Running out of money in retirement

In the good old days, many folks didn’t have to worry out running out of money when (if) they retired. They either didn’t retire, or, they had the courtesy to expire before their nest egg was depleted.

When Social Security started, the at-birth life expectancy was 58 for men and 62 for women. In 1940 when the program (paying benefits at age 65) started, there were an estimated 8.3 million Americans over age 65. Times, and life expectancy, have changed.

With advancements in medicine, diet and changes in personal habits, people are living longer. Smoking is way, way down. Waistlines and weights are also way, way up. But people are living longer.

Last year, The Washington Post ran an obituary of a man who retired in the early 1970s. He had been retired longer than he had worked. Fortunately for him, he was a former federal worker with a lifetime, adjusted for inflation, annuity.

Arthur Stein, a financial planner based in Bethesda, Maryland, said that if you and your spouse are 65, there’s a 50-50 chance one of both of you will live to age 95. One or both of you could spend more time in retirement, and with each other, than either of you did working. A sobering thought on several levels. So why is it good to be a current, or former, fed?

Long-time feds retiring under the CSRS program are in good shape. Their starting annuities can range from 55 percent to 80 percent of their final salary. And benefits are fully indexed to inflation. Many don’t touch their Thrift Savings Plan accounts until they are required (at age 70 1/2) to start making minimum withdrawals each year.

The full COLAs for retirees haven’t been much of late, because inflation has been flat. But when (if) it comes back with a vengance, the protection will be there.

FERS employees have a lot more retirement planning to do than their rapidly disappearing CSRS colleagues. The FERS federal annuity is much smaller than CSRS. And while they also get Social Security, most will depend on their TSP investments to provide anywhere from one-third to as much as one-half of their retirement income. So how do you do that?

Stein and many other financial planners familiar with the federal benefits system caution clients against being too conservative in their investments. For most, that means not putting too much (or everything) in the super-safe G-fund. While it never has a bad day, regardless of the stock market, it also never has a really good day. Stein said that over time inflation will slowly eat into the TSP or any other 401k plan unless it has a healthy balance of stocks and bonds.

So can you be too cautious with your TSP, especially as you near retirement? Is there such a thing as playing it “too safe” with your retirement nest egg?

On Wednesday’s Your Turn radio show ,Stein talked about how to develop a balanced TSP portfolio you can live with without suffering from nightmares. To listen to the full 40 minutes, click here.

Nearly Useless Factoid

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