replace a future meal. If it will make you happy in the moment, order it and swipe your card with a smile. It’s not going to break you.
This feels unnatural. I get it. When we were building wealth, most of us did so by deftly using the “or” and avoiding the “and” with ourselves and our family. We couldn’t have it all, after all, so we needed to make choices, economize, and save. We could put the pool in the backyard or take the expensive summer vacations. If we did both, we’d be among those who don’t have the dough to retire.
Your discipline in the accumulation phase, combined with smart investing, built a nice pile of money. For many pre-retirees and those who’ve already called it quits, that pile has now taken on a life of its own, compounding nicely. It’s time to spend. That’s out of your comfort zone. The very habits that made you successful work against your enjoying your success to the full.
Back to my clients. We continued our brainstorming, applying the “or/and” concept to travel. You’re planning a cruise, I said. It’s not a question of first-class airfare or an upgraded stateroom. It’s first-class airfare and a premium stateroom. Take the same approach when purchasing excursions. Take the helicopter to the glacier and go salmon fishing. You’re only likely to be in Alaska once. It’s only money. If you don’t spend it, your kids will. They may in fact pay extra to fish for salmon from the helicopter on the way to the glacier. All with your money. Ponder that.
Speaking of kids, you can bring them and the grandkids into the “and” if that makes you happy. You can either snowbird for Christmas (spend the holiday in a warmer climate) or spend it with your children. Do both: snowbird with your children by sending them tickets and putting them up. Consider it an advance on their inheritance.
Don’t get hung up on these examples. They may very well not fit your desires, tastes, or budget. I get it. Absorb the concept and apply it to your life. If you’re reading Retirement Daily, chances are you have enough to put the “and” in your retirement. Take the leap. Do it. You won’t spend you last dollar. So why are you worried about conserving it?
Michael Lynch, CFP®, is a financial planner with the Barnum Financial Group in Shelton, CT, where he focuses on his clients’ finances so they can focus on their lives. He teaches consumer-oriented financial planning courses for leading organizations, including Madison Square Garden and Yale-New Haven Health Systems. He is a member of Ed Slott’s Elite IRA Advisor Group and the author of “Keep It Simple, Make It Big: Money Management for a Meaningful Life,” October 2020. You can find more articles and videos at michaelwlynch.com. He can be reached at mlynch@barnumfg.com or 203-513-6032.
Securities, investment advisory services, and financial planning services are offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000. Any discussion of taxes is for general informational purposes only, does not purport to be complete or to cover every situation, and should not be construed as legal, tax, or accounting advice. Clients should confer with their qualified legal, tax, and accounting advisors as appropriate.