Prioritize Basic Needs
Dr. Steven Sass, Program Director of the newly established Center for Financial Literacy at Boston College’s Center for Retirement Research, spoke at our December meeting about the importance of a basic needs assessment in planning for retirement.
Sass, the co-author of Social Security Fix-it book: a citizen’s guide and the new Social Security Claiming Guide advised that the best way to achieve higher retirement income is to work longer and retire later. Being patient and waiting till the age of 70 to collect Social Security will result in a monthly benefit of 75% more than the amount due at 62.
Sass estimates that in order to maintain the same standard of living that was enjoyed during the working years, about 75% of pre-retirement income is required. We need less because: 1) we pay less tax (payroll and income), 2) have no need to save for retirement, 3) the mortgage is or soon will be paid off, and 4) children are on their own (or will be soon).
Sass presented a 5 step plan for retirement. The first step is assessing your basic needs (housing, transporation, income taxes, medical care, food and clothing). Sass estimated that the target figure for meeting one’s basic needs is equivalent to 60% of pre-retirement earnings. Social Security will cover 40%-45%. The shortfall can be covered through 3 possible sources: savings, accessing home equity, or continuing to work.
Inflation proof (indexed) annuities, issued by the U.S. Government or private insurers were suggested as an option for savings income. Downsizing or reverse mortgages are ways to access home equity.
Sass concluded with the advice that in planning for retirement, we should think in utility terms rather than in money terms. Focus on what is most important to your lifestyle, and whether the pleasure it provides is worth the cost of maintenance.
The complete 5 step plan will be outlined in Stay Afloat in Retirement, Sass’s latest publication currently in the draft stage. Check the Center for Retirement Research website for completion and release information.
Posted in Annuities, Retirement Planning, Social Security, Work and Retirement 
