A gentleman in his early 80s came to speak with me. There are valuable lessons in his story for everyone who has a pension, who expects to have a pension or who will never have a pension.
After working for many years with a mid-sized company, he retired about 15 years ago with a “guaranteed” pension. The problem? Over the years that “guaranteed” pension had been cut. Not just once but a couple of times.
He and his wife were getting about 30% less than they expected, which was a real problem for them financially.
At first, they used their savings to make up the difference. That worked for a few years, until their savings were essentially depleted.
Even though this couple had never lived extravagantly, they cut their expenses again and again – finally to the bone – but still could not make ends meet.
Friends suggested they borrow against their home equity or get a reverse mortgage. “At this point, that would just be a Band-Aid,” the man said. Their home was their last significant asset and they didn’t want it go the way their savings had – bill by bill, month by month – and then they’d have nothing.
I was glad to be able to point out that since they still had their mortgage-free house, the pension (reduced as it was) and a small amount of Social Security coming in every month, they had assets and options.
After the past couple of years spent “desperately trying to deal with their finances” and feeling like they had “just lived too long,” the idea of talking to a local financial planner who could help them come up with a new income plan for the rest of their lives gave this man hope.
What did he wish he had done differently?
Three things:
1) He wished he’d gotten a job, even part-time, after he retired and banked his pension for 10 years or more while still earning a living. In fact, he and his wife were considering getting part-time jobs. “Bringing in even a couple of hundred a week would give us breathing room,” he said. That’s a good idea.
2) He also wished he’d never trusted that pension guarantee. “I thought it’d be all we needed,” he said. “Now I would try to build up multiple income buckets for retirement. One or two are not enough!”
3) If he had it to do over, he said he’d have spent years planning for “How much will we need if we both live to be 100?” Because basically that’s what he and his wife are looking at now.
A pension is not a guarantee but it’s a good thing to have. Social Security is not a guarantee, although so far it has been dependable. Fully-funded retirement accounts like IRAs invested for growth are not a guarantee, but they are tax-deferred savings that are sometimes – in the case of 401(k) plans – accompanied by a pot-sweetening “free money” company match. Personal savings growing over time and a paid-off home are definitely worth working towards.
Because no one wants to be worried sick about money at 80 or 90. No one was ever sorry to have “saved too much” for retirement.
Nick Maffeo is the President & CEO of Canton Co-operative Bank in Canton. “Smart About Money” is a regular column he writes for the Canton Citizen. Have a financial question you’d like to ask? Email to info@cantoncoopbank.com.