We recently asked retirement expert and journalist Mark Miller to design a best-case-scenario retirement plan, and here's what he came up with:
"The best case is someone who starts saving early and regularly, doesn't live beyond her means, has a traditional defined benefit pension at work and maximizes Social Security benefits by waiting to full retirement age or beyond," the founder of RetirementRevised says. "At retirement, that person will have a strong flow of guaranteed lifetime income - no matter how long she lives - plus a nest egg she can spend as she likes."
Mark writes columns for Reuters, Morningstar and WealthManagement.com on topics including Social Security, Medicare, pensions, saving for retirement and more. Here, he offers his professional insight on the smartest things Americans can do when preparing for their golden years.
Tell us about RetirementRevised...when and why did you start your site?
I started the site when I got going as an independent journalist. I knew I'd be writing for multiple media outlets, and wanted to have a "home base" online where readers could find all my work in one spot, along with some additional in-depth guides to key topics about retirement that I have developed just for the site. It's also a place where people can find my book, The Hard Times Guide to Retirement Security. From there, I've built out my online profile to include an active presence on Twitter and also a free weekly electronic newsletter on retirement.
What got you interested covering retirement? Why do you want to educate others about it?
The first thing that caught my eye about retirement was the increasing buzz I was hearing from so many friends as we all approached our 50th birthdays. So many of them were starting to ask themselves questions about the next part of their lives, and many were interested in doing "retirement" differently - that is, not really retiring at all. So, the starting point for me was exploring the reinvention of retirement, and that is still an important theme (hence the name of my website).
From there, I've broadened out to a half dozen or so key topics that I think Americans need to understand in order to retire successfully. These include Social Security, Medicare and healthcare generally, saving for retirement, pensions and where careers and work fit into the picture.
What do you think are the most common things Americans of any age misunderstand, overlook and/or ignore when it comes to retirement?
For young people, one thing is the importance of starting to save at the youngest age possible, even if it's a small amount, because compounding is your friend. Young people also tend to be far too pessimistic about the future of Social Security.
For people who are at retirement age, it's failing to understand the benefit of waiting to file for Social Security until at least the full retirement age (currently 66). Every year you wait up until age 70 gives you roughly 8 percent additional guaranteed monthly income - that's a risk-free return you can't get anywhere else
What impact do you think the Great Recession had on how Americans plan for retirement?
The recession has inflicted permanent damage on millions of Americans, especially people close to retirement. Although portfolios have generally recovered, the loss of jobs was permanent and devastating for many, and so has the real estate crash. Although some people have been able to recover, many others have been forced to rewrite their plans completely - working longer, moving to less expensive housing and trying to accelerate savings late in the game.
When you look at how the broader economy is impacting retirement plans, the picture looks equally challenging for Americans of all ages. In particular, I worry about income inequality and the huge amount of student loan debt that younger households are carrying. Depressed income and high debt is preventing younger households from buying homes, saving for their kids' college educations or for their own retirement.
What are the best strategies for saving for building up retirement savings quickly for someone who didn't start planning until later in life?
Use the lowest-cost index funds or Exchange-Traded Funds that you can find. Take advantage of catch-up contribution limits for IRAs - this year, the contribution limit for an IRA is $5,500, but $6,500 if you're over age 50.
What do you think are some of the most reliable investments people can make today? What would you steer clear of?
I don't focus on specific investments, because I'm a big believer in passive investing. No one beats the market over time, so the best approach is to buy the entire market as inexpensively as you can. Use index funds or Exchange-Traded Funds, and rebalance regularly to keep your allocations on target.
How should we be figuring healthcare costs into our retirement plans?
Count on healthcare to be one of the largest expenses in retirement. Fidelity Investments does an annual study on this, and reported that a 65-year-old couple retiring this year will need to have saved $220,000 to meet healthcare expenses during their retirement. Fidelity includes Medicare premiums, deductibles and co-insurance in its totals but excludes any long-term care you might need, over-the-counter medications and dental care. The forecast assumes 20 years in retirement for women, and 17 for men.
One bit of good news is that the figure has been flat for the past couple years. That reflects some moderation recently in Medicare costs. But that doesn't mean healthcare cost inflation won't heat up again.
How to plan for it? It goes without saying that everyone should save what they can. If you have a Health Saving Account at work, that is an attractive vehicle for this purpose. Roth IRAs also are good for this purpose, because they have no required minimum distributions from age 70 ½ onward. Working longer and maximizing Social Security also are good ways to boost income that can be used to meet health costs. Finally, take the time to understand the ins and outs of Medicare. There are lots of plan choices there that can save you money.
What are some of your favorite resources for retirement planning (aside from your own site, of course)?
In terms of other writers, I'm a fan of Kerry Hannon, Chris Farrell, Bob Rosenblatt, Linda Stern, John Wasik and Christine Benz. I also admire the work of Michael Kitces, who is one of the smartest retirement planning experts.