About Schmidt

What Interviewing Keith Weber Taught Me About Retirement

in Interview

Ever seen that movie About Schmidt? I’m not sure if I love the movie or hate it. It’s a good movie, but to be honest, it leaves me with a really bad taste in my mouth. I don’t want to end up like Schmidt –regretful, ignored by my family, and ultimately bored during my retirement years. It got me thinking about the future. I don’t want to overplan (plans never work out perfectly), but then again, I want to have some sort of roadmap for retirement. Life goes by fast, and as weird as it is to say, I’ll be at retirement’s door before I know it.

I thought I would start by reaching out to my friend and author of Rethinking Retirement – How to Create the Life You Want Without Waiting to Retire, Keith Weber. During my interview with Keith, the most important thing I took away was that most people start planning for retirement way too late. Also, I learned a lot about retirement that I didn’t know before. I think this is stuff everybody should have locked in the vault, so check out our Q&A session below.

1. What’s the #1 mistake you see people making when planning for retirement?

The number one mistake most people make is not starting soon enough.  Many people just have no idea the amount of money it will really take to support their lifestyle or how long it will take to accumulate those amounts.  When they finally do start to plan, they are shocked by the numbers and often feel hopeless about ever being able to retire.  Many people then begin to rely on social security, but they underestimate the lifestyle impact of reducing their expenses to a sustainable level.  A lot of the challenges people face could have been avoided if they had just started sooner.

2. Aside from 401(k)’s, what else should people consider when creating a retirement plan?

It’s important to distinguish between a type of account – a 401(k) or Roth IRA for example – and the investment that can go into that account – a stock, bond, mutual fund or other type of investment.  Think of it this way:  The account (the 401k or Roth IRA) is like a cup, and the investment (the stock, bond or mutual fund) is what you put in that cup.   Just like you can put different kinds of beverages into one cup, you can put different kinds of investments into one account.

People tend to talk a lot about 401(k)’s and Roth  IRA’s for two reasons – the tax benefits and the fact that for many people these accounts hold the majority of their investment assets.  Since a 401(k) is funded with payroll contributions deducted from a person’s salary, if the person stays with that employer for a long time they can accumulate a pretty nice little nest egg inside that account.  The employee’s investment options inside the 401(k) are limited to a generally short but adequate menu of maybe 5 – 20 different mutual funds.  Even with the limited choices, many employees still need help deciding how to allocate their money among the different options. With the exception of the employer’s stock (if the employer is a publicly traded company) individual stocks are not normally available inside an employer’s 401(k).

A Roth IRA is popular because it carries tax benefits that are unique.  Whereas distributions intended for consumption (i.e. – not rolled over) from a 401(k) at retirement are typically taxable as ordinary income, qualified Roth IRA distributions are tax free.  That means that if a person invests well inside a Roth IRA and the account grows substantially, all those earnings may come out tax free.  Since the Roth IRA is a personal, not employer-sponsored account, the individual can choose to invest those monies any way they want – stocks, bonds, mutual funds, ETF’s or almost anything else.

3. Should people pay off debt before starting to invest for retirement?

That often depends on the interest rate you are paying on your debt versus that which you are able to earn on your investments.  If you have high-interest debt, the first thing you would want to do would be to see if you could refinance that debt to a lower rate.  If so, then there are a number of other factors to consider, including:

  • Do you have an emergency fund?  If not, then you may want to consider allocating some of your debt reduction budget to creating an emergency savings account.
  • Does your employer match your 401(k) contributions?  If so, that’s like getting free money so you should definitely contribute at least up to the matching amount.
  • Is your cash flow balanced?  There’s no point in saving more on the one hand if you continue to accumulate debt on the other.

4. How has preparing for retirement changed since 2008?

The Great Recession of 2008 hasn’t really changed retirement planning, it simply served to illuminate and accelerate a problem that been quietly looming for years – that in general, the baby boomers have not adequately saved for their retirement. In fact, as early as 2001, William Novelli, then CEO of AARP, suggested that earned income would become the “fourth pillar” of retirement security.  (Social Security, an employer’s pension and our own personal savings being the first three traditional pillars.)

What has changed is how we view retirement.  In the late 90’s and early 2000’s retirement became to be viewed as a second chance, a re-birth, and a time to finally do what you had always wanted to do.  For many that meant they would continue to work, but in a field that was different and more personally fulfilling than their primary career.  In 2004, AARP found that 80% of baby boomers planned to work in some capacity in retirement, with 55% of them going into a completely different field or industry. Since 2008, the percentage of people who plan on working in retirement has remained relatively steady, but the percentage who say they will be doing so because they need to, and not because they want to, has increased dramatically.

5. What is “pretirement”?

Pretirement is a newly recognized life stage that fits between career and retirement – a new “third quarter” to our lives so to speak, that allows us to fulfill that need to find meaning in our lives while still earning an income.

Psychographically, the baby boomers – especially second half boomers known as “Generation Jones” – are an unfulfilled generation.  There is a strong desire to continue to contribute, to do more and still feel as if they matter and are important. But the financial challenges they now face mean that for many, full retirement is still many years away.    The concept of pretirement offers them a way to pursue their passions while still earning an income.

6. What do you tell people over 65 who can’t retire?

Yes, there are a lot of people who do not have the assets to support their desired lifestyle when they reach age 65 – long considered the normal retirement age.  At that point they basically have two options – keep working to maintain your lifestyle, or dramatically decrease your lifestyle and retire now.

Keith Weber is a speaker, consultant and author of Rethinking Retirement: How to Create the Life You Want Without Waiting to Retire. (www.Rethinking-Retirement.com) Keith can be reached at info@kjweber.com.

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