Expert Offers Tips on Financing Your Encore

For those of us trying to plan financially for the life stage formerly known as retirement, Mark Miller’s new book, The Hard Times Guide to Retirement Security, is required reading. My eyes tend to glaze over when I read about concepts like 401(k)s or annuities, but Miller has a gift for sifting through the available information and distilling it into clear, easy-to-understand advice. Here are some of his insights during a recent conversation.

Q: People seem genuinely afraid that they will outlive their money. Do you think that’s the next big story you’ll be covering, or are you more optimistic?

A: It’s already the big story. We’ve seen the decline of traditional defined benefit pensions in the private sector at the same time that Americans are living longer.Working longer — not forever — also will be part of the solution. Every year that you work means higher annual Social Security when you do file, more contributions to a retirement account and fewer years of drawing down savings. Dealing with longevity risk also means focusing on sources of guaranteed income for life. This starts with maximizing our Social Security benefits. Almost half of Americans file at 62. For most of us, that’s a bad decision because annual benefits are much higher for those who wait until the normal retirement age, which is 66 for older boomers.

I can’t overemphasize the importance of Social Security. It’s our most important retirement benefit — about 40 percent of income on average. You may have heard that Social Security is headed toward insolvency, or that it won’t be there for future generations, but that’s not the case. Social Security is under attack from deficit hawks who just don’t like social insurance and want to cut benefits as part of the solution to our federal debt problems.

In fact, Social Security has an enormous surplus. The program does face some long-range solvency problems, but solutions exist to these problems. We need to protect and enhance Social Security, not slash the program.

I also see an important role for do-it-yourself pension products, such as income annuities.

Q: I agree that working longer solves a lot of this problem. But you make a good point in your book that working longer is a boon to those whose work is gratifying and a sentence for those whose work is more physically taxing. Can you elaborate?

A: When we talk about the long-term solvency of Social Security, one idea being bounced around is to boost the retirement age gradually by several years. This might make sense for people working in knowledge-intensive jobs, but it is not an appropriate thing to impose on those who are engaged in physical labor. If we do boost the age, we will need to address this, perhaps by putting a minimum floor on benefits or a carve-out for people who can’t continue to work well into their 60s.

Q: I was delighted to see a whole chapter on encore careers. What kinds of reactions do you get when you talk about encore careers as an alternative to retirement?

A: People are intrigued, but many don’t know where to start. So I get a lot of questions like, “That sounds great, but how do I go do it?” When I talk about the projections for job shortages for many encore job categories, eyebrows go up. People are genuinely surprised and intrigued.

Q: Lots of people are staying in jobs they are ready to leave because they are concerned about health insurance and too young for Medicare. What’s your advice to them, and does the new health care legislation offer solutions here?

A: If the health care law works as intended, it will give a big boost to this group. This year people without group coverage will be able to access special high-risk insurance pools. Starting in 2014, insurance companies won’t be able to reject you due to preexisting conditions, although the premiums could be higher. Also in 2014, the new public insurance exchanges will be launched, and that should create new options for older people without group coverage.

Q: If you could change just one thing about how people are thinking about and planning for their eventual retirements, what would it be?

A: The one big change we need to do is throw out the traditional idea of retirement and the significance of age 65. That’s just a notion we have passed forward from the history of our Social Security system, which originally set 65 as the retirement age. It may have been an appropriate age then, but it’s irrelevant now.

More information at the website for The Hard Times Guide to Retirement Security.