Test-Drive Your Retirement

The most important things to know about the SECURE Act

MarketWatch

Bev Bachel, 62, is trying retirement on for size. For years, Bachel, a freelance communications professional in Minneapolis, took on highly demanding contract jobs that typically lasted more than a year. She put in long hours, often managed other writers and had to be available for on-site meetings. “A friend of mine said that when you’re self-employed, you never really retire. You just wake up and realize all your clients are gone,” she says. “I thought, Oh my God, I need to exert control instead of experiencing a slow decline into nothing.” So, two years ago, Bachel decided to cut down on big projects, travel extensively—including lengthy trips to Panama during the Minnesota winters—and take on work that she could do anywhere, anytime. She also watched her savings decrease instead of increase. “I have 40 years of ingrained patterns and being rewarded for saving versus spending,” she says. “Now I have to make a mental shift.” The idea of test-driving retirement—whether by cutting living expenses, staying for a few weeks at a potential retirement destination or hanging out at home for a week without work—makes sense to a lot of people. But it’s not easy. “Test-driving retirement gets more attention in the press than it does with clients,” says Mari Adam, president of Adam Financial Associates, in Boca Raton, Fla. “I’ve had people do it in bits and pieces.” The classic way for a couple with two incomes to try out retirement is to start completely banking one income, Adam says. She advises them to practice living on that amount of money. “People getting ready to retire often have no idea what they really spend,” Adam says. “They make up a number in their head.” Figure out what you’re realistically going to have coming in and going out, including Social Security and withdrawals from a retirement account or pension. For nearly two years, Fritz Gilbert and his wife, Jackie, lived on the income they expected to have in retirement. Gilbert retired on the young side—55—from his job as a global commodities trader in Atlanta. Jackie never worked outside the house, first raising their daughter, then caring for her mother, who suffered from Alzheimer’s. “We increased our savings, basically getting our net take-home pay down to what we expected to live on in retirement,” says Gilbert, who writes the Retirement Manifesto blog. And a year before retirement, the couple decided to “track every penny we spent to get a baseline spending level,” he says. “We’d never done that before, and it was a pain.” Gilbert, who says he may be more farsighted than most, mapped out as best as possible what their spending—from health care to travel—would look like over the next 40 years, year by year. He and his wife also practiced staying at home for about 10 days. “Everyone focuses on finances. But once that’s in place, the non-financial stuff is key to getting it right. The more we can do to think of the softer side of retirement, the better our retirement will be.” Joe Casey, a managing partner for Retirement Wisdom, a retirement coaching service in Princeton, N.J., has advised several clients to try out retirement by taking one week of a month-long vacation to stay at home. “You need to slow down first,” Casey says. “People have to set their expectations properly for a test-drive.” The idea isn’t just to plop down on the couch in front of the TV, but to start figuring out how to structure your days if you aren’t working full-time. For instance, what time should you get up? How much alone time should you have, and how much time doing things with others? Of course, it’s only a week. But in that time, some of his clients have realized they want to pursue interests they currently don’t have time for, such as auditing classes. And they all recognized that not working leaves far more time to exercise and take care of themselves. The retirement rehearsal, Casey says, helps his clients shift “from fearing to anticipation.” If your picture of retirement involves living somewhere warmer or quieter, don’t commit to moving without first staying in the area for longer than a few weeks—perhaps in an Airbnb, VRBO or other short-term rental. Terry Feinberg and his wife, Carla Ruigh, learned that lesson the hard way. Both are 62 years old. She is retired from her job as a municipal employee; he is semiretired from a career in marketing. They live in Gilroy, Calif., on two-and-a-half acres, and five years ago they faced a mini-disaster: The main water line from their well broke. “We thought, What happens when we get to the point where we’re no longer able or want to maintain this property?” Feinberg says. “We decided we needed to think about an exit strategy.” He and Ruigh love the desert and Southwest, so when he came across an ad for a brand-new 55-plus retirement community in Mesquite, Nev., it seemed ideal. They went out to look at the place “with zero intention of buying,” says Feinberg. But they really liked what they saw, and a few days later they were the proud owners of a brand-new house on a quarter-acre lot. They rented out their new house for the first three years, then moved to Mesquite in March 2018 and rented out their Gilroy place. That’s when they realized that they should have spent a little more time in the desert and done a little more research. “I looked at historical weather data but didn’t go deep enough into how it would affect our lifestyle,” Feinberg said. “It hit 110 degrees in June and didn’t drop till late September. Often it wasn’t below 90 at night.” It was so hot during the day that they had to start their biking and tennis around 5 a.m. And it was too hot at night to use their nice backyard or patio. The couple were also worried about their health care. Their HMO had recently changed its rules, and they could no longer use it after they moved to Nevada. Plus, they became concerned about the shortage of doctors in the Mesquite community and the lack of access to specialized care if they needed it. So they put their new home on the market, reached an agreement with their Gilroy tenants for them to move out, and moved back to California. In the end, they came out fine financially, Feinberg says. But psychologically, the hard work of moving took its toll. They have no plans to move again in the foreseeable future. “If I were to give advice to someone looking to make a significant geographic move, it would be to do it temporarily, if possible, so you can really understand what it’s like to live there,” he says. “Experience the weather and lifestyle before completely pulling up roots.”

Scams that target the elderly, whether by phone, computer or in person, succeed to the tune of billions of dollars a year. But fear and shame often keep victims from seeking the help that their grown children could provide, experts say. “One of the reasons parents don’t tell us when they may have fallen victim or come close is that they fear [their children will] pack up their home and they’ll lose their independence,” explains Ron Long, head of Wells Fargo’s Elder Client Initiatives Center of Excellence. To help aging parents protect themselves, their grown children must tactfully broach the subject of their vulnerability. The key is to adopt an attitude of empathy and non-judgment, says Amy Nofziger, director of fraud victim support at AARP, an advocacy organization for older Americans. “Always start the conversation with empathy and compassion, and don’t be paternalistic,” she advises. Studies have shown that we become less skeptical and more impulsive as we age, Long says. “The bad guys know that, and they know that’s where the money is,” he says. Scammers relieve elderly Americans of as much as an estimated $36.5 billion annually. The bad guys also know that open lines of communication between elderly parents and their offspring can make their job a lot harder, says Dan Ludwin, president of wealth management firm Salomon & Ludwin, in Richmond, Va. A few years back, a client’s parents fell for a story that their grandson had been arrested and needed bail money, he says. Over multiple phone calls, the scammer discouraged the elderly couple from notifying the grandson’s parents, supposedly to spare him their opprobrium. “They were surprised they fell victim to a scam and, in hindsight, they saw the signs, the pressure, the secretive nature of the request,” says Ludwin, noting that the couple sent payments of $1,000 and $1,500 before finally smelling a rat. Ultimately, the couple did notify their son, and they agreed to accept his help in avoiding future scams. To open lines of communication before trouble has struck, keep things as light as possible. One approach is to use news items as an icebreaker, Nofziger says: “Hey, mom and dad, have you heard about this grandparent scam? It’s where someone pretending to be your grandchild claims to be in trouble.” Steer the conversation toward role-playing, she advises: “What would you do if happened to you?” Once a dialogue is established, you can bring up other kinds of security concerns. Be mindful that elderly parents were socialized differently. Having been taught to be polite on the phone, for example, they might hesitate to cut off fast talkers. One solution: Leave by the phone a short “refusal script”—along the lines of “I don’t do business over the phone before I contact my son. Thank you, goodbye.” Remember that basic technology can be confusing to those who may have already passed middle age by the time cellphones and email had become ubiquitous. The good news is that older people will often defer to their children on technology issues. Offer to make sure their security software is up to date. Show them that you save trusted contacts’ names and photos on your own cellphone, and that you let unidentified callers go to voicemail. They’ll probably want you to help them set up their contacts the same way. One artifact of the generational divide is that many older people still carry their Social Security card in their wallet. “You can say, ‘That’s not the norm anymore, mom and dad. Social Security cards are a gold mine for scammers,” says Nofziger. To really get ahead of things, start talking about scammers and fraudsters while your parents are still relatively young and sharp. Every family should agree on when and how the children should start helping more with their parents’ finances, says Long. “And the best way to get to that is have these conversations earlier, rather than in the moment of crisis,” he says. Naturally, many families will have trouble bridging a trust gap between child and parent. That’s the time to bring in a trusted intermediary, whether it’s an attorney, a religious leader, or an old friend, says Long. And if parents resist your help, be patient. Accepting care from your children “can be kind of a role reversal,” says Nofziger. “After 18 years, my mom finally will call me now when she gets a suspicious phone call.”

Whether you’re retired or still working, many changes are coming that could affect you—for better and/or worse. Here’s our breakdown of what you need to know in 2020: Retirement plans You’ll be able to stash $19,500 in your 401(k) plan, 403 (b), Thrift Savings Plan and most 457 plans. That’s up $500 from this year. If you’re age 50 or older, so-called “catch-up” contributions allow you to save an additional $6,500 in each of these accounts—also up $500 from this year. If you have a SIMPLE retirement account (typically offered by small businesses with 100 or fewer employees), you can save $13,500, which is also up $500 from 2019. If you have an individual retirement account (IRA), you can save $6,000 in 2020, with a catch-up contribution of an additional $1,000. These levels are unchanged from 2019. Social Security According to the Social Security Administration, the average Social Security benefit in 2019 was $1,356.05 per month. This will rise an extra 1.6% in 2020. The increase, tied to inflation, works out to an extra $21.69 a month. In 2019, some 63.8 million Americans drew Social Security—the first time since the program began in 1935 that spending topped the $1 trillion mark. There’s another important Social Security threshold to mention. The program’s full retirement age (also known as the “normal retirement age”) will increase by two months to 66 years and eight months for persons born in 1958. This means if you were born that year, you’ll have to be that age in order to collect your full 100% benefit. In both 2021 and 2022, the full retirement age will increase another two months a year—bringing the full retirement age to 67 for anyone born in 1960 or later. Of course, you can still begin taking payments as early as age 62, but you’ll get less. How much less? The Social Security Administration says if you start receiving retirement benefits at age 62, you’ll get 75% of the monthly benefit because you’ll be getting benefits for an additional 48 months; age 65, you’ll get 93.3% of the monthly benefit because you’ll be getting benefits for an additional 12 months If you start receiving benefits as a spouse, there’s an additional set of numbers to be aware of. When should you and/or your spouse begin taking payments? There’s no one-size-fits-all answer here. It also depends on other factors, such as your pension, your level of personal savings and so forth. As always, you should discuss your own situation over with a trusted financial adviser. Medicare It’s worth noting that while you’ll get 1.6% more from Social Security, you’ll pay 6.7% more for Medicare—or at least the standard monthly Part B premiums. They’ll increase to $144.60, up from $135.50 in 2019 (funny how politicians mention the good news but not the bad, isn’t it?). That’s the minimum premium. The Centers for Medicare and Medicaid Services, says that depending on your income, premiums could be as much as $491.60 per month. Part B premiums cover doctor visits and outpatient care. Why the increase in premiums? Medicare officials blame higher drug prices. Health care tsunami It’s important to remember that these rising medical costs are part of a far bigger problem that retirees are likely to face. Each year, Fidelity Investments, the Boston-based asset management firm, estimates out-of-pocket medical expenses for the average couple retiring at age 65. The figure for 2019? Hold on to your hat: $285,000. For single retirees, the health care cost estimate is $150,000 for women and $135,000 for men. You can be sure these figures will rise another few percentage points in 2020. This is a sobering figure, particularly when you consider how little millions of Americans have saved up. I’ve said it before and say it again now: for many, there won’t be any golden years. For younger Americans, it’s a reminder to save as much as you can—starting right now.

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“We increased our savings, basically getting our net take-home pay down to what we expected to live on in retirement.”

– Fritz Gilbert, 55 year-old retiree