Making ends meet
Managing your retirement money is getting harder and may require a return to work
The 90 workers who put in four-hour shifts packaging cosmetics at suburban Cleveland's Bonne Bell often mention two things about the job: It gets them out of the house, and it generates cash to help balance the budget. All the workers, who prepare blister packs of flavored lip gloss and other youthful items, are retired--mostly women in their 60s through 80s.
The pay, through the firm's special employment program for seniors, is just $7.50 to $8.50 an hour for a 20-hour week. But 68-year-old Shirley Lyons, who retired several years ago after 40 years as a nurse, says the money has helped pay for a new driveway. "I would have had to wait longer and save more without these paychecks," she says.
With yields on savings at historic lows, stocks pummeled, pensions often small or nonexistent, and Social Security benefits that go only so far, many retired people are hearing unpleasant advice from financial planners. Cut spending or return to work, at least part time. "There is no silver bullet for increasing investment income," counsels Steve Peterson of Sand Hill Advisors in Palo Alto, Calif.
Retirees might boost yields by buying shares of real-estate investment trusts with beefy dividends, parking cash in longer-term bonds or certificates of deposit, or even dipping into junk bonds, now yielding about 10 percent. But these maneuvers all involve a degree of risk that older investors may not want to shoulder--from a renewed bear market to an upward turn in interest rates after you lock in today's yield.
Prudent moves are likely to result at most in a marginal lift to income, not a substantial jump, cautions Martha Pomerantz of Minneapolis wealth manager Lowry Hill. "People's spending habits are often way too high considering the amount of assets they have," she says. Even Lowry Hill's clients--with a minimum investment of $10 million--are sometimes advised to scale back their lifestyles in retirement.
Attitude adjustment. The counsel that many advisers today give to retired clients is often heavy on psychology. Standard investment advice still holds: Diversify holdings, own some stock for growth, and ration withdrawals of principal and income to preserve a nest egg. And retirees fearful of outliving their income can, as always, buy a life insurance company annuity to guarantee cash flow as long as they live. But adjusting attitudes is now often seen as equal in importance to financial tuning.
Returning to work, for example, may require distancing your image of self-worth from your job. "People may have to take a service or other job--and accept a reduced level of pay--that they once thought was beneath them," cautions Clark Grinde, a planner at Iowa State University's Financial Counseling Clinic. A bonus incentive: Those who reach full retirement age for Social Security benefits--65 or older, depending on their year of birth--do not lose any benefits because they return to work, a reform that was enacted in 2000.
Being too generous to family members is a common fault, says Atlanta adviser Kay Shirley. She is currently fretting over a 65-year-old couple with a modest income who are slowly draining their retirement assets to support a 29-year-old son who moved back in. "Are they getting rent from him, money for food, help with expenses? No," she says. "The biggest hole in many budgets is supporting children and grandchildren and giving them bigger gifts and more financial aid than you can afford."
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