April 2013


We have one more post in our What Color is Your Parachute? For Retirement series. However, we wanted to take a quick break to do our monthly review of blog posts. We hope you find something you enjoy!

Get Rich SlowlyTalk about money: The key to financial literacy – If you have concerns about your finances, don’t be afraid to talk about them with someone else. You may find good advice/support that you wouldn’t have by keeping it to yourself.

U.S. News Money4 Financial Tips for the Sandwich Generation – Finances may be much more difficult to manage if you are in the sandwich generation. These four tips can help you alleviate some of that difficulty.

U.S. News MoneyDon’t Squander Your Retirement – Whether you want to or not, chances are good that you will retire one day. Don’t fall into the trap of an unplanned retirement, because your lifestyle will definitely suffer for it.

U.S. News MoneyWhat Are Your Real Retirement Costs? – Retirement expenses include much more than your basic living expenses. When planning your need income, don’t forget about these important retirement costs.

Please let us know if you have a favorite financial blog that you think we should be reading.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

We’re continuing our series about the book What Color Is Your Parachute? For Retirement by John E. Nelson and Richard N. Bolles. Today we’ll be discussing chapter seven: Medicine—Who’s in Charge? and chapter eight: Health from the Inside Out. These chapters deal with an important aspect of everyone’s life, their health.

Health should be important to everyone at any age. Unfortunately, not everyone takes notice of their health, especially at a younger age when health related issues are often few and far between. By the time you are approaching retirement, you likely will have to have to deal with more health issues than earlier in life, and many of them may be chronic: cholesterol, high blood pressure, arthritis, back pain, etc.

When you are entering retirement, taking care of your health may become even more important than it was to you before. Not only do you have to worry about those chronic problems you may have, it’ll become much more expensive to take care of your health. Your health may also affect where you can live and what activities you can participate in during your retirement.

“The Retirement Medicine Cycle”

When you do have to decide how to best handle your health in retirement, it can be very helpful to understand what Nelson and Bolles call “the Retirement Medicine Cycle.” It’s their way of helping you understand how you will consider and decide on how to handle any medicine you will need to take.

Nelson and Bolles explain this cycle using the acronym “PAR,” detailed below:

  • P – “Philosophy of Medicine” – There are many different ways to treat a health issue. On the spectrum of types of medicine, there is a range from conventional (your family doctor) to alternative medicine (meditation, etc.). You can also range from wanting low intervention to high intervention. Where you fall on these spectrums is considered your medical philosophy.
  • A – “Access to the Care You Want” – Just because you have a certain medical philosophy does not mean you will have easy access to that type of medicine. An important factor to this access is the cost. In most cases, the more conventional and more prone to high intervention you are, the more expensive it will be for you. Also, insurance can become a hindrance for certain types of care. The insurance plan you may have in retirement (including Medicare) may not pay for the coverage you are interested in, especially for alternative medicine.
  • R – “Relationships with Practitioners” – you will need to decide on the types of practitioners you will need. Developing relationships with the right type of practitioners can go a long way to help you maintain your health. Maybe it’s deciding you need a specialist above and beyond your family doctor. Or maybe you’d like to see a practitioner on a more regular basis so they get to know you better. For example, your chiropractor that you may see once or twice a month will know you and your body better than your family doctor that may see you once or twice a year. Therefore your chiropractor may be your first stop when something goes wrong.

“Biological Age”

Not everyone ages at the same pace. Some age quickly for a number of reasons (illness, unhealthy lifestyle, stress, etc.). Others age more slowly, likely blessed with lifelong good health and living a healthy lifestyle.

For these reasons, more than likely your chronological age (determined by your birthday) does not match your “biological age”—or how old your body actually is.

We think it’s probably common for people not to know their own biological age. Maybe you never considered it before, or maybe you don’t want to know. But knowing your biological age can be very helpful when planning your retirement.

Nelson and Bolles stress this because people often plan their retirement based on their chronological age. Say you’re 55 and decide you want to retire at age 60. What would happen if you found out your biological age is actually already 60? Would knowing that your biological age when you retire will be 65 instead of 60 change your plans at all?

On the other hand, what if you find out your biological age is actually only 50, so you’ll really have a biological age of 55 instead of 60 when retiring. Would this affect your retirement plans?

It’s possible that no matter what you find out about your biological age, your plans will stay the same. But if you are interested in finding out more about your biological age, check out Nelson and Bolles’ recommended websites: www.RealAge.com, www.BlueZones.com, and for life expectancy, www.LivingTo100.com.

Living a Healthy Retirement

Included in these chapters are some tools to help you implement some of the ideas discussed today. Wherever you medical philosophy falls, or whatever your biological age, your health can have a big impact on your retirement. You’ll want to make it a priority; otherwise you may find that the retirement you planned can’t be realized due to health concerns.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

Destination Retirement

We’re continuing our series about the book What Color Is Your Parachute? For Retirement by John E. Nelson and Richard N. Bolles. Today we’ll be discussing chapter six: The Nature of Space and Time. This chapter deals with your destination in retirement, or in other words, where you’ll be living.

Many people would like to relocate once they retire, and there are many reasons to do so: warmer weather, lower cost of living, to be closer to family or friends, etc. Maybe you would like to downsize but stay in the same city you currently live in. Or maybe you plan on staying in your current home for the duration of your retirement.

Whatever you may be thinking, especially if you have plans to move away from where you are residing now, don’t jump in blindly. Take small steps until you are sure you know what you want, as Nelson and Bolles discuss in the chapter.

“SALE”

According to Nelson and Bolles, there are “four layers of retirement geography” – “SALE.” Each letter represents an element of where you will choose to live in your retirement. They go into quite a bit of detail in the book about each, but we’ll just give a quick overview here:

  • S – “Sense of Place” – The “inner layer of your geography,” this is your own connection to a particular place. Maybe you have emotional ties to it. Maybe it reminds you of your childhood, or is someplace you’ve always loved and wanted to live. Everyone is going to have their own unique “sense of place.”
  • A – “Aging in Place”- Even though you will hopefully have a long, healthy, and active retirement during your “Third Age,” you will eventually reach the “Fourth Age,” a time when you are physically worn out and unable to do all the daily activities you used to be able to handle. Most people prefer to “age in place,” in other words, stay in your own home as you age.
  • L – “Livable Community” – Not all homes are located within a community. A “livable community” is one where you are going to be spending most of your time. It’s where you’re going to travel for activities daily. Some homes are located where the sense of community strong (everything within short walking/driving distance, many activities to participate in, etc), other homes have very little sense of community around them (isolated, located far from stores and activities, etc).
  • E – “Essential Region” – Many people already have an idea of what region they would like to live in. Maybe it’s right where you are right now, but it might be on the other side of the country. This place you’ve decided on becomes your “essential region,” and once you narrow down where that is, it’s becomes a matter of finding the home that is right for you.

Staying Put

If you decide you don’t want to move elsewhere, that you love the city you live in now, there are still some things you might want to consider:

  • Downsizing – If you still live in the house you raised your family in, it might be too big for you and your spouse to live in alone during retirement. It may make sense for you to downsize to a smaller, potentially less expensive house within your own community.
  • Travel – Nelson and Bolles discuss using your “home as base of operations”—the place you come back to in between your travels to rest.
  • Buying a Vacation Home – Not everyone will have the financial ability to do so, but if you like the idea of living elsewhere part of the year, but also want to stay where you are now, buying a vacation home may be a good option. Many people do this in their retirement, especially those who currently live in a colder area. They may buy a second home in a warmer climate to stay in during the winter months.

Finding the Right Retirement Home

Moving can be a stressful time at any age. But when you are deciding that you want to move during retirement, it can become even more stressful. There are so many different issues to consider, and many people will not be financially able to move again if they don’t get it right the first time.

If you know moving is something that you want to do when you retire, especially if you will be moving to a different part of the country than you live now, Nelson and Bolles have some excellent recommendations for you to help you consider your options:

  • “Identify your essential region” – Again, this will likely be your first step. You have to know where you want to live before you can actually move there. Nelson and Bolles have seven important questions you should ask yourself to help find your essential region. Please check out the book for more detail on these questions.
  • Don’t be fooled by community labels – There are many sub-divisions that label themselves a community but really are nothing of the sort, especially those geared for people in retirement. Don’t assume that just because somewhere is labeled a community that it really is.
  • Consider a self-contained community – There are many communities that would be considered “self-contained,” everything you might need or even want—stores, restaurants, banks, doctors, etc.—are all located within your community. This eliminates the need to leave the community and spend a lot of time driving elsewhere to run your errands.
  • Try before you buy – Even if you love vacationing somewhere doesn’t mean you’ll love living there. It’s important that you know what you’ll be getting into before you buy your own home there. If you have friends there, ask to stay with them for a time to get a feel for what’s it’s like to live there. If not, spend some time getting to know some of the locals to get a better feel for the community. If you can afford it, look into renting somewhere short-term within the community.

Additional Thoughts

When you are first retiring, you may not want to consider your own future. As Nelson and Bolles discuss, many people have a hard time facing the fact that they will get older and at some point may not be able to take care of themselves. This “Fourth Age” can often be overlooked and under planned for.

When you are deciding on where you will live in your retirement, it’s very important to consider this time in your life. Your perfect home in your “Third Age” may not be perfect for your “Fourth Age.” Maybe it’s far from your children, has too many stairs, or is too far from medical assistance. There are a number of reasons a house or its location may make your “Fourth Age” uncomfortable.

Don’t let yourself become too distracted by your “Third Age” and forget about what you might need later in life.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

As we promised last week, we’re continuing our series about the book What Color Is Your Parachute? For Retirement by John E. Nelson and Richard N. Bolles. For our purposes, we are going to skip discussion on chapters two (The Retirement You’ve Always Wanted but Forgot About) and three (The Life You Can Live (Right Now)). They are both important chapters, especially chapter three which has some helpful evaluation tools, so please don’t skip them while you’re reading the book!

Today we’ll concentrate on chapters four (Retirement Economics Is More Than Personal Finance) and five (A New Approach to Retirement Security), the two chapters of the book most concentrated on finances.

“The Three-Legged Stool”

Just like the idea of “old-fashioned” retirement, there is an idea of the old-fashioned way to fund retirement—“the three-legged stool.” Each leg represents what used to be an important pillar of retirement income, but for a number of different reasons, each leg has lost some of its stability, and according to Nelson and Bolles, “we can’t depend on the three-legged stool like we could in the past” (83).

Leg 1 – Social Security

Many people know about the problems of Social Security, so we won’t go into the details here. However, though wobbly, Social Security is still an important source of income for all retirees.

Leg 2 – Employer Pension

If you still have an employer pension as a benefit at your work, you are very lucky. This was once a major staple in a retiree’s income. Spend you entire working career dedicated to a company, and they would help to take care of you when you retired with a steady stream of monthly income.

Unfortunately, pensions are dwindling. Nelson and Bolles say this is due to two trends—one on the employee side, the other on the employer side.

Employer pensions tend to be based on longevity. If an employee moves from company to company over the course of his career, he would likely not receive pension benefits, even if his employer offers them. Pensions are meant to reward loyal service, so it usually takes many years to build up benefits.

Also, many employers stopped providing these types of benefits simply because it cost too much. While not the only reason, cost is a major factor leading to many companies, especially smaller ones, discontinuing pensions.

Leg 3 – Personal Savings

Personal savings are often neglected by workers, especially those who can count on the first two legs. Many people “pay themselves last”—meaning after taxes, bills, etc, they often don’t get around to saving at all. It’s hard to put money aside for the future when it often means a sacrifice now.

“The New Retirement Economics: Autopilot”

Nelson and Bolles recommend a new way at looking at retirement income. “The three-legged stool” no longer makes the cut, so changes have to be made in your way of thinking. Their “Retirement Autopilot” has four elements:

  • “Sources of Income” – You have to rethink where your retirement income will be coming from.
  • “Financial Education” – The more you understand about finances, spending, and saving the better off you’ll be.
  • “Automatic Systems” – Making your finances automatic will help make your retirement income more secure.
  • “Fiduciary Advice” – Finding someone to help you through your decision making can have a positive impact.

“PERKS”

The only “Retirement Autopilot” element listed above we’ll go into detail about is “Sources of Income.” According to Nelson and Bolles, “the three-legged stool” has become the more stable five pillars of income called “PERKS.

  • P = Personal Savings – Personal savings will likely always be an important aspect of retirement income. You must make the choice to make some sacrifices now for your future retirement. When you make that choice, “you can take the initiative to set up automatic savings programs” (104). Making savings automatic means you no longer have to think about it, which will help you succeed.
  • E = Employer Plan – Replacing the pension leg for the many workers who no longer have that option, the employer plan has become an important staple in retirement income. While these plans come in many forms, the most recognized likely being the 401(K), it’s become much more common in the workplace. Not all employers offer plans, and even less offer a company match (free money to you), however, if you do have access, it’s truly a “pay yourself first” way to save for your future.
  • R = Real Estate – This may or may not be a pillar for your retirement income. Depending on your situation, it may make sense to tap your home equity (often through downsizing) to help fund your retirement. Of course, this pillar works best if you have paid your mortgage down significantly or off completely before entering retirement.
  • K = Keep Working – This doesn’t have to mean staying in your current career. Staying productive and finding work doing something you love can be a great way to enjoy your retirement and still make some money.
  • S = Social Security – Social Security is well known and accepted. Make sure you understand all the ins and outs of your benefits options so that you file at the right time in the right way.

Not All About Income

While this post is about retirement income, planning your retirement is much more in depth. It’s not all about your finances; though being able to afford retirement is a very important factor. No one wants to have to scrape by, and unfortunately far too many people end up in that position. So, as important as finances are to your future, don’t let things get in the way of making sure your retirement income is secure.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.