Write Your Own Retirement Paycheck

Since being invited to blog on-site from the AARP Orlando@50+ event, I have looked forward to today’s session on “Writing Your Own Retirement Paycheck.” It was worth the wait.

The presenter was Bryan Olson, a senior vice-president at Schwab’s Center for Financial Research. His talk was jam-packed with high-value statistics and guidance, all delivered with an engaging and confident style. Actually, he had too much content and too little time to present it. But he did a yeoman’s job in the time allotted and even spoke to me after (more about that below).

A lot of the material will be familiar to some of you but it can’t hurt to have it refreshed. So here are some points that I found important.

Only 40% of retirees have actually calculated how much money they will need to retire. This, according to Olson (and everyone else), is an essential exercise no matter how painful the answer might be to your psyche. To start, the two key questions are:

  • How much money will I spend each year when I retire?
  • How long will I need to spend it?

The longevity part cannot be underestimated. For couples now at age 65, there is a 60% chance that one of you will live to age 95.

Yes, you read that correctly: 95 years old. That’s a lot of life to plan for.

For Social Security, Schwab’s “rule of thumb” recommendation is to wait to claim it and even consider using other retirement assets in the early years to allow that to happen. Indeed, they suggest that if you want to retire at age 62 but cannot make ends meet without Social Security, you should delay your retirement if possible.

On the other hand, don’t count on working longer as a substitute for proper planning: 41% of folks now in retirement were forced there by layoff or health.

For a typical Social Security beneficiary, the break-even point for claiming benefits at age 62 vs. 66 is age 77.  For age 62 vs. age 70, the break-even point is age 79.5.

Now you know why that “living to age 95″ statistic is so significant.

For the de-cumulation phase, Schwab also uses the 4% withdrawal rule over 30 years. It bases many of its calculations on a portfolio with a 60%/40% equity ratio with 8% assumed returns.

I say good luck with 8% returns as an assumption.

Olson had a simple warning for investment yield chasers: Yield is the market’s way of pricing risk.

Turning to inflation, Olson observed that the Fed’s current monetary policy is to push money into the system to prevent deflation. The problem right now is that the money-multiplier effect on which this strategy is based is not operating as expected. Instead, the money system is stagnant.

However, Olson warned that things could reverse course in a hurry, with inflation spikes to follow. Thus, he characterized inflation as a “sleeping giant.”

To counter-act inflation, Olson rejected gold for two reasons. First, gold prices show a poor correlation to inflation. Second, right now more  gold is being bought by speculators than by gold users.

Olson discussed TIPS as an option which pleased me. He noted that the current price of 10-year TIPS indicates a market expectation for a 1.8% inflation rate. He added that if you thought that inflation would exceed that, buy TIPS.

Amen to that.

After the session, I approached Olson and asked him if he was familiar with Prof.  Zvi Bodie’s research and views. I was pleased to find that Olson recognized Bodie’s name immediately. I asked Olson to comment on Bodie’s opinion that the equity markets were not suitable for retirement assets that would be needed to support your basic cost of living.

To my pleasant surprise, Olson said that he agreed that using I Bonds and TIPS (with Social Security) to exclusively fund your essential living expenses in retirement was reasonable approach to the problem. Equities and other investments could then be used to pay for the “wants” in your life, now that your “needs” are taken care of.

Finally, I asked Olson if the Bodie strategy was included in the planning protocols used by Schwab advisors.  It was, he said. Good for Schwab.

Thank you Dr. Bodie and now Bryan Olson. Now you know why and how my plan for guaranteed retirement income was born.


  1. says

    I think this presentation was right on. I’m 53, have a daughter heading to college in 3 years, no full-time job, and a 401K that is now a 201K. I know that my social security and the assets I currently have will not allow me to live the retirement life I desire. Scary stuff! I took matters into my own hands and am working a business that will give me long term residual income, additional to my social security and 401K savings. Fingers are crossed that this is a good strategy and Plan B.

  2. sherry says

    Thanks for the idea of secured retirement living -> I Bond and TIPS for “needs” and equity for “wants”.

    I have a question about I Bond. I thought one can only buy 20k I-bond per year and it’s not available through 401k or IRA. How can you move your 401k/IRA to I bond when you retire?

    • Mark says

      Sherry: There is no way to own I-Bonds inside an IRA or 401k. Actually, there is no need to do that because interest paid on I-Bonds is tax deferred so it is fine to own them outside of a retirement account.

  3. Roberta Crawford says

    I was recently moved from social security disability to retirement status. Can I work and still collect my retirement benefit ? If so how much can I make without jeopardizing my retirement income? And is my retirement income taxable?

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