Can I retire on less? This question is no doubt more frequently asked by baby boomers these days. There are at least three reasons why the “retire on less” issue has become so prominent.
Thus, I was interested in reading the answer to a recent question submitted by a retiree to Money Magazine. In a column titled “Making $300,000 Last a Lifetime“, the expert responded to these facts:
My mother-in-law, who’s in her early 60s, was recently widowed. She now has Social Security and approximately $300,000 from a life insurance policy to live on. She’s not comfortable taking on much, if any, risk but she does need to generate income from the life insurance proceeds. Any recommendations for how she should invest this money?
I will let you read the full answer for yourself. The advice is not remarkable, in that there is not much new or positive to tell this retiree. I have some comments of my own, however.
1. It is sad that this woman’s retirement nest egg had to be funded from insurance proceeds as a result of the death of a spouse.
2. Many folks planning for retirement and counting on Social Security overlook the retirement income problem caused by the death of a spouse. If both spouses are receiving Social Security, the death of one spouse will inevitably lead to a reduction of total benefits received. Even though the surviving spouse can collect a survivor’s benefit – as much as 100% of the deceased spouse’s benefit – she or he cannot collect both benefits. A 50% reduction in total Social Security income is not uncommon. Losing a spouse will not always cause a 50% reduction in spending.
3. Wanting to invest conservatively is standard among retirees but not always consistent with their income goals or needs.
4. Once again I am amazed at people who ask questions like this without considering the obvious factor: How much retirement income does she actually need to supplement the Social Security? I was pleased to see that the expert went directly to this point in the response.
5. The expert response probably should have provided more information on inflation protection. If this woman was looking at conservative “investments” such as CDs, then I-Bonds and TIPS should also be on the list.
So, can you retire on less? Sure you can but only if you really plan in advance.