Does Your Income Fit in With the Retirement Lifestyle You Want?

Jane Bryant Quinn
Jane Bryant Quinn December 8, 2016

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Is there a way to be certain that you will always have enough money to follow the retirement lifestyle of your choice? Personal finance commentator Jane Bryant Quinn, author of How to Make Your Money Last: The Indispensable Retirement Guide, explains why there is no magic formula for retirement planning and how one of the keys to making your money last is to “right-size” your expectations.

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Follow Jane Bryant Quinn at: http://janebryantquinn.com and on Twitter @JaneBryantQuinn



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Interview with Jane Bryant Quinn

Douglas Goldstein, CFP®, interviews Jane Bryant Quinn, who’s an author and a nationally known personal finance commentator. She shares several tips on retirement, talks about long-term investment, and answers the question; can people rely on Social Security?

Douglas Goldstein: I'm very excited to be talking with Jane Bryant Quinn, who is a nationally known commentator on personal finance. She also writes the column that my parents read in the AARP Monthly Bulletin. She has a new book out, How to Make Your Money Last: The Indispensable Retirement Guide. Isn't that right?

Jane Bryant Quinn: That is correct. The whole boomer generation is coming up against those planning for retirement and those who’ve recently retired. You have a fixed amount of money, or a set amount of savings or investments, and you don't know how long you're going to live; probably longer than you thought. How do you make the amount of money that you have last over an unknown lifetime? It's a very big question for people.

Douglas Goldstein: It is. Let's talk about the people that are close to retirement and are thinking that they have blown it financially. Is there anything for these people to do at this point?

Advice For People Who Think They’ve Blown It Financially

Jane Bryant Quinn: There's no magic. If you have not planned, you've got two options. One is to work longer, assuming that you can. About half the people who think they can work longer find out that they actually can't because of illness, or spouse illness, or something else.

The only other thing is to start downsizing and save more money as soon as you possibly can. There's nothing magic about this. You have what you have on the day your paycheck stops, and you've got to figure out how to fit your lifestyle to the income that you have coming in.

Douglas Goldstein: A lot of times, people simply believe that there's nothing they can do to downsize. Sometimes it’s a spending issue. Do you find that people are living down to their bare bones, or is there space for cutting?

Jane Bryant Quinn: There is almost always space for cutting. Sometimes it’s just minor stuff that you’ll find if you go through your budget, and you start looking at where you're spending your money and what you're doing. Maybe it’s just a little clip here and a little clip there. Sometimes you’ll say you should sell your house and rent, or you should sell your house and move into a condo. There are big things, and there are little things. Nothing is more important than what I call right-sizing your life, and that is looking at the income you expect in retirement and fitting your life to that income that is coming in.

You don't say, "Oh how much money am I going to need?" You say, "How much money am I going to have, and how do I fit my life to the amount of money that I'm going to have?" The sooner you adopt that mindset, the happier you're going to be. It's not nice to feel anxious about money and retirement.

Douglas Goldstein: What about the people who feel that Social Security is the panacea that they need? Is that something that they can depend on?

Can One Depend on Social Security?

Jane Bryant Quinn: People can depend on Social Security. That doesn't mean that their Social Security is big enough to support their lifestyle. Many people live entirely on Social Security; but for most of us it's only one source of income in retirement. I do not believe they will ever privatize Social Security or will ever take it away because the country would rise up in revolt.

I think that it's possible that people with the very highest incomes might find that the way they figure how much Social Security they’re supposed to get is changed. Maybe people will then get a little less Social Security, but for higher-income people that will not be an issue. The Social Security will be there, but people should stop going round saying Social Security is going broke. That's just wrong.

Douglas Goldstein: Sometimes people save for decades, only to realize that the bank is paying them 0% - such a low-interest rate. They then end up taking unrealistic risks. Is there a solution for people who are retired or nearing retirement who need some more safety?

What Options Are There For Retired People Who Need More Safety?

Jane Bryant Quinn: You are going to live probably on average until your mid-'80s, which means half of people will live above that age and half below. The 90-plus population has tripled in the past two decades, and you are going to live longer than you think. At 60, you are going to live another 25 or 30 years. Why put your money in the bank? You are a long-term investor when you are 60. You are a long-term investor even when you are 70. So it shouldn’t be an individual stock as you never know what an individual stock or mutual fund can do. But if you buy an index fund that follows the market as a whole, these index funds are very simple investments.

History shows that the market always comes back after a decline. It goes higher, and the longest period in our post-World War II history that it took to get your money back after a decline was a little over five years; that was 2000, 2006. Otherwise, as long as you have a five-year holding period, why would you, at 60 or 65, say “I now need ’safe investments’” and put yourself into the bank? You should still be 50%, 60%, or even 65% into the stock-owning mutual funds that follow the market as a whole.

You have to think of how long you're going to live; you're a long-term investor. You stop being a long-term investor when you're 75 or 80, and that takes a while.

Douglas Goldstein: Some people believe that people who are retired should still own a significant amount of their portfolio in stocks. The issue, though, is that it's bad enough for young people who get swayed to buy high and sell low because of all the media garbage that they see. It’s even worse when someone who’s retired sees the market take a hit. Such people will have a very hard time remembering that they're long-term investors. How can people internalize that so they actually don't mess themselves up?

Jane Bryant Quinn: First, there is the question of buying individual stocks, because people have bought individual stocks and seen them come down and never go back or go to zero. You might buy individual stocks and have some winners that are in your heart forever. At the same time, you've had a lot of losers, so you feel you're not necessarily successful in the stock market. I don't buy individual stocks because you cannot tell with individual stocks.

If you compare an index fund and the stock market, you’ll realize that the stock market as a whole has always gone up. The longest time there's been a decline since World War II has been five years. If you invest in the stock market as a whole you can be confident that you are going to get market returns. Part of it should be in stocks and part of it in U.S. Treasury bonds that always go up when the stock market goes down. That's really all you need.

Douglas Goldstein: In 2008, when the market crashed, I had clients calling me all day and people who were in index funds. People who had well-diversified portfolios lost 10%, 20%, 30%, 40%, 50%, and these were major indexes. Then we advise them to be long-term investors while the news is showing them that the FDIC is not even going to be able to bail out the banks.

Is Being a Long-Term Investor Really Feasible?

Jane Bryant Quinn: Anyone who was truly well-diversified should not have lost 50% in 2008. Stocks went down, but Treasury bonds went up, so you can't be 100% in stocks or in index funds. That's not a well-diversified portfolio. Sometimes people just look at the stock part of their portfolio, and they forget that they have a bond part that helps support their stocks. Presumably, they are in high-quality stocks or high-quality bonds because those will go up when the stock market goes down.

The other thing that I hope people learned from 2008 is that the market hit bottom in 2009 and it is now more than 50% above what it was then. It took five years to get your money back, and it's been growing ever since. You were back as long as you hung in. If you sold, you weren't back, and you didn't get your money back.

Douglas Goldstein: One of the things that you mentioned, which I think is so important, is that diversification doesn't mean owning an S&P 500 fund and a Nasdaq fund. It means owning different asset classes. Do you feel that people should be throwing into the mix other asset classes like REITs (those are Real Estate Investment Trusts) or metals, or emerging markets?

Jane Bryant Quinn: I think that it is sophisticated to be simple, and it is very hard to be simple. In my book, and this is one of the things that I laid out with the most care that I could, you can have a successful financial program that will have your money last for life if you make the proper withdrawals. I explain that in the book - how much you can withdraw every year. But all you need to make it work is one total market stock fund that would be a U.S. stock fund, all large and small stocks, one total market international fund, and one U.S. Treasury bond fund.

Those are three funds, so you get the diversity, global diversification in your stocks following the indexes. Treasury funds go up in price when markets go down. So there is your cushion.

Douglas Goldstein: They go the other way as well then, you're saying. You would say that they would go south, the Treasury bond funds would go down if the stock market goes up? It's a corollary to what you're saying.

Jane Bryant Quinn: The Treasury bond funds go down when the interest rates go up. They don't necessarily go down if the stock market goes up. It depends on what's happening with interest rates. Very often, Treasuries and stocks rise at the same time; they're different cycles. What I'm trying to say here is that if you own a high-yield bond fund for your diversification, if stocks go down, a high-yield bond fund will go down. If you were on a Treasury when stocks go down, Treasury bonds almost always go up. That's when you look at your total portfolio and decide that you’re not going to withdraw money from your stock fund, but rather on your Treasury bond fund because that's up in price. That's what gives you the flexibility.

When you’re retired, you need to make regular withdrawals from your savings; you practically live on your savings. But by having a total of U.S. stock and international stock funds, you can make regular withdrawals from those when they go up. When stocks fall, Treasury bond funds will go up and you can make regular withdrawals from them without having to take losses. You need to look at it when you're retiring and withdrawing money every month to pay your bills. You need to look at your diversification in a different way. When you own REITs, you’re making an extra bet on real estate and maybe you’ll want to do that, but I don't see a reason for it.

Douglas Goldstein: A lot of times, people think of a bond as a loan that they make to a government or a company for a specific period of time and then they get their money back. The bond funds don't work that way. In a rising interest rate environment, when rates move up, bond prices move down. Today, if someone's thinking of setting up a portfolio, does it make sense to use bond funds? Isn't the only possible direction for a fund like this to go down?

Should Your Portfolio Include Bond Funds?

Jane Bryant Quinn: I think that bond fund prices will probably go down because interest rates are likely to rise. Over time, the manager of your bond fund is buying the new bonds that are paying higher interest rates. You will be getting more income from your bond fund if you are re-investing in that bond fund. You will be buying more shares in it.

Having a bond fund makes you liquid. You can buy individual bonds and hold onto them until maturity. If you try to sell them before maturity, you're going to get a hit on the price. If you have less than $100,000 or $200,000- worth of municipals and you want to sell something in advance, you're going to take 10% or more off the price you get. Individual bonds are very hard to sell before maturity.

If you’re investing in bond funds, you need to stay very short at a time when interest rates are going up, so you don't lose as much as you do if you're in intermediate term bonds. I'm worried about liquidity for people who are in retirement and need to withdraw money. If you ever have to sell an individual bond, your liquidity is not very good.

Douglas Goldstein: That's a great point. I think what you're referring to is that maturities of the bonds inside the fund are relatively short, which usually makes these funds less volatile. However, you still benefit from liquidity. Jane, how can people learn more about you and follow you?

Jane Bryant: I am at http://janebryantquinn.com on the web. My book is titled How to Make Your Money Last. One thing that we haven't talked about is to how to set up regular withdrawals from your savings so that they will last until you are 90 or 100. My mother is 101 and hasn't run out of money yet.

Douglas Goldstein: That's all in the book right?

Jane Bryant: Yes.

Douglas Goldstein: Thanks so much for taking your time.



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