Financial experts advise scaling back spending before retiring

Pittsburgh Tribune-Review (PA)

June 16--The dream of retiring in three years has lately been more of a nightmare for MaryAnn Sekeres.

"I'm going into it a little scared," said Sekeres, 62, of Clairton. "Because I don't know how long my money is going to last."

Few seniors are prepared financially when their professional lives end, financial advisers say. They fail to anticipate just how fast they can deplete a nest egg, even in the first few years of retirement.

The rule of thumb is that retirees need at least 70 percent of the income they had in their working years, but there aren't many people who actually achieve that. The median annual income for Pennsylvania residents over the age of 65 is a little more than half -- 55 percent -- that of people 10 or 20 years younger, according to a Bankrate.com analysis. Senior citizens in 46 other states fell short as well.

"It's another illustration of how under-prepared millions of Americans will be for a comfortable retirement," said Greg McBride, chief financial analyst for Bankrate.com.

The implications for seniors are straightforward: Save more during their working years and work later into their lives, McBride said. But developing a plan for retirement is more complicated than simply socking away as much as possible, advisers say. It begins with understanding how you want to live when your working days are done.

"Knowing what you're going to spend in retirement by looking at it today is the most important first step," said Jayme Meredith, a financial adviser at Hefren Tillotson, Downtown.

Many people underestimate how difficult it can be to pull back their lifestyle in retirement, said Travis Sollinger, director of financial planning at Fort Pitt Capital Group in Green Tree. They get used to going out to restaurants every week or taking vacations to Florida. Even small things, like a cable subscription, can be difficult to give up, he said.

Sollinger tells clients to rein in their lifestyles before they retire. It eases the transition and generates additional savings that can be put toward a nest egg.

"People are creatures of habit, and whatever you're used to spending, as far as going out to dinner, is what you spend on," he said. "It's tough to have a conversation about how they're going to live like a pauper in retirement."

So better to live now like you want to live in retirement.

Eight of 10 Americans have a cable television subscription, paying roughly $100 per month, yet many of those households have no savings at all, Meredith said. They don't have to give up television to save money, though. If a 50-year-old person eliminated cable and switched to a high-definition antenna and $10-per-month Netflix subscription, they would have $16,200 more saved at the point of retirement without "giving up" anything when they stopped working.

Also, avoid lavish spending in the first few years of retirement, advisers say. A retirement fund with $500,000 might look like a lot of money at 65, but it might have to last for 30 years, Meredith said. And yet many people overdraw early into retirement and spend on a cruise or new car.

"We see a lot of folks rationalize bad things," he said. "When you've got a big pile of money, expensive things seem cheap."

It's impossible to know how long you will live, but most people underestimate in their planning, Meredith said. A person who retires at 65 might anticipate they will make it to 80 but actually live to 95.

The realization might dawn on that person 10 years into retirement, at which point they might consider taking on a part-time job to supplement their pension and Social Security income.

But it isn't that easy, Meredith said.

"It's challenging to get another job," he said. "Who's going to hire a 75-year-old for a job?"

That's why seniors may want to put off retirement past the age of 65, McBride said. Every year they delay retirement is another year for their asset base to grow and one less year that they are drawing down on their assets and Social Security.

"Every year that you delay Social Security, you're basically giving yourself a pay raise," McBride said.

One in four U.S. employees thinks he will have to work past the age of 70 to live comfortably in retirement, according to a recent survey by financial adviser firm Willis Towers Watson.

Sekeres would like to work into her 70s. First, she needs to find a job.

She was an assistant manager at Talbots earning $40,000 before she was laid off last year. She believes her age has prevented her from getting hired elsewhere.

Now retirement seems a distant fantasy, one she can't imagine being able to afford. Her dream has changed. She wants to work as long as she can.

"There are times whenever I feel like (finding a job) may not happen and I should just take my Social Security," she said. "But in my heart of hearts, I would like to continue working, because I do derive a lot of personal pleasure through working."

Chris Fleisher is a Tribune-Review staff writer. Reach him at 412-320-7854 or [email protected].

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