Two unusual ways to beat the panic of retirement savings

Setting aside enough money can seem an insurmountable challenge, but some unusual options may help


By Suzanne McGee February 16, 2014

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If you’re feeling freaked out by the vast sums that the so-called retirement experts say that you need to have set aside before you can even think of retiring, well, you’re not alone.

But obsessing over how gargantuan that retirement number is – and how difficult or downright impossible it is to reach it – is simply going to leave you terrified and (worse still) paralyzed.

A better strategy: think about different numbers. Smaller numbers: numbers that are inherently less likely to make your eyeballs roll back in your head. Some of them are simply different numbers, such as the idea of a “retirement paycheck”.

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Best of all, try to put the numbers aside for a moment and ponder strategies instead.

Over the course of the next few weeks, I’ll devote a couple of columns to this topic of different retirement strategies, in hopes of introducing you to tools that you can use to cope with what I think of as “retirement panic”. That’s the growing conviction that assisted suicide just might be a viable alternative to retiring without the mammoth-sized nest egg you think you’re supposed to have.

One note of caution as you’re thinking about retirement strategies: nothing will make up for the fact that you haven’t saved enough. Short of planting a money tree in the backyard and having it sprout C-notes without the Secret Service taking notice and uprooting it, if you’re in your 50s and only starting to save, life post-retirement is going to be much, much more difficult.

If you’ve been using money you could have put aside in savings to finance annual trips to Europe, China, Costa Rica – well, just don’t expect to keep globetrotting into your 70s when you no longer have a paycheck to finance either those jaunts or the mortgage.

Something that will help many retirees, however, is getting accustomed today to the probable need to use two strategies with mixed reputations.

The immediate annuity: a retirement paycheck to yourself

Over the years, investors who know about annuities at all have kind of lumped them together: immediate annuities have shared spaced with problematic variable annuities, costly products that have been aggressively marketed and even mis-sold by providers.

Indeed, the bad rap on variable annuities has long-reaching effects. Veteran financial adviser Harold Evensky never imagined that he’d find himself recommending annuities to anyone. “I loathed ‘em, hated ‘em,” he says. But as it became clear how many Americans are financially unprepared for retirement, Evensky had to look again.

And in the world of immediate annuities, he has found “reasonably sensible, affordable products” offered by companies with solid credit ratings. Unlike many other kinds of annuities, they’re pretty straightforward.

Here’s how they work: you turn over a lump sum of money to the insurance company in exchange for a stream of income that will last as long as you do, with that monthly check reflecting how much you can put down, your age today and how long the insurance company figures you’ll live.

If you’re a 65-year-old woman, you can turn $200,000 into a lifetime (inflation-adjusted) income of between $1,000 and $1,100 a month; if you’re 70, the same sum will bring you as much as $1,230 a month. If you can wait until you’re 75, the figure could be as high as $1,470 a month.

“I suggest that people try to wait until they are about 70 to do this,” says Evensky, adding that the only two significant downsides are the risk of dying early, and the fact that if you do, any balance isn’t paid to your heirs.

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On the other hand, to put it bluntly, if you’re dead you don’t need to worry about how to cover your retirement costs. And your heirs may be grateful that you’ve saved them the uncertainty of how you’ll cover your financial needs.

Those dollar figures may not sound immense. But especially for those in their late 40s to mid-60s who are starting to realize that they may not have saved enough for retirement, they could be a big help when combined with social security payments and the second strategy: tapping into home equity.

This is something that most Americans are oddly reluctant to do, retirement experts note. “But I don’t think households can afford the luxury of not viewing their household equity as a source of retirement income,” says Anthony Webb, economist at the Center for Retirement Research.

The reverse mortgage

Even if Americans aren’t saving for retirement, many of us are paying down mortgages. That will leave us with the value of our homes, and there are a couple of ways to view this. If you can’t imagine ever wanting to leave your home, there’s the reverse mortgage. These aren’t cheap: some estimates suggest that fees can be as high as 7.5%. And they do mean you’ll have to spend some time comparing options and reading the fine print.

Some strategies to make the most of these: ensure you’re opting for a monthly payout rather than a lump sum and, if you’re married, make sure it’s the spouse who is likely to live longest who takes out the mortgage. Sure, that will mean you get lower monthly payouts – but it also means that if your husband dies, you won’t lose your home.

If reverse mortgages feel too complicated or scary, there’s another, much simpler option: downsizing. “Why not forgo paying to heat all those empty rooms?” wonders Webb. It’s even better if you can combine that with a move to a less expensive community.

Just ask Harold Evensky. Not yet retired (he’s in his early 60s) Evensky moved from Miami to Lubbock, Texas, with his wife (who also happens to be his business partner) back in 2008. “It’s been wonderful,” he raves. Not only has he cut his costs, but he’s moved to a calm, quiet city “where people say hello when I walk down the street”.

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