{"id":5356,"date":"2017-03-07T12:48:00","date_gmt":"2017-03-07T12:48:00","guid":{"rendered":"https:\/\/www.annuityfyi.com\/?page_id=5356"},"modified":"2022-12-16T16:02:28","modified_gmt":"2022-12-16T16:02:28","slug":"retirees-often-enough-money-no-plan","status":"publish","type":"page","link":"https:\/\/www.annuityfyi.com\/case-study\/retirees-often-enough-money-no-plan\/","title":{"rendered":"Case Study: Retirees Often Have Enough Money But No Plan"},"content":{"rendered":"
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\u2026she deposits her entire Social Security check in the bank. She doesn\u2019t spend more because she doesn\u2019t want to risk exhausting her savings. And she doesn\u2019t have a financial plan because she always finds a reason to put it off. Currently, she is uninterested in investing because she thinks the stock market is too high and that bond prices will continue to decline as interest rates continue to climb.<\/h3>\n\n\n\n

Mary Lovero, a 70-year-old widowed Ohioan, has a particular type of retirement problem that always escapes her, and, sadly, millions of baby boomers happen to share it. She has sizable liquid assets but no financial plan whatsoever, and so she lives below her means. She is not a skinflint but spends considerably less than she could \u2014 an unfortunate proposition given that a healthy retiree her age \u2014 and with her means \u2013should be living it up.<\/p>\n\n\n\n

Lovero used to travel regularly, sometimes to Europe, and no longer does. Even simple weekend getaways, a staple of much of her adulthood, are few and far between. Why? Lovero doesn\u2019t want to risk running out of money, the biggest fear among most retirees.<\/p>\n\n\n\n

In her case, however, the concern is highly exaggerated. Lovero, whose name has been changed to protect her privacy, has $1 million in savings, and receives a healthy Social Security payment of $2,500 every month. She also has reasonably priced long-term care insurance, which she bought two decades ago, and a Medicare supplement plan, which means she doesn\u2019t have to worry about outsized medical expenses.<\/p>\n\n\n\n

But Lovero withdraws a grand total of only $48,000 a year in savings. And much of that is replenished annually because she deposits her entire Social Security check in the bank. She doesn\u2019t spend more because she doesn\u2019t want to risk exhausting her savings. And she doesn\u2019t have a financial plan because she always finds a reason to put it off. Currently, she is uninterested in investing because she thinks the stock market is too high and that bond prices will continue to decline as interest rates continue to climb.<\/p>\n\n\n\n

The Mary Loveros of the world are all over the place, says Scott Sadar, executive vice president of Somerset Wealth Strategies in Portland, Ore. He says half of the clients who have come to him fit the same pattern as Lovero before finally breaking down and seeking financial planning help. \u201cIn many ways, the U.S. is a very educated country,\u201d Sadar says, \u201cbut in other ways it is not.<\/p>\n\n\n\n

\u201cKnowledge in many ways is power,\u201d he adds.\u201dIf you don\u2019t have it, you\u2019re at a major disadvantage, particularly when it comes to finances.\u201d<\/p>\n\n\n\n

To be sure, people like Lovero could be in much worse shape \u2014 they could, for example,lack the money necessary to buy basic necessities. The fact that they don\u2019t have this problem, however, doesn\u2019t mean they are unscathed. They have anxiety about money, Sadar says, and it\u2019s adversely impacting their lives. And they live below their means \u2014 sometimes far below \u2014 a mistake in the early years of retirement because many will not be well enough to enjoy life as they approach their mid-70s and beyond.<\/p>\n\n\n\n

The dearth of financial planning in America isn\u2019t limited to the retirement set. A majority of Americans just don\u2019t want to be bothered thinking about their financial future. According to a story this month in Bloomberg News, two-thirds of Americans who work at a company with a 401(k) plan don\u2019t participate, even though employers commonly match contributions 50 cents on the dollar up to a certain level. This is the case even though a growing number of employers require employees to opt out of participation in a 401(k) plan \u2014 seemingly less of a burden than requiring them to opt in.<\/p>\n\n\n\n

In their golden years, many Americans continue to find excuses not to intelligently plan their finances. Sadar says many clients today decline to invest in an income annuity or in other annuities with lifetime income riders because they don\u2019t want to lock in interest rates at current levels. That would be foolish, they think, because rates will be higher down the road.<\/p>\n\n\n\n

This may well be the case, Sadar says, but say, for example, they delay buying an income annuity for three more years. What happens to that uninvested money in the interim?<\/p>\n\n\n\n

Typically, it sits in a bank savings account or money market account and earns virtually nothing, he says. A 65-year-old single man who invests $100,000 today in a fixed indexed annuity with a lifetime income rider and takes withdrawals immediately would receive $5,500 a year. If he waited two more years, assuming the same interest rates, he would earn $1,000 more annually because he is two years older. In the meantime, however, two years have passed and he forfeited $11,000 in income, most of which would not be recouped in traditional savings vehicles.<\/p>\n\n\n\n

Behind the retiree mindset to sidestep sophisticated financial planning is the fact that most people mistakenly look at retirement as the finish line \u2014 the point after which financial planning and investing become moot. That is flat-out wrong, even for footloose singles without children, because they have only one income to save and proportionately higher expenses than couples.<\/p>\n\n\n\n

Fewer baby boomer retirees have pensions than did their parents. Meanwhile, according to the Society of Actuaries, expected longevity for men and women at age 65 has increased more than 10% since 2000. The average 65-year-old man today will live to 87 and the average 65-year-old woman to 89.<\/p>\n\n\n\n

For those who can be persuaded to work with a financial planner to establish an intelligent retirement financial plan, here is a quick synopsis of the kinds of tips they are likely to hear:<\/p>\n\n\n\n