Gone are the days when people could retire at age 62 and live off the income from their bond portfolios.
Roger Roemmich, a CPA, long-time wealth manager and author of “Don’t Eat Dog Food When You’re Old,” said that people heading into retirement are focusing on the wrong variables. They should pay attention to investment hazards, asset allocation and how much money they have set aside for retirement, he said, but the one missing component in their planning is cash flow.
“So people expected to get much better return on their investment assets than they’ve got and that’s why Social Security Administration statistics show that one out of two single people who are retired live solely on Social Security. For married couples, the statistics are one in five, which is not nearly as bad, but still, both of those are pretty sobering,” Roemmich said.
He added that, “it is only going to get worse in this low-interest-rate environment, and more people are retiring without pensions. We have a serious problem. Qualitative easing solved some of the country’s problems but created a problem for senior citizens because of the low interest rates.”
“They are never encouraged to learn about Social Security when they are in school or continuing education programs. A lot of people are playing a lot of catch up with Social Security and Medicare and a lot of things,” he said.
Individuals also need to purchase long-term care insurance. Many insurance companies include this as part of a life annuity and Roemmich said it is a crucial piece of the retirement puzzle.
“They don’t think of it as part of their income because they never see it in terms of cash flow and yet it is amazing that a lot of people how never made a lot of money wind up in pretty good shape for retirement because they were consistent contributors to an IRA, 401(k) or 403(b),” he said.
When people determine when they will retire, they need to look at how much money they have coming in now and in the future and how many expenses they have now and in the future.