FINANCIAL PLANNING Workers rethink retirement, options

Many planners say retirees need the same income as when they worked.
BALTIMORE SUN
The economic ground is shifting for millions of Americans in their 50s and early 60s who find themselves forced to reconsider their dreams of a comfortable retirement.
Experts say many have abandoned plans for early retirement and growing numbers are laying plans to continue working far beyond what has been considered a normal retirement age.
The reasons are varied. We are living longer than ever before. The quality of health care and its cost are growing at a head-spinning pace. There have been some unpleasant surprises for some who rely on investment income and continuing changes in the retirement promises made by large employers.
But for many who have already retired, life is proving to be surprisingly manageable. They have found satisfying answers to an array of economic challenges and offer plenty of advice from the other side.
How much is necessary?
One issue to be decided is how much money is needed to retire?
"The rule of thumb I heard is if you retire and have the same kind of income when you were working, you might be pretty well off," says Herbert Harris, an 81-year-old from Silver Spring, Md., who retired at 65 as an industrial engineer for the federal government. He consulted for a few years after that.
When planning retirement, Harris figured he and his wife, Fran, a retired teacher, could live comfortably on his annual salary of $75,000. The couple's traditional pensions and Social Security, both of which provide cost of living adjustments, make up 80 percent to 90 percent of that, he says.
"We can pretty well handle most of all expenses," he says, including winter trips to Florida.
Future retirees likely will look at Harris and others like him as the lucky ones. Pensions that promise a monthly paycheck for life are being replaced with defined contribution plans, such as a 401(k). With these plans, the size of one's nest egg will depend on investment performance and how much the worker, and often the employer, kicks in.
In 1975, 67 percent of private retirement plans were defined contribution; by 1998, it was 92 percent, according to an Employee Benefit Research Institute study.
These plans require a whole new set of financial decisions upon retirement when workers receive their savings in a lump sum. They can use the cash to buy an annuity that will provide them a monthly check, or they can try to invest and manage it so they don't outlive their money.
Answers vary
The answer to how much one needs to retire is as different as individuals themselves.
"You need to be able to maintain your previous standard of living. You don't need to be rich if you weren't rich before," says Alicia H. Munnell, director for the Center for Retirement Research at Boston College. "You do need to plan."
For planning purposes, experts advised for years that retirees would need 70 percent of their pre-retirement income. Now, many financial planners suggest retirees will need the same amount of income that they had while working.
These planners find new retirees often spend just as much as before. Sure, work-related costs go down, but healthy retirees have time to travel, dine out and pursue pricey hobbies.
Other factors, too, will shape finances in retirement. Will you move to another state that has higher or lower taxes and housing costs? Is the mortgage paid off? Does your employer offer medical insurance for retirees, or will you pay that out of pocket until Medicare kicks in at age 65?
And perhaps the toughest question to answer: How long will you live? Planners suggest workers figure on living until 95, unless there's some family history that suggests otherwise.
The Social Security Administration mails a statement annually to workers to give them an estimate of their future benefits, whether taken at age 62 or later. The statements, experts say, are often a wake-up call to workers that Social Security alone won't be enough to comfortably retire on.
Finding out too late
Some discovered that too late.
Bernadette Kimmons, 74, retired about six years ago from an auto paint shop in Oregon where she had worked for 42 years. She lives on her monthly Social Security check of $887, and the $150 she earns each month baby-sitting her grandchildren.
She owns her own home, she says, but still has bills such as homeowner's insurance, property taxes, utilities and health insurance. After bills, there's no money left to travel or remodel her 50-year-old house, she says.
"Retirement is for the people that have money and can go places," Kimmons says. "Retirement is hell if you don't have your own money."
On average, today's retirees retired at 62.
"People are going to have to retire later in the future" because of longer life spans and often inadequate nest eggs, says Munnell.
Workers are getting the message. In a 1995 survey by John Hancock Financial Services, workers said they expected to retire on average at age 60. When the survey of 800 workers was recently updated, the average age of expected retirement jumped to 64.4, and 18 percent plan to work until 70 or later.
The happiest retirees aren't necessarily the richest, but those who are active and have goals, whether it's travel or visiting grandchildren, Jerry Cannizzaro, a financial planner in Oakton, Va., says.
"You need to know what you are going to do in retirement," he says. "You don't just want to retire and lay down with the remote control and watch 180 cable channels. That's the way you will die earlier."