With Robert Laura, Former Social Worker, Retirement Activist, Syndicated Columnist for Forbes.com and Financial Advisor Magazine
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Robert Laura is a social worker turned financial planner who writes a blog in Forbes and concentrates on the monetary and psychological aspects of retirement.
Would You Fail A Retirement Inspection?
Robert recently wrote a blog for Forbes titled Would You Fail a Retirement Inspection? an idea that occurred to him when, to his utter surprise, his house failed an inspection after he had gotten a full price offer. Robert had developed his own checklist and made some repairs in anticipation of an inspection but found that his list was significantly short of exactly what needed to be done.
Similarly, we often believe that we’re all set for retirement, but our checklists need to be re-checked by expert financial planners to make sure we do not fall short.
Robert likens an unplanned retirement to the 1993 movie, Groundhog Day, where the hero, Bill Murray, wakes up to the same day, over and over and over again. Similarly, retirees often wake up each morning with nothing to do that’s engaging or inspiring and live a repetitive, direction-less lifestyle. To counter this malaise, Robert wants retirees to develop a comprehensive checklist, with questions such as:
Do You Have A Written Retirement Plan?
Do you have a written plan or estimate that identifies how much money you need to have saved for retirement?
Not surprisingly, most Americans do not have a written blueprint that outlines their retirement age, needs, related expenses, and a strategy of how to operate in a tax-efficient manner.
For instance, a lot of people may think 62 is the ideal retirement age, but based on their current savings trend, they may have to hold off on retiring until the age of 67 or even later. So, it’s important to not have vague ideas about retirement but to work with a professional to plan it all out, down to the last details.
How Much Money Can You Withdraw In Retirement?
It’s also vitally important that you know how much money you need and are able to withdraw in retirement. A good plan must consider longevity, market volatility, and healthcare costs because too often people underestimate the many factors that occur or could occur during retirement years. For instance, Fidelity estimates that a couple in retirement need at least $200,000 just to cover healthcare expenses.
People also tend to spend more in the early years of retirement when they’re younger, healthier, and more functional than in the later years. So, rule-of-thumb estimates, such as a 4% withdrawal rate, do not always apply.
What Is Your Risk Tolerance?
Robert’s checklist includes questions on the age at which you plan to start receiving social security and your risk tolerance in order to determine the asset allocation so that your retirement portfolio balances growth and the risk of investment losses.
While Steve believes risk tolerance questionnaires have limited applicability, the current state of market volatility should make people think about the amount of losses their portfolios could withstand and still hold up for retirement. Additionally, investors need to make sure their emotions do not get in the way and lead to unwise investment decisions.
Do You Have Adequate Life And Long-Term Care Insurance?
Individuals must also be aware of the features, benefits, and costs of life and long-term care insurance during retirement because the costs of debilitating illnesses can be outrageous and pose a huge threat to people’s livelihood in retirement.
Steve stops here and continues his conversation with Robert Laura in the next segment.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Robert Laura is my guest. He is a social worker turned financial planner who writes a blog in Forbes and concentrates on the many aspects of retirement, both monetary and psychological. And I tackle a lot of the similar issues as well, of course. So I’ve invited him to join me so we can knock around some of these issues and ideas and go through some of the things that people face in retirement. Welcome to the show, Bob.
Robert Laura: Thanks, Steve, appreciate the opportunity to be on the show with you.
Steve Pomeranz: All right, so I was looking at a blog that you wrote in Forbes recently and the title was, “Would You Fail a Retirement Inspection?” And I see it was an idea that occurred to you while you were having your own house inspected as you were getting ready to sell it.
What specifically triggered this idea?
Robert Laura: [LAUGH] Basically, we failed the inspection because we ‘re excited to sell the house, go through the process, and we got a full price offer, all the things that you want. And then they had an inspector go through that really just had looked deeper into all the workings of our house. And I’ve done a lot of projects, so I’m not a novice to it, but I was just surprised at what they found as they kind of went through every nook and cranny. It was a real eye-opening experience for us.
Steve Pomeranz: Well, you had your own checklist and you made some repairs in anticipation. But you found out they were significantly short of what exactly needed to be done.
Robert Laura: Yeah, we did the little touchups of the handrail and re-caulking to make it look nice, but then just extreme things started to come up with just different appliances and different things.
Steve Pomeranz: All right, so you started to think about retirement, do people make a checklist and ask themselves the questions required to see whether they’re going into retirement in a healthy and prepared manner? In another article, you wrote, you talked about some of the experiences and stumbling blocks that retirees face. For example, I like the way you put this, “Groundhog’s Day Syndrome.” Tell us about that.
Robert Laura: Yep, well, if you remember, I think it’s a 1993 movie with Bill Murray called Groundhog Day. He keeps waking up to the same day. And in my work with retirement coaches and the Retirement Coaches Association, a lot of the coaches were talking about the fact that a lot of retirees kind of wake up to this blah day where they don’t really have anything that’s engaging or inspiring or wanting them to get out and do things, so they live this repetitive lifestyle. It becomes sort of a rut that they don’t know how to get out of.
Steve Pomeranz: Yeah, so of course, I remember that movie. And interestingly, by the way, this is a total aside, but I read an article and they figured out how many years it would have taken Bill Murray to actually be in this Groundhog Day environment for him to be able to play the piano and to do all the things that he did so well, and I think it was like 1,000 years or something.
Okay, so Groundhog Day, every day you wake up, you don’t really have a plan, you don’t know what you’re doing. What you’re going to do so it leads to some of these questions that you asked in a little checklist or questionnaire that you put online, let’s go through those as well.
The first question was, “Do you have a written plan or estimate that identifies how much money you need to have saved for retirement?” Let’s briefly go over that. Go ahead.
Robert Laura: Yeah, it’s interesting because I’ve been doing it for 20 years, and you’ve been doing it for a long time as well, but it’s amazing how people still don’t have a written plan.
They kind of have these vague ideas and assumptions. They get close to retirement or start to walk out the door and don’t have it. So, it is crucial to have that written document that illustrates what you need, and then what you can draw down as well.
Steve Pomeranz: So having a written plan, meaning, actually, how does one determine how much money they need in retirement?
Robert Laura: Well, I think that’s the key thing of working with an advisor because there’s a lot of ways to do it. I mean, you could go online, use an Excel spreadsheet to estimate it. But there’s a lot of factors to really take into consideration, the rate of return you’re going to get, the use of Social Security, when you’re going to retire—that’s a huge factor because a lot of people may think 62 is the ideal age. But based on their current savings trend or what they have, it may have to be until 67. And so, this is again where working with a professional makes a lot of sense to have that software and go through the process with them.
Steve Pomeranz: Yeah, figuring out the timing of certain events is very important too because that’s going to have a big significance on whether these things work out. The other question from your questionnaire was, “Do you know how much money you can withdraw in retirement?” Everybody talks about the 4% rule; I think rules of thumb are limited at best. What is your response to this question about, do you know how much you can withdraw?
Robert Laura: Well, I think there’s a lot of factors that go into retirement. Particularly longevity, volatility of the markets, and again, I think that people underestimate what they’re going to need for retirement. To a big thing as this healthcare, Fidelity puts out a report every year that talks about how much a couple will need in retirement just for healthcare and that number is close to 200,000. So all those things have to factor into your withdrawal rate, and also I think people tend to spend more money the first few years when they’re younger, healthier, and more functional than in their later years. And so a static 4% doesn’t always make sense.
Steve Pomeranz: Yeah, not anymore anyway. All right, another question, “Have you decided the age in which you plan to start receiving social security? Have you taken a risk tolerance questionnaire to figure out which level of asset allocation best meets your desire for growth income and ability to accept investment losses?”
I want to stop there for a moment, Bob, because I’ve been practicing for a long time as well, and I find that these risk tolerance questionnaires have limited applicability and usage at best.
Robert Laura: I agree, I hate them.
Steve Pomeranz: [LAUGH]
Robert Laura: But at the same and what’s interesting, though, is what’s going on with markets right now. Because right now is the risk tolerance questionnaire anybody could take with the market in free fall since kind of January, late January. It’s a great opportunity for people to assess, like, okay, I lost 5 or 7%. How does that feel? Because again, most people aren’t comfortable with it. And so, I think, having an advisor again, based on what the market is, is an essential part of the process.
Steve Pomeranz: Yeah, it’s kind of like an edge. It’s like our little fishing frontier as they used to say. This idea between getting just enough return potential where there’s some level of risk that has nothing to do really with the markets or with anything else except a person’s ability to control their fear and worry to a point where it’s going to affect the quality of life.
What is that number? What is that amount of decline which a person can actually stand? Also, so they don’t make the wrong decision as far as selling out at the wrong time at the bottom. Let’s move on. Yeah, so moving on here, another question in your questionnaire, “Are you aware of the basic features, benefits, and costs of life insurance and long-term care insurance during retirement?” Go ahead, explain that for a sec.
Robert Laura: A lot of times, they can get just glossed over whether, you know, there’s a need for life insurance or no, depending upon the assets size. But again, even, so if the couple’s married, what does it look like if one of the persons is [INAUDIBLE] their social security, everything else along with life insurance, to the point then, long-term care. It’s a crucial conversation and topic simply because the costs are so outrageous. And again, you look at issues like Alzheimer’s and dementia and it’s a huge threat to people’s livelihood in retirement.
Steve Pomeranz: Something important to look at, we’re going to be right back with Bob Laura.
We’re going to discuss more of these issues and get into some more depth on them as well.