Discuss this in the Free the Drones Forums.

It’s no small feat getting young people — worried more about student loans, credit-card debt and Saturday night — to save for retirement. Only about a third of those in the 21-to-30-year-old group contribute to their 401(k) plans, according to the Employee Benefits Research Institute, a Washington, D.C., think tank. Now, through quirky marketing campaigns featuring pizza parties, iPod promotions and even fake letters from parents, the industry is trying to get Generation Y to think about tomorrow. 

When tens of millions spent in marketing don’t do anything, there’s a big problem. My guess is that it’s a fair assumption that the two-thirds of people who don’t contribute to their 401(k)’s in this age group aren’t saving anything, period – if they are, they need some education on tax law. I’ll also bet that most of the people who do contribute to their 401(k)’s aren’t putting in that much. Which is sad, frankly, because you don’t have to save all that much if you start in your twenties. That’s the “easy retirement” decade – start in your thirties, and it’s “rough, but doable.” In your forties, it’s “this will be a complete pain in the rear.” If you wait until your fifties, like most people, it’s sudden panic. So if you understand compound interest, and know someone in their twenties, it might be a good idea to sit down and explain it to them. You’ll save them a load of heartache down the road if they actually listen to you. I’m not holding out hope – but everybody deserves a shot.

Discuss this in the Free the Drones Forums.

Feeling chained to the tradition of older women remaining utterly dedicated to their husbands’ well-being, Terakawa said, she devoted herself to her spouse. Retirement cut him off from his longtime office social network, leaving him virtually friendless and her with the strain of filling his empty time. Within a few weeks, she said, he was hardly leaving the house, watching television and reading the newspaper — and barking orders at her. He often forbade her to go out with her friends. When he did let her go, Terakawa said, she had to prepare all his meals before leaving.

After several months, she developed stomach ulcers, her speech began to slur and rashes broke out around her eyes. When doctors discovered polyps in her throat but could find no medical reason for her sudden burst of ailments, she was referred to a psychiatrist who diagnosed stress-related RHS.

Some people see it occurring in the U.S. as well, though not as severely. An American version here involves the guy not cleaning up while the wife does. Well, duh - but that’s got nothing to do with retirement. A better follow-up article in the Washington Post gets the point Americans should be paying attention to:  

But post-retirement marital malaise takes various forms in the United States. For starters, the retiring husband may be at greater risk of getting sick than his wife is. Retirement that marks the end of a career is often experienced as a loss. In the nation’s capital, where workaholism is prevalent, a person’s identity is mainly rooted in a job title. When the big job ends, he may wonder: Who am I? Depression is a major risk for the retiring spouse, especially if he has developed no outside interests during his career and has no network of friends beyond the office.

Most retiring Americans aren’t deluded into thinking the marriage is going to last too long if they sit around barking orders while they watch T.V. – but the root of the problem is the same. As you’re retiring, you need to find something to do with your life outside of work. Preferably this should be happening PRIOR to the actual retirement. If you’re 60, and you have no hobbies or activities that you like to do outside of work, you need to find something. Inactivity just doesn’t work all that well for most people, but it’s surprising how many people make it to the end of their lives without ever finding something they like to do in their free time. It just doesn’t seem all that important when you’re working and are happy to just be relaxing. But when you hit 65, as the article points out, you’ll cause a lot of stress for both yourself and your spouse if you try to jump straight into a life of leisure. 

I increasingly think a big part of retirement planning should be outside the financial realm. Most people who make plans sit around dreaming about retirement. They’re going to go cruise around islands somewhere or travel to Asia or Europe. The problem is, you won’t be doing that all the time. If you’re over 50, it’s a good idea to do another exercise, similar to budgeting: take notes and make a “schedule” of how you spend your free time over a month or so. I’m not talking about planning it in advance – I mean write it down after the fact in schedule form. Ask yourself whether you really have enough stuff to do to fill up an entire day if your work were simply eliminated. If not, you need to find some hobbies or activities that won’t eat up too much time now, but that you can “blow up” if you get bored of sitting around. This shouldn’t be too difficult – from reading to blogging to golf to poker, there’s a lot out there you could be interested in. Getting started before retirement will keep it from feeling “forced” – and it will give you a chance to figure out if you really like the hobby, or are just going to get bored with it in the long run. It’s easier to gradually slow down than it is to slam on the brakes.

Discuss this in the Free the Drones Forums.

The downsides? Inflation is a big one, as the article notes – $2 million may well be nothing by the time you retire if you’re born today. Another one is that your child has to keep doing this, and they may not want to. It’s all well and good for the parents to save a dollar a day – but what happens when your kid hits 20 and doesn’t want to put any of his money away? Then again, it can’t hurt to try, and it’s not your responsibility to keep them from making stupid decisions forever.

Discuss this in the Free the Drones Forums.

Diversifying by having some of your assets in another kind of fund defeats the point, because the fund is allocated assuming it’s all you own. It’s own assets are diversified among various kinds of stocks and bonds according to standard investment rules that you get more conservative as you age. So if you own $5000 in a target date fund, and $1000 in stocks, you’ve got the wrong mix – your portfolio is no longer automatically balanced because 1/6 of it is in pure stocks.

If you’re worried about having all your money with a single place, I’d suggest putting your money in multiple funds at different companies – but with the same retirement date. They may be managed slightly differently, but they’ll have the same rough allocation of assets. But, for example, if you’re retiring in 2030 – all your money should be in this kind of fund with that as the target date.  

Discuss this in the Free the Drones forums.

Withdrawing money from a retirement stash can involve as much strategy as building it. One tip from planners: Each year liquidate all the assets you’ll need for the year in one fell swoop, and put them in a low-fee money-market fund. Doing so will cut down the costs associated with selling off securities. It’ll also help you resist any temptation to time the stock market — or to pull money out in a panic during a market dip.

That can be a pretty good idea – you get interest on your money for the whole year that way, but you do sacrifice some gains. I think a better strategy if you’re disciplined would be to take out a set amount each month, period. If you’re familiar with investing, you may have heard of something called “dollar cost averaging.” It’s an idea that you can avoid the swings in the market by putting in a set amount of money each month – sometimes you’ll buy stocks cheaply, sometimes expensively, but over time you’ll hit an average and not have to worry about ups and downs. The same thing works in reverse when you’re taking money out, as long as you can avoid temptation. And that way you don’t have to park the money in a relatively low-yield account for a year.

The article also talks about a way to take advantage of your retirement / non-retirement account to avoid taxes:

Keep taxes in mind as you plan withdrawals. If the lion’s share of your savings is in tax-deferred accounts, like 401(k) plans or IRAs, you could find yourself paying taxes at the same rate as when you were collecting a paycheck. And when you reach age 70 1/2, tax laws require you to take annual distributions that may be larger than you actually need; that, in turn, could push you into an even higher bracket. While conventional wisdom advises retirees to live off after-tax savings before tapping tax-deferred accounts, planner David Yeske notes that many retirees could find themselves getting smacked with higher taxes in their later years, when other expenses like medical bills may make them harder to bear. But if you’ve got substantial savings in accounts funded with after-tax dollars, including Roth IRAs, you’ll have the flexibility to lower your tax bills. Yeske’s approach: Draw down taxable and nontaxable accounts simultaneously. You could, for example, take out as much as you can from your IRA without climbing into a higher bracket, and then take the balance of your yearly nut from after-tax sources.

There is a big difference between tax-deferred and tax exempt. The idea of managing your tax bracket is a very good one – but one point the article doesn’t make applies to younger people: you can’t do this unless you have savings outside your 401(k). Many people have their entire retirement savings in there, because of the tax advantages. I’m not saying that you should ever save money outside of the 401(k) INSTEAD of in it. It’s not worth any tax savings down the line to lose that benefit. But if you can max out your 401(k), and save some extra money as well, you’ll be in a good position to control your tax bracket in retirement.

I recommend reading the whole thing - these are just a couple of good points that stood out to me as somewhat unique.

Discuss this on the Free the Drones Forums.

I would also add this stray thought: Many critics dump on variable annuities, and it’s true that some of them are too expensive. But imagine yourself old and ill, and too distracted to make intelligent investment decisions (as if any of us can do that even in our prime).

Wouldn’t it be nice to get a sizable check every month that will never stop coming? One that doesn’t depend on your mental agility? Or on market conditions? It sure appeals to me, and as long as you buy your variable annuities carefully and make sure you know what all the fees are for, it should to you, too. 

Now, I’ll admit that the stray thought here is about all that I liked out of the article. Ben Stein’s a smart guy, but he’s got a real bent towards dystopian futurism in his columns – believing that the U.S. is headed for a serious economic collapse, while other countries will ascend to take over our role. I don’t see that happening anytime soon – other countries are growing by shifting into areas the U.S. economy has outgrown, and they won’t be competing with us in technological development anytime soon. He cites rational expectations theory in the context of people saving to pay for health care after a Medicare budget crisis, stating that people tend to see a problem and act to avoid it.  Yet he doesn’t acknowledge that the same theory would predict that the government or the voters would see that crisis and act to reduce Medicare liabilities by cutting benefits before it happened. The advice to invest in Russia, a corrupt near-dictatorship, seems to me to be lunacy – Cuba and Venuzuela have lots of resources too, but investing there hasn’t proven to be too smart.

But he does have this one good point: when you’re planning to retire, you can’t assume that you’ll be as mentally able as you are today. Lots of investments out there require you to actively manage them. Take real estate, for example – owning rental properties is a great investment, and a pretty passive one. But you still have to make decisions, even if you’ve got a property management company. Big expenses can come up - someone has to authorize that new roof after a hailstorm. Stocks can be the same way – if you own individual stocks, you have to decide when to sell them, and what else to buy.

The problem is that many people end up losing some mental function as they get older. Take Alzheimer’s, for example – this is probably the most well-known mental disease affecting the elderly. And it’s extremely common – one in ten people over the age of 65 has it, and HALF of the people over 85 have it. Not all these people have the severe symptoms you are probably thinking about – but even losing some memory function or not thinking as quickly as you used to can affect your ability to make wise investments. You may forget to send that mortgage payment you owe on your rent house. You may read the numbers wrong on the newspaper report on the company you own stock in. Maybe you let your insurance policy lapse on accident. There are lots of ways the gradual decline of old age can hurt you financially if your investments are set up to require active management. So what do you do about it?

1) Nothing until you get very near retirement. People who are young and still can actively manage their finances should – you shouldn’t give up returns on stocks to put your money in an annuity when you’re 40. This is a problem that is unlikely to hit you with any severity before you turn 65 – and if it is, you probably have advance warning because of other family members that have suffered. 

2) When you near retirement age, start moving money into investments that do not require active management. What kinds of investments are these? You could stick your money into a bond fund that will be managed by someone else and has a long history of making regular payments. Annuities are good ideas, as Ben Stein points out – you can’t do anything to ruin them as an investment even if you do lose your mental agility, because the money isn’t in your hands. Consider putting some assets into a trust that you don’t control. And if you’re into real estate, you should probably start selling the properties. One hint for this: a good way to do it is to sell them to your kids. They’re younger, they can manage them, and you can act as the “bank” and have them pay a mortgage to you each month. You get a little less money, a lot less hassle, and you can avoid some estate taxes that way (your kids will get the growth in dollar value of the properties). On the other hand, you have to be able to trust them - deadbeat family members have been known to take advantage of this kind of thing.

3) Don’t be stubborn about it. I’m talking to the guys here most of all. Men tend to react to medical issues by pretending they don’t exist. That’s another reason it’s good to start these asset shifts in advance – to a man, giving up control is like acknowledging that you’re getting weaker. Do it when you’re 63, and still in full health, and that’s not an issue. You’re planning for what might happen – not admitting mental weakness. If you wait, your attitude might shift, and you might cling to control when you shouldn’t.  

Discuss this in the Free the Drones Retirement Forums.  
  

There are a few generic sites – WebMD is a popular one that is staffed with a lot of health journalists and doctors to write the articles, and it has a good reputation for reliability. One of the things the article hints at is that a lot of smaller sites have become clearinghouses for information on certain illnesses – often they’re just started up by people who are suffering from a disease and want to start a support community. These can be great sites, too.

The one problem I have with the article? It doesn’t tell you what sites are NOT reliable. Here’s a few I’d put on the list:

Wikipedia – This site will come up in the top search results of pretty much anything. Often, the articles there are written by people who know what they’re talking about – or they at least sound like it. The problem with it is that anyone can edit the articles at any time. YOU can go in and change the article on heart disease to add whatever you want. Users tend to police the articles and get rid of obnoxious or blatantly false information – but it’s a collaboration of many people, and you’ve got no guarantee that any of them are giving you anything other than rumors or old wive’s tales.

Internet Forums – Again, you could be talking to anyone. So take what they say with a grain of salt, even if they seem to answer your health question.

Commercial Sites – There are a lot of sites out there designed to sell you something, but look like they’re informative. You’ve got to be careful relying on them because they have an agenda – to get you to use a particular drug or treatment for the disease.

You can find a lot of good, free information on health problems on the Internet, which can help you keep track of any health problems or issues you start to face as you get older. You can also find a lot of information that will save you money in terms of getting cheaper insurance or finding a doctor you like better. Just be careful not to put your health at risk by relying on advice from the wrong web site.

Discuss this on the Free the Drones Forums.

Discuss this on the Free the Drones Retirement Forums.

Invest aggressively, but don’t go crazy. To boost the odds that your retirement stash will last 30 years or more and retain its purchasing power, you need to invest a sizeable portion of your assets in stocks.

He’s got some good commentary on how you can still be able to keep some of your money in stocks well into your eighties. The more important part of the advice, however, is not to go nuts trying to make up for lost time. Reading through personal finance articles about fraud, you’ll frequently see people getting swindled out of their retirement savings. Often, it’s as they’re nearing retirement. I always got the sense that people are vulnerable to scams when they hit that age because they feel desparate. Some older people I know getting into that age range seem willing to entertain get-rich-quick schemes that I thought were good ideas when I was 13. The reality is that you’re not going to find something that’s going to return 25% on your money to you, short of starting your own business. If someone can make that much on their money, they’ll do it themselves – and they won’t bother letting you in on the idea.

He also advises you to work part time and consider moving to another state. I’d add this – only move AFTER you’re both done with your jobs. You’re not going to find new ones of the same quality at that age, and you’ll need the money for the last few years when you try to save as much as possible. This blog has also been looking at retiring abroad, which isn’t for everyone, but which I would take a look at if I found myself forced to try to retire on a few hundred thousand.

Finally, the best advice is not to let yourself get into that mess in the first place. If you’re over 18 and you’re working full time, you should be saving for retirement – period. If you’ve been delaying it, look at how hard it is for this couple to meet their goals. Do you really want to hit 60 and be staring at retirement in 5 years, with no money in your pocket?

Discuss this in the Free the Drones Forums.