Ten Commandments

Richard Quinn

WE’RE FACED WITH a host of thorny retirement issues: Keep Social Security solvent. Make Medicare affordable. Many Americans aren’t saving enough. They want to retire earlier than they can reasonably afford. They’re effectively financially illiterate.

But in the end, you don’t need to worry about all Americans. Instead, what you need to worry about is you. Want a comfortable retirement? Here are my 10 commandments:

  1. If your preretirement lifestyle is set with a view to what you can sustain after you quit the workforce, you’re likely on track. If not, retirement could mean a sharp drop in living standards.
  2. Remember that Social Security is designed to replace no more than 40% of preretirement income—and for many, that 40% is an overestimate, because the benefit calculation is skewed toward lower income Americans. In retirement, you’ll want some steady sources of income, and Social Security is probably the most secure. But recognize that it’s intended to be a minor part of your total income.
  3. Have a financial and estate plan that provides for your spouse and any others who depend on you financially—and who may outlive you. Income annuities, investment income streams and life insurance might all be part of that plan.
  4. Never forget the non-financial aspects of your retirement are important, too. Think about any significant relocation long before you retire—and consider trying it out first. It’s a big mistake to think of retirement purely as leisure time. And remember, when it comes to the fun stuff, that takes money.
  5. Pay attention to communications from your employer, Social Security, Medicare, personal advisors and others. What you don’t know can hurt you. A missed deadline and any number of other goofs can do severe financial damage.
  6. Put retirement savings ahead of other goals, like college or a vacation home. Unless you have a good pension plus Social Security, it’s mostly up to you—and there are no second chances.
  7. Save as much as possible as soon as possible. You can always reduce your savings rate later. Investment compounding really is powerful. Load up on savings early in your career and let the money work for you in the decades that follow. When money gets tight, such as when paying for the kids’ college, you may need to trim savings for a few years. But if you over-saved during the first 10 years or so of your career, you will likely still reach retirement in good shape.
  8. Recognize that your taxes may not be lower during retirement. All the signs point to higher taxes in the future for everyone. To reduce my retirement tax bill, I favor Roth accounts and municipal bond mutual funds.
  9. Place health care high on your list of fixed expenses. Medicare plus supplemental insurance can cost a retired couple more than $700 a month. Even if you’re fortunate not to need much medical care, those premiums are a big monthly hit and they’ll grow each year. Prescription drugs can also be a large expense. What if you aren’t so fortunate? Remember that Medicare has no out-of-pocket limits.
  10. Invest in ways that will provide a steady income stream in retirement. In many ways, retirement is no different from your working years: You want a steady flow of income. Do not be totally exposed to stock market fluctuations. You don’t want to worry about where that 4% withdrawal rate will come from each year.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Running on EmptyTaking Your Lumps and Pain Postponed. Follow Dick on Twitter @QuinnsComments.

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