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What NOT to do in retirement

By Jennie L. Phipps ·
Monday, September 23, 2013
Posted: 5 pm ET

There's a piece that's making the rounds about a former vice president for a major company who is 77 and just getting by working two jobs -- one at Sam's Club doing marketing demonstrations and another at a golf club, flipping burgers. The story is getting tons of social media traffic and sympathetic readers, but it makes me say "ouch."

The story holds this man up as emblematic of today's retirees. I think his situation -- if true -- is unfortunate, but had he made different -- and better -- decisions along the way, his current circumstances wouldn't be so dire. Those of us who are younger have time to be smarter.

Below are some lessons to be learned from this story about "Tom."

Save aggressively in tax-advantaged accounts. The story says that Tom had neither a 401(k) nor an IRA because he was self-employed. Self-employed people can and should have both of those kinds of accounts. Generous tax deductions mean that most self-employed people leave money on the table when they ignore those options.

Get good retirement planning advice. The story says that Tom at one point earned well over $100,000 a year, but he had saved only $90,000 by 2008. His saving were invested in stocks and were hard hit by the financial downturn, so he lost half his money. A good financial adviser before and during those tough times would have encouraged him to save more, diversify his investments, and stay the course, giving his investments time to recover.

Don't take Social Security at 62. A man who worked all his life, including earning more than $100,000 some years, and met his legal obligations as a self-employed person to pay annually into Social Security, would be entitled to far more than the $1,200 a month that the story says he gets. Using the free AARP Social Security calculator and assuming that he was born in 1936, I worked backward and determined that he must have earned an inflation-adjusted average income of $35,000 a year and started taking his benefit at age 62. That meant he took a 25 percent haircut. For every year he had waited to claim benefits past age 62, he would have gained about 8 percent. By the time, he was age 70 and reached the maximum amount available, he would be receiving $2,136 or $25,632 a year. That's not a princely amount, but combined with the $600 a month in pension benefits the story says this man gets, it would add up to nearly $33,000 a year, plus accumulated Social Security cost-of-living adjustments. At that income level, he  probably wouldn't need two part-time jobs.

Be thoughtful about supporting your grown children. This story also says that this man sold his house in New Jersey for $182,000, bought a mobile home for $23,000, and divided the rest among his grown children, so they would have enough to buy their own homes. That is a generous gesture, but not if it means that they have to support you in your old age.

This retirement sob story appeared originally in a very reputable publication. I wish the editors there had questioned it. These kinds of pieces are widely read, but they make heroes out of people with poor judgment. That doesn't help people trying to make good decisions.

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April 05, 2014 at 4:15 pm

I'm going to be 80 this year(2014) I live alone but have a girl friend whom we are active together. Not having someone with whom you can enjoy actives and eating out is very difficult to imagine. Search foe a mate ,but one that neither of you expect to get married. Becareful how fast you spend your money.None of us know how long we will live.
But I like my independence and my small but cozy home. I enjoy the Florida climate and will only go north to visit but not to stay too long.

January 23, 2014 at 6:20 pm

I'm 50 ... and finally all my retirement planning is starting to appear like alight at the very end of the tunnel. I have lost a lot of money on several bad investments that made headlines ... WorldCom, Charter Communications, VISX, CitiGroup, Ford to name a few. I've also done well on several others such as Apple.

All in all, I'm extremely disappointed for having a net worth of only $400,000 at this age. On the other hand, I have a hard time finding many other 50-somethings as well off as I am.

Most of that net worth is protected in retirement vehicles, and I'm still facing 16 years of undergraduate college tuition over the next twelve years.

I tried to be wise ... I tried to be disciplined ... I tried to build wealth from a very young age, but I failed anyway. Not all of us failures are for a lack of effort. Just bad turns of fortune. Now I have 10-15 years to make up for it instead of 30 like the 35-year-olds who talk about retirement like it will never happen.

Ralph Owen
January 21, 2014 at 4:01 pm

Good advice however we also have to deal with the reality of our life in the US. Financial "advisors" lose more money for the investor than they make. The market crash hurt everybody. The problem is the greed on Wall Street. Plenty of Americans saved well until then but somehow our "advisors" can't seem to help us get it back . Secondly, the cost of living for the majority of Americans since the recession has severely impaired the average workers' ability to pay bills never mind an adequate savings plan. Just consider the cost of housing, food and healthcare. There's a good reason both parents work and while savings is on the list, in real life bills come first.

January 15, 2014 at 7:04 pm

And who says you're gonna live to be 70?

December 10, 2013 at 12:17 am

I think that schools and parents are in general very deficient in teaching kids to become interested at an early age in saving and investing. The operative principle is that government help in retirement is small and needs to be given only the status of a safety net supplement. Investing is fun and financially rewarding, and kids need to be taught that. It is easy, too. If they have a favorite company (like McDonalds or Coke, or Pepsi) it is probably a good place to start to avoid the retirement blues.

Walter V. Collier
November 27, 2013 at 1:59 pm

Very thoughtful and useful article on what not to do when you retire and what to do before you retire.

Felix El Gato
November 12, 2013 at 5:12 pm

Try to stay away from heroin.