In a new book Retirement Reboot: Commonsense Financial Strategies for Getting Back on Track (Agate Publishing, January), veteran financial journalist Mark Miller writes that many American families are financially unprepared for retirement. To address that, Miller researched how to get the most out of Social Security, Medicare, savings and home equity as well as what late starters to retirement planning can do to catch up. In this Q&A he talks about the importance of planning and why Social Security and Medicare are so important to most retirees.
How is your book different from other retirement books?
Many retirement books focus on the reader who least needs help, people who have substantial retirement savings and investment portfolios who are looking for an additional edge. Having covered retirement for 15 years I saw that there’s a very substantial number of households getting close to retirement that are just not financially prepared. They haven’t saved much or anything and will be relying only on Social Security for income.
What advice would you give those folks?
I would start by trying to make a plan. There are do-it-yourself ways to do it or you can hire a planner. You look at your expected expenses and on what you project from your retirement income and to see if there’s a gap.
A successful retirement is one where you can maintain your standard of living. If you’ve got nothing coming but Social Security, you’re going to be receiving only 40 to maybe 50 percent of your pre-retirement income. The general rule of thumb among planners is you need 70 to 80 percent.
Will retirees be able to depend on Social Security and Medicare in the future?
It’s been drilled into people’s heads that “Social Security is in trouble, it’s not going to be there for me, you’ve got to focus on saving.” I think you need to do both if at all possible. I do believe Social Security is going to be there for people.
The more I studied retirement, the more I understood that Social Security and Medicare are far and away the most important retirement benefits. Maybe a third of households getting close to retirement have substantial portfolios. For everybody else, the most important source of retirement income is going to be Social Security. And as we age, unfortunately, we have health issues so getting Medicare enrollment right is really important, too.
Can you give any general advice about getting started with those programs?
Let’s talk about Social Security. The rule of thumb there is delaying your claim generally is better. The longer you wait, you are going to be receiving a higher amount of monthly income. It is a dramatic swing between the earliest time you can claim, 62, and age 70, which is the latest you should wait.
Of course, this is a highly personal decision. For someone in ill health and does not expect great longevity, or who absolutely needs the income, go ahead and file. For most of us, the big challenge will be generating enough income to meet living expenses after we’ve retired while delaying our Social Security claim.
How about Medicare?
There is a timing issue there, too, because age 65 is the age you must file for Medicare if you are not receiving health insurance from a a current job. The key here is that you must be actively employed, not receiving insurance from a former employer. If you wait longer than Medicare’s required enrollment age, you’ll be paying hefty late enrollment penalties on your premiums when you do sign up.
There are two ways to be on Medicare: One is the traditional Medicare program, the fee for service program, and the other is called Medicare Advantage, which is the commercially offered, managed care alternative. I’m a fan of the traditional program.
The transition from employer insurance to Medicare is one of the more complicated challenges people face when they retire and that’s one of the reasons I have a long chapter about it.
You write a lot about what people who are late to start saving and investing for retirement can do. Is there any good news for them?
There have been two really positive developments in recent years. The first is that it’s become easier and more affordable to access financial planning help. This was really just the province of wealthier households but there’s been a democratization of advice over the past decade. Some of that is due to technology. You see the advent of so-called robo-advisory services you can use online that can help people make plans. But it is also possible to hire a fee-only Registered Investment Advisor on an hourly basis who can analyze your situation and write a plan. There’s also some very nifty and inexpensive tools out there people can use to optimize Social Security.
The other very positive thing is that the cost of retirement investing has come down dramatically with the explosive growth of passive low-cost mutual funds. You keep more of the money that you invest and less of it goes to the investment company. This can be really important in helping you to save over time. It’s also easier to put your saving and investing on autopilot. You can do that either through some of these robo-advisory services or by using target date funds where you say I intend to retire on this date and the balance between equities and fixed income investments is automatically adjusted for you as approach retirement.
What’s the most common retirement mistake?
If there is a most common mistake, it is failing to make a plan. Without a plan, you’re flying blind.