MONEY Longevity

3 Ways to Have a Happier, Healthier Retirement

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Dan Saelinger—Styling by Dominique Baynes; Hai

You're likely to have a long run in retirement. Maintaining a lively pace is good for your health—and good for your wallet, too.

Better access to and improvements in medical care mean that you’re likely to not only live longer but be healthier as well. On average, Americans are living in good health nearly two years more compared with retirees two decades ago and have compressed the time spent in really poor health to the very end of life, says David Cutler, a Harvard University professor who analyzed health data from 90,000 Medicare recipients from 1991 to 2009.

There’s a financial payoff, as well as a quality-of-life one, to maintaining good health longer. Although your total health care costs rise the longer you live (see the graphic below), your annual outlay is far less when you’re in the pink: Average out-of-pocket spending on medical expenses is $6,000 a year for people in good health, vs. $7,416 for people in poor health, according to data from the University of Michigan Health and Retirement study. That means you can devote less of your annual budget to health care bills and more to activities that make your retirement enjoyable. And fortunately, you have a lot more control over your health and quality of life in your later years than you may think, even if you have a chronic health condition.

The Key Moves

Stick with the pack: The elderly subjects in the New England Centenarian Study are poster children for the behaviors that are associated with healthy aging. Yes, they typically don’t smoke, follow a diet that is heavy in vegetables, exercise regularly, and manage stress with aplomb. Less obvious: Nearly 90% of the centenarians live independently well into their nineties, retire later than average, often do volunteer work, and have active social lives involving daily contact with family and friends. Says Thomas Perls, director of the study: “We rarely see a lonely centenarian.”

Keep on moving: Just how much exercise do you need to add years to your life? Doing something to get your muscles working every day is critical, but it doesn’t have to be a lot—even as little as 15 minutes a day is enough to add years to your lifespan, according to Maria Corrada, an associate professor at the University of California at Irvine who is part of a study of nonagenarians that aims to identify factors that lead to a longer life. A woman who exercises 15 to 30 minutes a day has a 20% decrease in the risk of dying at a given age compared with someone who is sedentary, Corrada says.

And good news for those who have spent a lifetime watching their weight: A little more padding in your later years—up to 30 pounds for a person of average height, but no more—may be beneficial too. The extra pounds provide some protection against falls, Corrada says, helping to prevent breaks in brittle bones.

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Don’t worry, be happy: Reports on aging often focus on the problems associated with longevity. Here’s an overlooked piece of good news: Retirees consistently report being happier than younger folks. Happiness, researchers have found, tends to be U-shaped: People start adulthood feeling pretty good about themselves, but then the glow diminishes steadily as the stresses of life pile on, according to a study published by the National Academy of Sciences. At age 50, though, the trend reverses, and people report feeling better as they age; by 85, they are even more satisfied with themselves than they were at 18.

Smart money management helps you further stack the deck in your favor; a recent Merrill Lynch study found that financial security was second only to good health among factors that make retirees happy. After all, if you make it to 100, you’ve more than earned the right not to worry about money.

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More great tips from the Ultimate Retirement Guide:
6 Ways to Have a Richer Retirement
4 Smart Ways to Give Your Career Staying Power
6 Moves to Make Your Money Last a Lifetime

 

MONEY Health Care

Why Obamacare Is Making Medicare Open Enrollment More Confusing

Tangle of Stethoscopes
Comstock Images—Getty Images

The time to sign up for an individual health insurance plan overlaps with the annual window for switching your Medicare plan. Here's how seniors can navigate this tangle of health care choices.

This is enrollment season for two huge public health insurance programs: Medicare and the Affordable Care Act health insurance exchanges. For older Americans, the overlapping sign-up periods can lead to confusion and enrollment errors.

Insurers offering Medicare and ACA policies have big money at stake, and consumers are subject to a blizzard of marketing messages. Annual enrollment for Medicare prescription drug (Part D) and Advantage (Part C) plans began Oct. 15 and runs until Dec. 7; shopping for healthcare policies in the marketplace exchanges created under the ACA began Nov. 15 and ends Feb. 15.

Consumer assistance groups report that some Medicare enrollees mistakenly think they must also enroll in the ACA exchanges. And for people with ACA plans who are turning 65, the transition to Medicare can be tricky. Here are some common questions about enrollment overlap, and answers aimed at helping older Americans keep things straight.

Q: What should I do about the ACA marketplaces if I’m already on Medicare?

Nothing. The policies sold on the exchanges are for Americans who don’t have coverage through an employer. And it is illegal for someone to sell you an exchange plan if the provider knows you are covered by Medicare. You can’t buy a Medicare Advantage, Medigap or Part D drug plan through the ACA marketplaces; to enroll in these plans, visit the federal government’s Medicare Plan Finder website.

Q: I bought health insurance this year on my state’s exchange, but I’m turning 65 in December. Do I need to shift to Medicare then?

It’s critical that you move to Medicare as soon as you are eligible. The enrollment window starts three months before your 65th birthday and ends three months afterward.

Failure to enroll will saddle you with expensive premium penalties. Monthly Part B premiums jump 10% for each 12-month period that you could have had coverage but didn’t—for life. That can add up: A senior who fails to enroll for five years ultimately would face a 50% Part B penalty—10% for each year. Penalties also are applied for late enrollment in Part D, under a different formula.

Q: When I shift into Medicare, can I just stick with the company that insures me in the ACA exchange?

You probably could do that; many of the nation’s biggest health insurers operate in both Medicare and the ACA exchanges. But brand loyalty isn’t advised here. Even if you’ve been satisfied with your provider, that company’s Medicare prescription drug plan may not offer the same coverage you had in the exchange. And the Medicare Advantage plan may not include the same network of providers or level of benefits.

Treat Medicare sign-up as a new shopping exercise. For starters, think about whether you want traditional fee-for-service Medicare or Advantage, a managed care alternative. Traditional Medicare allows you to see any health provider that participates in Medicare, but you’ll probably want to add a standalone prescription drug plan and a Medigap supplemental policy. With Advantage, you’ll be limited to in-network providers, but most plans have built-in prescription drug coverage and cap out-of-pocket spending.

Q: I qualified for tax subsidies in the ACA exchanges. Will those continue when I go into Medicare?

No. The ACA subsidies offset premium costs for households in a wide band of income, from 100% to 400% of the federal poverty level. This year that worked out to an annual income of between $11,490 and $45,960 for an individual, and $23,550 to $94,320 for a family of four.

Medicare enrollees can get assistance with premiums if they meet certain income and asset tests through the Medicare Savings Program. Another program, called Extra Help, can offset most or all prescription drug costs. The Medicare Rights Center’s website has a summary of these programs.

MONEY retirement planning

Retirement Makeover: 30 Years Old, and Already Falling Behind

Chianti Lomax
Julian Dufort

When she turned 30, Chianti Lomax had an epiphany: Her salary and savings weren't enough to buy a home or start a family. MONEY paired her with a financial expert for help with a plan.

Chianti Lomax grew up poor in Greenville, S.C., raised by a single mother who supported her four children by holding several jobs at once. Inspired by her mom, Lomax worked her way through high school and college; today, the Alexandria, Va., resident makes $83,000 plus bonuses as a management consultant.

But turning 30 last December, Lomax had an epi­phany: Her career and her 401(k)—now worth $35,000 —weren’t enough to achieve her long-term goals: raising a family and buying a house in the rural South.

Her biggest problem, she realized, was her spending. So she downsized from the $1,200-a-month one-bedroom apartment she rented to a $950 studio, canceled her cable, got a free gym membership by teaching a Zumba class, and gave up the 2010 Honda she leased in favor of a 2004 Acura she paid for in cash. With those savings, she doubled her 401(k) contribution to 6% to get her full employer match.

And yet, nearly a year later, Lomax has only $400 in the bank, along with $12,000 in student loans. Having gone as far as she can by herself, Lomax wants advice. As she puts it, “How can I find more ways to save and make my money grow?”

Marcio Silveira of Pavlov Financial Planning in Arlington, Va., says Lomax is doing many things right, including avoiding credit card debt. Spending, however, remains her weakness. Lomax estimates that she spends $500 a month on extras like weekend meals with friends and $5 nonfat caramel macchiatos, but Silveira, studying her cash flow, says it’s probably more like $700. “That money could be put to far better use,” he says.

The Advice

Track the cash: Silveira says Lomax should log her spending with a free online service like Mint (also available as a smartphone app). That will make her more careful about flashing her debit card, he says, and give her the hard data she needs to create a budget. Lomax should cut her discretionary spending, he thinks, by $500 a month. Can a young, single person really socialize on $50 a week? Silveira says yes, given that Lomax cooks for herself most evenings and is busy with volunteer work. Lomax thinks $75 is more doable. “But I’d like to shoot for $50,” she says. “I like challenging myself.”

Setting More Aside infographic
MONEY

Automate savings: Saving money is easier when it’s not in front of you, says Silveira. He advises Lomax to open a Roth IRA and set up an automatic transfer of $200 a month from her checking account, adding in any year-end bonus to reach the current annual Roth contribution limit of $5,500, and putting all the cash into a low-risk short-term Treasury bond fund.

Initially, says Silveira, the Roth will be an emergency fund. Lomax can withdraw contributions tax-free, but will be less tempted to pull money out for everyday expenses than if the money were in a bank account. Once Lomax has $12,000 in the Roth, she should continue saving in a bank account and gradually reallocate the Roth to a stock- heavy retirement mix. Starting the emergency fund in a Roth, says Silveira, has the bonus of getting Lomax in the habit of saving for retirement outside of her 401(k).

Ramp it up: Lomax should increase her 401(k) contribution to 8% immediately and then again to 10% in January—a $140-a-month increase each time. Doing this in two steps, says Silveira, will make the transition easier. Under Silveira’s plan, Lomax will be setting aside 23% of her salary. She won’t be able to save that much upon starting a family or buying a house, he says, but setting aside so much right now will give her retirement savings many years to compound.

Read next:
12 Ways to Stop Wasting Money and Take Control of Your Stuff
Retirement Makeover: 4 Kids, 2 Jobs, No Time to Plan

MONEY Retirement

The Surprising Reason Employers Want You to Save for Retirement

man fails to make a putt
PM Images—Getty Images

Companies have stepped up their game with better options and features. Still, savings lag.

Employers have come a long way in terms of helping workers save for retirement. They have beefed up financial education efforts, embraced automatic savings features, and moved toward relatively safe one-decision investment options like target-date mutual funds. Yet our retirement savings crisis persists and may be taking a toll on the economy.

Three in four large or mid-sized employers with a 401(k) plan say that insufficient personal savings is a top concern for their workforce, according to a report from Towers Watson. Four in five say poor savings will become an even bigger issue for their employees in the next three years, the report concludes.

Personal money problems are a big and growing distraction at the office. The Society for Human Resources Management found that 83% of HR professionals report that workers’ money issues are having a negative impact on productivity, showing up in absenteeism rates, stress, and diminished ability to focus.

This fallout is one reason more employers are stepping up their game and making it easier to save smart. Today, 25% of 401(k) plans have an automatic enrollment feature, up from 17% five years ago, Fidelity found. And about a third of annual employee contribution hikes come from auto increase. Meanwhile, Fidelity clients with all their savings in a target-date mutual fund have soared to 35% of plan participants from just 3% a decade ago.

Yet companies know they must do more. Only 12% in the Towers report said their employees know how much they need for a secure retirement; only 20% said employees are comfortable making investment decisions. In addition, 53% of employers are concerned that older workers will have to delay retirement. That presents its own set of workplace challenges as employers are left with fewer slots to reward and retain their best younger workers.

Further innovation in investment options may help. The big missing piece today is a plan choice that converts into simple and cost-efficient guaranteed lifetime income. For a lot of reasons, annuities and other potential solutions have been slow to catch on inside of defined-contribution plans. But the push is on.

Another approach may be educational efforts that reach employees where they want to be found. The vast majority of employers continue to lean on traditional and passive methods of education, including sending out confusing account statements and newsletters, holding boring group meetings, and hosting webcasts. Less than 10% of employers incorporate mobile technology or have tried games designed to motivate employees to save.

These approaches have proved especially useful among young workers, who as a group have begun to save far earlier than previous generations. Still, some important lessons are not getting through. About half of all employers offer tax-free growth through a Roth savings option in their plan, yet only 11% of workers take advantage of the feature, Towers found. This is where better financial education could help.

 

 

MONEY 401(k)s

Are You Smart Enough to Boost Your 401(k)’s Return? Take This Simple Quiz

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Pete Ark/Getty Images

If you can answer these 5 basic questions, you'll likely earn bigger gains in your retirement plan.

Can knowing more about investing and finances boost your 401(k)’s returns? A recent study suggests that may be the case. But you don’t have to be a savant to improve performance. Even if you don’t know a qualified dividend from a capital gain, lessons from this research can help you fatten your investment accounts.

The more you know about finances and investing, the higher the returns you’re likely to earn in your 401(k). That, at least, is the conclusion researchers came to after giving thousands of participants of a large 401(k) plan a five-question test to gauge how much they know about basic financial concepts and then comparing the results with investment performance over 10 years.

You’ll get your turn to answer those questions in a minute. But first, let’s take a look at what the study found.

Savvier Investors Hold More Stocks

Basically, the 401(k) participants who answered more questions correctly earned substantially higher returns in their 401(k). And I mean substantially. Those who got four or five of the five questions right had annualized risk-adjusted returns of 9.5% on average compared with 8.2% for those who answered only one or none of the questions correctly. That 1.3-percent-a-year margin, the researchers note, would translate to a 25% larger nest egg over the course of a 25-year career. That could be the difference between scraping by in retirement versus living a secure and comfortable lifestyle.

But while the 401(k)s of participants with greater knowledge didn’t outperform the accounts of their less knowledgeable peers because of some arcane or sophisticated investing strategy. The secret of their success was actually pretty simple (and easily duplicated): They invested more of their savings in stock funds than their financially challenged counterparts. And even when less-informed participants did venture into stocks, they were less apt to invest in international stocks, small-cap funds and, most important to my mind, less likely to own index funds, the option that has the potential to lower investment costs and dramatically boost the value of your nest egg.

The better-informed investors’ results come with a caveat. Even though more financially savvy participants earned higher returns after accounting for risk, their portfolios tended to be somewhat somewhat more volatile (which isn’t surprising given the higher stock stake). So they had to be willing to endure a somewhat bumpier ride en route to their loftier returns.

I’d also add that while more exposure to stocks does generally equate to higher long-term returns, no one should take that as an invitation to just load up on equities. When investing your retirement savings, you’ve also got to take your risk tolerance into account as well as the effect larger stock holdings have when the market heads south. That’s especially true if you’re nearing retirement or already retired, as portfolio heavily invested in stocks could suffer a setback large enough to force you to seriously scale back or even abandon your retirement plans.

Mastering the Basics

Ready to see how you’ll fare on the study’s Financial Knowledge test? The five questions and correct answers are below, followed by my take on the lessons you should from this exercise, regardless of how you score.

Question #1. Suppose you had $100 in a savings account that paid 2% interest per year. After five years, how much would you have in the account if you left the money to grow?
a. More than $110
b. Exactly $110
c. Less than $110

Question #2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?
a. More than today
b. Exactly the same
c. Less than today

Question #3. Is this statement true or false? Buying a single company’s stock usually provides a safer return than a stock mutual fund.
a. True
b. False

Question #4. Assume you were in the 25% tax bracket (you pay $0.25 in tax for each dollar earned) and you contributed $100 pretax to an employer’s 401(k) plan. Your take-home pay (what’s in your paycheck after all taxes and other payments are taken out) will then:
a. Decline by $100
b. Decline by $75
c. Decline by $50
d. Remain the same

Question #5. Assume that an employer matched employee contributions dollar for dollar. If the employee contributed $100 to the 401(k) plan, his account balance in the plan including his contribution would:
a. Increase by $50
b. Increase by $100
c. Increase by $200
d. Remain the same

The answers:

1. a, More than $110. This question was designed to test people’s ability to do a simple interest calculation. To answer “more than” instead of “exactly” $100, you also had to understand the concept of compound interest. (Percentage of people who answered this question correctly: 76%.)

2. c, Less than today. This question gets at the relationship between investment returns and inflation and the concept of “real” return. To answer it correctly, you must understand that if your money grows at less than the inflation rate, its purchasing power declines. (92%)

3. b, False. Here, the idea was to test whether people understood that a stock mutual fund contains many stocks and that investing in a large group of stocks is generally less risky than putting all one’s money into a the stock of a single company. (88%)

4. b, Decline by $75. This question gauges people’s understanding of the tax benefit of a pretax contribution to a 401(k) and its effect on the paycheck of someone in the 25% tax bracket. (45%)

5. c, Increase by $200. This was simply a test of whether people understood the concept of matching funds and the effect of a dollar-for-dollar match. (78%)

Average score: 3.8 All 5 correct: 33% All 5 wrong: 2%

Okay, so now you know how you stack up compared with the 401(k) participants in the study. But whether you did well or not, remember that your performance on this or any other test isn’t necessarily a prediction of how your retirement portfolio will fare. Very financially astute people sometimes make dumb investment moves. Sometimes they try to get too fancy (think of the Nobel Laureates whose hedge fund lost billions in the late ’90s). Other times there may be a disconnect between what people know intellectually and how they react emotionally.

Nor does a lack of financial smarts inevitably doom you to subpar performance. You don’t need a PhD in finance to understand the few basic concepts that lead to financial success: spreading your money among a variety of investments instead of going all-in on one or two things, keeping costs down and paying attention to both risk and return when investing your savings.

So by all means take the time to educate yourself about investing. But don’t feel you have to go beyond a few simple but effective investing techniques to earn competitive returns and improve your chances of a secure retirement.

More from RealDealRetirement.com:

Can I Double My Nest Egg In the Final Years of My Career?

How To Save On Retirement Investing Fees

How To Build A $1 Million IRA

MONEY housing

How to Cut Your Single Biggest Expense in Retirement

bouncy castle in suburbia
An age-proof home is one where you can live safely, comfortably, and conveniently in your older years. Sian Kennedy—Getty Images

You're going to spend a lot on housing in retirement. Here's how to make sure your home serves your needs as you age.

The single biggest expense you face in retirement is housing, which accounts for more than 40% of spending for people 65 and older, according to the Employee Benefit Research Institute. Yet all too often, you end up shelling out those bucks for places that don’t serve your needs well as you age.

By age 85, for example, two-thirds of people have some type of disability. If you can’t get around your house or community or you don’t have easy access to the medical and social services you need, you could land in a costly nursing home prematurely, according to a Harvard Center for Joint Housing and AARP study.

“People don’t think about how their home will support their needs until they face a health issue,” says Amy Levner, manager of the Livable Communities initiative at AARP. “It doesn’t have to be a catastrophe either. Even something as simple as a knee replacement could make it difficult to stay in your home or drive, at least short term.”

Here are 3 ways to make sure you’ll stay comfortable in your home as you get older.

1. Get your house in shape: Three-quarters of people would prefer to stay in their current home as long as possible in retirement, according to AARP. Yet just 20% live in a house with features to help them live safely and comfortably there in their older years. Among them: a first-floor bedroom and bath so you can live on the main level if stairs become hard to climb, wider doorways that make getting around easier if you need a walker or wheelchair, and covered entrances so you don’t slip in rain or snow.

Those can be pricey renovations, so the best time to do the work is while you are still employed so that you can use current income to pay the bill instead of tapping savings, says Levner. But many adaptations that make a big difference when you’re older are inexpensive. Those include raising electrical outlets to make them easier to reach, putting grab bars and a shower chair in the bathroom, and installing nonslip gripper mats under area rugs. (A list of the most important steps to take and their typical cost is below.)

2. Take it down a notch: To save money without necessarily moving far away—two-thirds of people want to remain in their hometown when they retire, AARP says—you can downsize to a less expensive, more manageable house. You could use the proceeds from the sale of your current home to add to your retirement savings, while significantly cutting maintenance costs.

The potential savings, based on estimates from the Center for Retirement Research, are compelling. If you move from a $250,000 house to a $150,000 one, for instance, you could net $75,000 to add to your savings, after paying moving and closing costs (typically 10% of the sale price). Meanwhile, your annual bill for upkeep would probably fall from around $8,125 to $4,875, assuming typical property taxes, insurance, and maintenance of about 3.25% of the home’s value. These calculations assume that you own your home outright; if you still have a mortgage, the savings you would reap from downsizing might be even bigger.

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Move in step with your peers: Relocating can also help you cut expenses if you move to an area with lower taxes and a cheaper cost of living. Look for places that have good public transit, transportation services for seniors, and walkable, bike-friendly neighborhoods that are a short distance to stores and entertainment and close to medical facilities.

Where should you go? AARP is now working with dozens of places to create age-friendly communities. They include Birmingham, Denver, Des Moines, and Westchester County in New York (find the list at aarp.org/agefriendly). Next spring AARP will launch an online index with livability data about every community in the U.S. For more inspiration, check out MONEY’s Best Places to Retire.

MONEY financial advice

Tony Robbins Wants To Teach You To Be a Better Investor

Tony Robbins vists at SiriusXM Studios on November 18, 2014 in New York City.
Tony Robbins with his new book, Money: Master the Game. Robin Marchant—Getty Images

With his new book, the motivational guru is on a new mission: educate the average investor about the many pitfalls in the financial system.

It might seem odd taking serious financial advice from someone long associated with infomercials and fire walks.

Which perhaps is why Tony Robbins, one of America’s foremost motivational gurus and performance coaches, has loaded his new book Money: Master The Game with interviews from people like Berkshire Hathaway’s Warren Buffett, investor Carl Icahn, Yale University endowment guru David Swensen, Vanguard Group founder Jack Bogle, and hedge-fund manager Ray Dalio of Bridgewater Associates.

Robbins has a particularly close relationship with hedge-fund manager Paul Tudor Jones of Tudor Investment Corporation.

“I really wanted to blow up some financial myths. What you don’t know will hurt you, and this book will arm you so you don’t get taken advantage of,” Robbins says.

One key takeaway from Robbins’ first book in 20 years: the “All-Weather” asset allocation he has needled out of Dalio, who is somewhat of a recluse. When back-tested, the investment mix lost money only six times over the past 40 years, with a maximum loss of 3.93% in a single year.

That “secret sauce,” by the way: 40% long-term U.S. bonds, 30% stocks, 15% intermediate U.S. bonds, 7.5% gold, and 7.5% commodities.

Tony’s Takes

For someone whose net worth is estimated in the hundreds of millions of dollars and who reigned on TV for years as a near-constant infomercial presence, Robbins—whose personality is so big it seemingly transcends his 6’7″ frame—obviously knows a thing or two about making money himself.

Here’s what you might not expect: The book is a surprisingly aggressive indictment of today’s financial system, which often acts as a machine devoted to enriching itself rather than enriching investors.

To wit, Robbins relishes in trashing the fictions that average investors have been sold over the years. For instance, the implicit promise of every active fund manager: “We’ll beat the market!”

The reality, of course, is that the vast majority of active fund managers lag their benchmarks over extended periods—and it’s costing investors big time.

“Active managers might beat the market for a year or two, but not over the long-term, and long-term is what matters,” he says. “So you’re underperforming, and they look you in the eye and say they have your best interests in mind, and then charge you all these fees.

“The system is based on corporations trying to maximize profit, not maximizing benefit to the investor.”

Hold tight—there’s more: Fund fees are much higher than you likely realize, and are taking a heavy axe to your retirement prospects. The stated returns of your fund might not be what you’re actually seeing in your investment account, because of clever accounting.

Your broker might not have your best interests at heart. The 401(k) has fallen far short as the nation’s premier retirement vehicle. As for target-date funds, they aren’t the magic bullets they claim to be, with their own fees and questionable investment mixes.

Another of the book’s contrarian takes: Don’t dismiss annuities. They have acquired a bad rap in recent years, either for being stodgy investment vehicles that appeal to grandmothers, or for being products that sometimes put gigantic fees in brokers’ pockets.

But there’s no denying that one of investors’ primary fears in life is outlasting their money. With a well-chosen annuity, you can help allay that fear by creating a guaranteed lifetime income. When combined with Social Security, you then have two income streams to help prevent a penniless future.

Robbins’ core message: As a mom-and-pop investor, you’re being played. But at least you can recognize that fact, and use that knowledge to redirect your resources toward a more secure retirement.

“I don’t want people to be pawns in someone else’s game anymore,” he says. “I want them to be the chess players.”

MONEY early retirement

How Managing ‘Lifestyle Inflation’ Can Help You Retire Early

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Getty

Before you sign up for that seemingly cheap financial commitment, calculate how much it will really cost you. It's a lot more than you think.

What, exactly, is a “lifestyle”? We’re all chasing a better one, but what does that mean on a day-to-day basis? Well, in financial terms, your lifestyle is reflected most clearly in your recurring expenses: the financial obligations that you commit to each month and that seem necessary to support your way of living.

We’re talking here about essentials like housing, groceries, transportation, insurance, utilities, and taxes. And we’re also talking about a variety of discretionary expenses such as entertainment, memberships, subscriptions, maintenance plans, and personal services.

Look at the list above: Can you cut back in any of these areas without affecting the quality of your life? Whether your goal is building wealth, retiring early, or just making your dollars go farther, controlling your living expenses will pay huge dividends.

Recurring expenses are especially important—and insidious—for a number of reasons. For starters, these expenses are often automatic. They hit your bank account like clockwork every month while your attention is elsewhere. Unless you track your expenses or balance your account, you may not even notice them. But each one costs you, and unless you take action, they will go on forever.

Businesses love recurring charges, which represent steady income at very low cost. So companies are skilled at making these expenses easy for you to add on impulse—often requiring a simple consent or web form—but hard to stop unless you pick up the phone or send a written cancellation. Even the most ethical companies have little incentive to help you minimize your monthly charges. Their policies and procedures are necessarily oriented to persuading you to tack on new ones. So it’s up to you to be vigilant.

Relying on the Rule of 300

Recurring expenses may seem small or insignificant, but, from the perspective of retirement or financial independence, they are all substantial. Why? Because of what I call the Rule of 300: “The amount of money you must save to meet a monthly expense in retirement is approximately 300 times that expense.”

Where does that factor of 300 come from? It stems, simply, from two multipliers. The first, 12, is easy to understand: To convert a monthly expense to an annual one, you must multiply by the 12 months in a year. The second multiplier comes from the well-known “4% rule” for withdrawal from retirement savings. (That rule is under attack as possibly too optimistic, but that only makes the need to control recurring expenses even stronger.) The 4% rule is another way of saying you need to save 25 times your annual expenses to retire safely. So 25 is the second multiplier. Combine these two multipliers, 12 times 25, and you get my “Rule of 300” for the amount you must save to cover a monthly expense in retirement.

For example: Say you commit to a seemingly insignificant $30-per-month membership. A dollar a day sounds cheap, and you think you’ll enjoy the convenience. But, once you stop working, you’ll need to have saved $30 times 300—or $9,000—to pay for that membership from your investments! Yes, believe it or not, a mere “dollar a day” expense actually represents about $9,000 in required retirement savings. How long will it take you to save that much? And is it worth it?

Don’t get me wrong. It’s really important to enjoy life. I’m a big fan of occasional splurges, fun treats along the road to financial independence. I’d be the last one to deny the simple joy of an occasional latte, the delight of opening a new book, the excitement of an evening on the town. But these are all one-time expenses: They don’t inflate your lifestyle. And you can easily reduce or eliminate them, if needed. No phone calls, negotiations, or transaction costs required.

Recurring expenses, even small ones, deserve serious consideration before you sign on the bottom line. I set a very high bar for committing to any new recurring expenses and recommend you do the same. Before you decide that a regular financial commitment sounds “cheap,” multiply it by 300, then picture how much work it will take for you to save that number.

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com. This column appears monthly.

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MONEY working in retirement

Why Phased Retirement May Become the Hottest Boomer Benefit

Older federal workers will be able to work part-time before retiring. Other employers are likely to follow.

Many Boomers aren’t ready to retire (even if they’re eligible for Social Security and Medicare) but they’re eager to leave behind the demands of the 40-hour workweek, let alone the 50-hour grind.

Little wonder that the concept of phased retirement — gradually trimming back your workdays while holding onto some benefits — is growing in popularity. And the new federal-employee phased retirement program launching this month could make it more widespread, ultimately leading more businesses to offer the benefit.

“Phased retirement allows you to dip your toes into the shallow end of the retirement pool,” says Jessica Klement, legislative director of the National Active and Retired Federal Employees Association. “You get to test it out.”

The Benefit of Flexibility

But an official, employer-sanctioned phased retirement option open to all its near-retirees isn’t a common benefit yet. The 2014 National Study of Employers by the Families and Work Institute and the Society for Human Resource Management says 12 percent of employers with 1,000 or more employees let all or most workers phase into retirement.

“If employers would accelerate the drive for flexible work arrangements, everyone would be better off,” says Richard Johnson, labor market expert at the Urban Institute. “Flexibility is important.”

I particularly like formal phased retirement programs — rather than ad-hoc versions worked out quietly between particular employees and their bosses — because they let near-retirees dip their toe into what they’ll do next. And, when the programs are done right, they also include a mentorship provision, where the older workers phasing into retirement spend some of their last days at their employer passing on their accumulated knowledge and skills to their younger colleagues.

A Federal-Employee Phased Retirement Program Begins

The new federal phased retirement program, which technically began accepting applications Nov. 6, is one such program. To qualify, you must either be covered under the Civil Service Retirement System or the Federal Employees Retirement System. With the former, you must have worked at least 30 years and be at least 55; with the latter, the minimum age for someone with 30 years of service is age 55 to 57.

Federal employees who’ll take phased retirement will work 20 hours a week and receive half their pay and half their retirement annuity payout. They’ll also be required to devote 20 percent of their time mentoring other federal employees, most likely their successors.

The option should “help the federal government attract and retain skilled people,” says Jeffrey Sumberg, specialist leader in Deloitte’s Federal Human Capital Practice. “It’s potentially a win for all.”

Phased retirement has been on the federal government’s human resources wish list for years and the Obama Administration advocated for a program in 2010. The average age of the federal workforce is 47 (four years more than the overall workforce) and the fear has been that decades of accumulated skill and knowledge would leave in a boomer-led “retirement wave.”

Representative Darrell Issa (R-Calif.) proposed federal employee phased-retirement legislation in 2012, which was rolled into a transportation bill that became law. (The estimated cost savings from the program was used to offset the cost of a rural school initiative.)

A Slow Rollout

But government being government, the rollout of the program will be—to put it kindly—gradual. Each federal agency must come up with its own program design. Consequently, the Congressional Budget Office estimates that 1,000 workers will take advantage of the program initially, a small fraction of the federal government’s two million-person workforce.

Still, forecasts are that the phased retirement will become available for many federal near-retirees in 2015 and 2016 and that the program will grow in popularity. The Departments of Defense and Energy, for instance, are expected to let their employees begin applying in early 2015. “Everyone is really excited about this, but we’re waiting for it to get off the ground,” says Klement.

The impact could eventually be huge. The federal government’s program may well lead other industries and companies to add formal phased retirement initiatives to their benefits offerings.

“Hopefully the federal government will encourage more companies to be more supportive of the phased retirement option,” says Anna Rappaport, a Fellow of the Society of Actuaries and head of her own firm, Anna Rappaport Consulting. Adds Deloitte’s Sumberg: “The federal government gets a bad rap on many things, but when it comes to work flexibility they have been ahead of the curve. To the extent the government can be a model, it could encourage private industry.”

What Two Phased-Retirement Workers Say

What is it like holding down a job in a phased retirement program? To find out, I spoke with two employees of Herman Miller, the office furniture manufacturer based in Zeeland, Mich.

At Herman Miller, employees who are 60 or older with at least five years of service at the company qualify. They can phase into retirement over a period of six months to two years, keeping their full-time benefits all the while and receiving take-home pay based on the number of hours they work. As with the federal program, phased retirement employees at Herman Miller must mentor younger workers — in this case, their eventual replacements.

Tony Cortese, senior vice president of people services at Miller, says his firm’s employees who sign up for phased retirement have the view that “I’m ready to retire, but I’m not ready to go today.”

Jake Boeve retired from Herman Miller at 68 in June, where he was in charge of information technology inventory management, after entering the phased-retirement program two years earlier. A nearly 49-year Miller vet, Boeve worked four days a week the first year of his phased retirement and three days the next.

The transition helped him get into a retirement mindset, he says. “You have to be physically, mentally and financially ready for retirement,” Boeve says. “I would highly recommend phased retirement.”

Tom Riemersma, 64, has six months left in his Herman Miller phased retirement. For much of his 46-year career there, he worked in the model shop, creating prototypes. He says his life has been so structured around hard work at Herman Miller that he wanted to ease into retirement. “Phased retirement has worked well for me,” he says.

Riemersma enjoyed training his replacement, though he says that did lead to a few “awkward moments” personally. “You’re phasing yourself out. Not always easy to do,” he notes.

He’s now working three days a week, down from four during his first year in the program. “Now, I find my weekends are too short,” he says.

That’s just a phase he’s going through. It’ll end soon.

Chris Farrell is senior economics contributor for American Public Media’s Marketplace and author of the new book Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and The Good Life. He writes about Unretirement twice a month, focusing on the personal finance and entrepreneurial start-up implications and the lessons people learn as they search for meaning and income. Tell him about your experiences so he can address your questions in future columns. Send your queries to him at cfarrell@mpr.org. His twitter address is @cfarrellecon.

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The 3 Best Ways to Boost Your Spending Power In Retirement

Location, location, location

You’ve heard the old saw that the three most important things in real estate are location, location, location. Well, that truism can apply to retirement too. Depending on where you retire, you may be able to dramatically boost the spending power of your Social Security check and your retirement nest egg, not to mention improve the quality of your post-career life.

Relocating in retirement isn’t the right strategy for everyone. If you like and can afford your house, have a solid network of family and friends to socialize with, and you enjoy your neighborhood and all it has to offer, you may not want to consider a change.

But if you’re looking to stretch your retirement resources—or rewrite the script a bit in the retirement phase of your life—then relocating may be just the right move. If nothing else, lowering your living costs will give you more flexibility in withdrawing money from your nest egg and reduce your chances of going through your savings too soon.

The main reason that a change in venue can allow you to get a bigger bang for your buck in retirement is that housing costs are the single largest expense you’ll face in retirement. That’s right, even though health care gets all the attention—and health care is definitely a major expense, not to mention one that typically grows as you age—the costs of owning a home or renting eat up the largest share of most retirees’ budgets.

Indeed, a recent Employee Benefit Research Institute study shows that for 65-to-74 year-olds, housing expenses accounted for 38% of total spending, a figure that grew to 42% for those 85 and older. Health expenses, conversely, represented just 12% of the spending of the 65-to-74-year-old group, although that percentage was almost double, 21%, for those 85 and older.

Combine the fact that retirees devote such a large part of their budgets to housing with the fact that house and condo prices vary significantly from one part of the country to another—the median home price is $692,000 in Anaheim, Calif., vs. $91,000 in Decatur, Ill.—and that means moving to an area with lower housing costs may allow you to cut your spending significantly, or divert much of what you had been devoting to housing to other activities like travel, entertainment, hobbies, whatever.

Lowering your housing costs isn’t the only way you may be able to reduce your outlays by relocating. You may also be able to benefit by paying less for the cost of other items and services that can vary widely from one city another, such as health care, food, transportation and (another biggie) taxes.

The gains you can achieve by relocating will be limited if you already live in a low-cost area. But to get a sense of how far your resources might go in different states and metro areas, you can check out the Cost-of-living Calculator in RDR’s Retirement Toolbox. You may also want to take a look at the Regional Price Parity figures published by the Bureau of Economic Analysis. These “RPPs,” as they’re known, measure the differences in price levels between different states and metro areas. If you want to see how the tax bite might vary from state to state, you can check out the info on state taxes at the Tax Foundation and CCH sites.

You don’t want to base your choice of where to live on livings costs alone, however. After all, you also want to be able to enjoy yourself with any extra money you might free up. So if you’re considering relocating—whether for financial or other reasons—you’ll also want to check out the lifestyle and living conditions different places have to offer. Are you okay with the area’s climate? Will you have access to the health care you’ll need? Is there a vibrant sports or arts scene? Are there work opportunities for retirees? These are just a few of the questions you’ll want to ask yourself before making any move.

Fortunately, you can narrow down the number of candidates that meet your criteria fairly easily by consulting one or more of the lists that highlight the most attractive retirement spots. Earlier this week, for example, MONEY Magazine unveiled its annual Best Places To Retire feature. This year’s list profiles nine cities and towns around the country that retirees should find particularly appealing, including three that offer low living costs, three that provide opportunities for an encore career and three that are a good choice for a well-rounded retirement. In addition to highlighting the pros and cons of each area, MONEY also provides pertinent stats for each, which in some cases may be the median home price or cost-of-living index, in others the state income tax or unemployment rate.

For a decision as momentous as relocating, you don’t want to limit yourself to just one source of information. And you don’t have to, as there are plenty of other compilations of retirement spots out there—including ones that focus on cheap places to live in retirement, the best places if you’re living on Social Security alone, and the best places to retire abroad.

Ideally, in the five to 10 years before calling it a career, you’ll want to do what I call “lifestyle planning“—essentially, thinking hard about how you actually intend to live in retirement and assuring you have the resources to realize that vision.

If after going through that exercise you find that there’s a gap between the income your resources can generate and the lifestyle you’d like to lead—or you just want to begin your new life in retirement with a new place to live—think relocation, relocation, relocation.

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