Think retirement is out of reach? Here’s what you need to know

A silver pig with wings is being fed gold coins from a plate.
(Daniel Fishel / For The Times)
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The pandemic caused tectonic shifts in the job market as workers young and old quit and searched for something better — in their work or in their life. According to the Pew Research Center, a little more than half of adults ages 55 and older had ditched the grind by late 2021, compared with 48% in the months before the first case of COVID-19 was recorded.

If you’ve spent the better part of your earthly existence punching a clock, you may be sorely tempted to join the throng of cool kids on the sidelines. And if you’ve been working for a company with 50 or more workers, chances are good that you’ve accumulated some retirement savings through a pension or retirement plan — especially if you’ve not spent your career in a service industry.

Experts caution, however, that the transition from a life of work to a life of leisure isn’t simple, and that it’s crucial to have a plan. David John, senior policy advisor for AARP’s Public Policy Institute, said researchers have found that “people who do the planning and do budgeting end up with a much better retirement outcome than people who just wing it or use a rule of thumb.”

The souring stock market and the rekindling of long-dormant inflation also throw cold water on the idea of retiring now. “If you ask any financial planner, they’re going to tell you, just sit this one out,” said Mo Wang, a retirement scholar who directs the Human Resource Research Center at the University of Florida.

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But here’s the thing. It’s misleading to think of retirement as life without work. For many Californians, it’s a life with less work.

“Call it semi-retired: You work doing what you have to do for 40 years, then you work doing what you want to do for the next 10 to 15,” said John Pilkington, a wealth advisor executive at Vanguard Personal Advisor Services.

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That’s why some version of “retirement” may be available to you even if you haven’t socked away much for your dotage. Many of us haven’t — according to the Federal Reserve, in 2019 half of Americans ages 55 to 64 had $134,000 or less in retirement savings. That’s not exactly Lotto riches.

The Times consulted two dozen researchers, financial planners and counselors about how to tell when you’re ready for retirement. Here are their tips and insights.

When are you financially ready to retire?

If you haven’t started planning yet, then the answer is probably “no time soon.” That’s because retiring successfully is, in part, a number-crunching exercise to make sure you can sustain the life you want to live on the income you’ll be collecting.

“Expense control is critical,” Mark Berg, a certified financial planner in Wheaton, Ill., said in an email. In fact, he wrote, you should start preparing to moderate your lifestyle five to eight years before retiring.

That may be too long a runway for people eager to retire. Still, John Pilkington, a wealth advisor executive at Vanguard Personal Advisor Services, said it’s important to review your investments at least three years ahead of retirement to start “dialing down the risk exposure.” He added, “You don’t want to find yourself overallocated to risky assets.”

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With the Nasdaq composite down 30% from its peak in November, his point shouldn’t be lost on anyone.

Recession fears raise risks for California’s public pension funds.

Reality check. The first step, David John said, is figuring out whether you’ll have enough regular income in retirement to at least cover your basic needs, such as housing and healthcare. Vida Jatulis, a certified financial planner in Oak Park, Calif., put it this way: “It’s like solving a mathematical problem. ‘This is what I have coming in; what can go out?’ It’s a finite resource.”

Unfortunately, solving that problem requires a degree of realism that eludes many of us, said Rashida Lilani, a certified financial planner in Roseville, Calif. “We tend to underestimate how much we spend and overestimate how much we make,” she said.

That’s why everyone should have a budget, Lilani said, to show them how much they are actually spending and what they’re spending it on. Having a budget doesn’t have to feel like dieting; think of it more like putting a meter on your spending so you can be more deliberate about it.

Plenty of tools online can help, and some are free. These include free apps from companies such as Mint and paid services from the likes of You Need a Budget and EveryDollar that can automatically track your credit and debit card usage.

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The Social Security calculation. The vast majority of American retirees are eligible for Social Security, but those benefits fall well below what most Californians spend every month — on average, they amount to only 37% of a person’s earnings. Yet the most popular age to start collecting those benefits is 62, when they first become available — at a level 25% to 30% below what they would be at full retirement age (66 to 67 for anyone born after 1943).

Experts say that if you’re in good health, you shouldn’t claim your benefits until you’re 70, when they will be more than 25% higher than they would be at full retirement age. But that’s not an option if you don’t have other reliable sources of post-retirement income.

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And even the reliability of Social Security is subject to some debate. According to the trustees overseeing the program, Social Security isn’t collecting as much money in taxes as it needs to pay full benefits to all eligible Americans after 2034. Unless the federal government does something to boost the program’s revenue before then, benefits will have to be cut 23%, the trustees reported.

Jatulis said there are retirees who manage to live off of their Social Security benefits alone. But it’s still a good idea to have some savings to meet the unexpected expenses that inevitably arise, she said, even if that means scaling back your spending for a few years before retiring so you can sock away some dough.

Obtaining expert guidance. “It really does help to get professional advice,” John of AARP said. “And professional advice doesn’t necessarily include your brother-in-law. ... Let’s just say relatives’ goals and aspirations don’t necessarily keep your best interest at heart.”

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An advisor can not only help you come up with a plan but also stick with it when the economy sours and the markets go sideways.

“My role as an advisor is bad-decision insurance,” said Neela Bushnell Hummel, a certified financial planner in Santa Monica. “When things get hard, I’m on the phone with my clients to keep them in their seats” instead of panic-selling.

There are thousands of professionals not related to you by blood or marriage offering to help plan for your retirement, and they tout an alphabet soup of titles and designations. The most important question to ask anyone offering you financial advice is how they get paid. Do they have a stake in the investment choices you make — for example, by receiving a commission if you invest in a particular mutual fund? To avoid this kind of conflict, look for an advisor who pledges to act as your “fiduciary,” who will be legally obligated to put your interests first.

There are good sources of free advice too. Using funding from Wells Fargo, the Assn. for Financial Counseling & Planning Education offers to connect anyone seeking help with an accredited financial counselor or fitness coach (who could be a counselor or a financial planner) for one or more free, virtual sessions. To sign up, go to the website of the Coordinated Assistance Network, which is administering the program. Alternatively, veterans can sign up at the network’s site for one free session with an accredited financial counselor.

There are also community organizations, such as the San Diego Financial Literacy Center, that offer free financial planning help. The center’s Smart With Your Money Financial Opportunity Clinics offer virtual one-on-one counseling from certified financial planner volunteers.

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To find free financial guidance in Los Angeles County, check the L.A. County Department of Consumer and Business Affairs’ directory of “financial empowerment resources.” Make sure to check the credentials of any counselor you meet with.

Do-it-yourself options. A number of financial services companies offer “robo advisors,” which are online tools that help you choose investments and keep your portfolio balanced. The advice is personalized to some degree and there may be experts on call, but you won’t get the kind of one-on-one attention you would if you hired a certified financial planner.

Some, such as Schwab Intelligent Portfolios and SoFi Automated Investing, are available at no charge; they make their money off the fees you pay to the funds you invest in, some of which are affiliated with them. Others, such as Vanguard Digital Advisor, Betterment and the female-focused Ellevest, charge a low monthly fee or a small percentage of the assets they’re managing for you.

Whether it’s going back to work part time, moving in with roommates or making do with less, older Americans are getting creative about retirement.

As with any investment advice, make sure you understand your robo advisor’s business model and whether it’s acting as your fiduciary.

For an even more DIY approach, there are online calculators and other tools that can help you work out how much income you’ll need in retirement and whether your current investments can provide it. A good place to start is the rundown of nine online calculators by the personal finance news site The Balance.

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Bear market blues. Researchers at Vanguard found that people making withdrawals after a sequence of low returns were more likely to outlive their wealth than people who withdrew after a period of normal growth. And even if they didn’t run out of money, Vanguard found, their income streams would be 11% smaller, and they’d leave 37% less to their heirs.

That’s one reason many retirement pros advise people to postpone their swan songs until their accounts rebound. But Vanguard’s researchers also found that the worst effects could be parried by dialing back withdrawals by a few percentage points for five years.

Don’t forget to factor in healthcare costs. “As your retirement goes on, gradually the amount you need to spend will decrease, but it will also change over time,” John said. “As you start to get much older, you’re less likely to travel, you’re less likely to spend on certain luxuries, but at the same time, your healthcare spending is likely to go up.”

Medicare is available to every American 65 and older, and its hospital coverage is available for free to the millions of people who paid Medicare taxes over the years. But it doesn’t cover all of your healthcare bills, nor will it pay for many types of long-term care.

A couple turning 65 this year is likely to face $315,000 in healthcare costs not covered by insurance during their retirement, accounting for about 15% of their annual expenses, Fidelity Investments estimated. If history is any guide, that amount is likely to rise every year faster than the rate of inflation.

About your house. Many Americans’ main asset heading into retirement is their home. If you’re still paying off your mortgage, you might want to hold off retiring, said Andy Millard, a certified financial planner in Columbus, N.C. “I never want to see someone enter retirement with a monthly house payment,” he said.

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And in California, that monthly payment is bound to be a doozy. Yet other experts say that having a mortgage isn’t a deal-breaker for retirement, especially if the interest rate is low. The real priority should be getting rid of your consumer debt, such as credit card balances, said Shonty Spatola, a certified public accountant and personal financial specialist in Woodland Hills.

A second question is whether you have more house than you need. Downsizing to a smaller home could free up cash to add to your retirement savings, noted Jason Stein, a certified financial planner in Irvine. If you want to generate real savings, though, you’ll probably have to move far from California’s hot real estate markets.

Finally, experts say that taking out a reverse mortgage — that is, borrowing against the equity in your home, with the loan repaid when the house is sold or bequeathed — can be a viable option in some limited circumstances. One drawback of these loans, though, is that the revenue they generate may not last as long as you do. Your home’s value is finite, after all.

When are you psychologically ready to retire?

“A lot of people don’t think about the emotional readiness of retirement,” said Joanne Danganan, an accredited financial counselor as well as a financial educator and coach in Los Angeles. If you’re about to leave behind a working life that consumed 40 or more hours of every week, she said, you need to ask yourself how you’ll spend those hours going forward. “You can only do so much Netflix in a day,” she said.

“There’s a reason why instances of depression and suicide increase post-retirement,” said Joshua Escalante Troesh, a certified financial planner in Rancho Cucamonga. “Part of this is you’re moving from one identity to another.” For most of your adult life you’ve been introducing yourself to people by telling them your name and profession, he said, so what will you tell people when you retire?

“The key with retirement is to make sure you are retiring to something rather than from something,” said Jay Zigmont, a certified financial planner who specializes in advising people who don’t have kids. “Retirement is not about a ‘magic number’ but about a different quality of life.”

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Wang of the Human Resource Research Center said it’s important to have activities with a clear time structure to replace the one provided by work. People don’t adjust well to retirement without that kind of structure, Wang said.

The uncertainty about the daily routine — when to wake up, when to eat, what to do — isn’t relaxing; it’s stressful, he said. The freedom might seem liberating for a while to some retirees, he added, but “they cannot travel the world forever; they cannot live without structure forever.”

Working less, living more. For a growing number of older Americans, retirement and work aren’t mutually exclusive. “The line between retirement and being a full-time employee is really quite blurred,” Wang said. In the last 10 years, he said, one-third to two-thirds of the people who retired have continued to engage in some kind of work.

“For most people,” Hummel said, “the goal is ‘work-optional.’ It’s to be able to pursue work that they are financially independent from.” Many just want to work without worrying about how much they’ll make. Others, she said, want to switch to a career that’s more enjoyable but less lucrative.

“You can’t sit on a beach for 30 years. You can’t hit a golf ball for 30 years. It’s just not realistic,” Jatulis said. Besides, it’s healthier to be out in the world and not isolated. “Staying engaged in some way, at work or in a side hustle, I think is the new retirement,” she said.

The blurring line between work and retirement may also explain why more people are looking to “retire” early. James Lee, a certified financial planner in Sarasota Springs, Fla., who’s president-elect of the Financial Planning Assn., said, “Typically, when I started, people would by default say that they wanted to retire at age 65. More and more I’m seeing people who want to retire in the early to mid-50s.”

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What other factors should you consider?

Another key issue, Wang said, is whom you’ll be spending your retirement with. “You don’t want to have a social network where everyone is working, and you’re the only one retired,” he said.

The jury’s still out on whether a social network online is a useful substitute for one in real life, Wang said. Beyond the concerns about privacy and fraud, he said, there’s also the risk of getting stuck in an echo chamber.

Women also face a number of challenges that men typically don’t. Mary Meadows Livingston, a certified financial analyst and certified financial planner in Birmingham, Ala., outlined several in a blog post, including:

  • Fewer years of earned income. Largely because of the time they spend caring for family members, women spend 12 fewer years in the workforce, on average, than men.
  • Less pay on average for the same work. Even if a woman is squirreling away the same percentage as a male colleague, the difference in wages — 18% in 2022 — means less money saved. And even if her investments perform equally well, the savings gap will grow over time.
  • Less aggressive investing styles. Women start investing later in life and put their money into less aggressive growth-oriented assets, even though studies show they are no more risk-averse than men. This translates into lower returns in the long run.
  • Longer life expectancies. According to the Centers for Disease Control and Prevention, women who turn 65 in the U.S. can expect to live almost 20 more years, compared with 17 for men. Longer life spans require more resources in retirement.

One final thought from Troesh, the certified financial planner: You’ll need to prepare yourself for the abrupt shift away from accumulating money and assets to depleting them. We’ve trained our brains to release dopamine and oxytocin when we see our account balances rise, he said, and cortisol and adrenaline when they go down. “On one magical day, we’re supposed to rewire that? That’s a hard thing for people to do.”

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