Low-Cost Retirement
Your later years can be golden without being gold-plated. Most retirees are frugal by necessity-but no less happy
That's what Marlene Adams did. A decade ago, the Torrance, Calif., resident was all set for a traditional retirement when the utility company where she worked offered her a modest buyout package. Adams was then 55 and thinking of funding her retirement with private savings first, followed by early Social Security benefits.
But after talking to a financial planner, she took a temp job instead, and it eventually turned into a full-time position working in customer service for an air freight company. By doing so, Adams was able to hold off on taking Social Security until her full retirement age of 65 (that age has been pushed back to 67 for those born in 1960 and later). And that increased her Social Security payments from around $1,200 a month to $1,650. Now, after paying her rent, she still has about $500 left over each month—and that's not counting her personal savings. "I feel like I'm blessed," says Adams, who is now close to retiring for good.
To be sure, not everyone can find full-time work later in life as Adams did. In fact, many workers mistakenly assume they'll be able to keep working to cover any financial gaps. A recent EBRI survey found that most workers plan to retire at 65 or older. But in reality, nearly 2 in 3 Americans wind up leaving the workforce before they reach 65, often because of unexpected health problems or layoffs.
Spending money. But even if you can't work full time, small jobs can help. Just ask Roy Walls, another Southern Californian. Walls, a former equipment manager for an aerospace company, retired in 1999 at 62 with an early-retirement package. Between his pension and Social Security, he and his wife, Loretta, lead a relatively comfortable retirement. Still, Walls decided to take a part-time job as a crossing guard for a nearby school district. During the school year, Walls helps kids cross the streets near his home for about an hour and 15 minutes each morning and 45 minutes in the afternoon.
The job pays less than $5,000 a year. But that money helps cover the cost of dinners out and movies on the weekend, Walls says. And it allowed him to recently help a son out financially—without having to dip into his savings.
For those without pensions to fall back on, earning even a few thousand dollars a year can be the difference between outliving your money and your money outliving you. Academic research shows that you probably can't afford to withdraw more than 4 or 5 percent of your nest egg each year. That means if you saved $250,000, you could withdraw no more than $12,500 annually.
But what if you needed $17,500 a year—in addition to Social Security and other benefits—to maintain your lifestyle? Well, says Schwab's Spiegelman, instead of tapping 7 percent of your account, which might deplete it too quickly, why not get a part-time job paying $5,000? That way, you can keep your withdrawal rate at the safe 5 percent level and still meet your income needs.
It's one of the ironies of retirement, says Spiegelman. Workers are taught that to retire well, they need to save huge amounts of money. "Yet small amounts of money can still make all the difference," he says. And that's what a new generation of retirees is finding out.
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