The Ultimate Retirement Guide for 50+
Suze Orman dropped out of the spotlight a few years ago, but she’s back with the book The Ultimate Retirement Guide for 50+: Winning Strategies to Make Your Money Last a Lifetime. The book contains solid financial advice for retirees and near-retirees. The advice is aimed at Americans, but Canadian readers can easily skip parts that aren’t relevant in Canada. Surprisingly to me, some of the best parts of the book aren’t directly about finances.
My favourite chapter is “Where to Live.” It begins “I imagine some of you are thinking you might breeze right past this chapter.” I was skeptical initially, but the advice is excellent. The main choice we will face is whether to live out our lives in the same home or move somewhere else.
Orman explains the many advantages of moving somewhere more suitable for an older you, but she recognizes that many people are determined to stay in their homes. If you plan to stay, you should consider making changes to your home sooner rather than later to make it work better for your older self. Also “Consider whether your home will be socially isolating to an 80-plus you.”
If you plan to move, Orman says to “consider moving sooner rather than later.” “Reducing your housing costs now is like opening the release valve on a pressure cooker.” The thought of moving becomes more daunting as you age. If you’re going to move, it’s easy to do before you’re too old.
“What if you lived with an adult child? A sibling? A friend (or two, or three)? Please don’t immediately dismiss this without giving it some serious consideration.” Recent experience I’ve had with older family members is that loneliness is a big problem as it gets harder to get out to see others. Sharing household chores lifts the burden and provides some social contact. This is valuable even before you start having a hard time getting around.
An area where many retirees get themselves in financial trouble is helping out adult children and grandchildren. Orman has a number of recommendations. “Resist co-signing for loans.” “You are never to help a child buy a new car.” “Getting your own finances in order takes precedence” over helping a child pay back student debt. “If you are behind on retirement savings, the biggest favor you can do for your kid is not pay for college” so that you won’t “need to rely on them for support in your retirement.”
On buying cars, Orman says “Do. Not. Lease.” “Leasing is a financial trap.” “If you need to take out a loan, I want you to commit to a term that is no longer than 36 months.” If you need a loan longer than 3 years, “you are buying a car you cannot afford.”
“I want you to plan on working until you are 70. Maybe not in a high-powered, mega-demanding position. But working at a job that brings in some income.” This is important advice for the majority of people who simply won’t have enough retirement savings to retire much earlier. Related to working to 70, Orman advises Americans to delay taking Social Security to age 70 to get larger payments. The equivalent in Canada is to take CPP and OAS at 70 for the larger payments.
Orman has a very sensible view of planning finances in retirement. “Your focus should be on making decisions today that will give you the most money if you live a very long life. Honestly, if you die at age 70, you don’t have any retirement planning issues.” “You should plan on living to age 95; my best advice is to build your retirement income plan as if you will still be alive at 100.”
“Selling stocks after they have fallen is selling too late. And it creates another problem because you will have a hard time knowing when to get back into stocks.” Financial “experts” in the media will trot out all sorts of smart-sounding reasons to sell stocks when they’re down. If your allocation to stocks is too high for your comfort level, you need to wait until stocks are up again to adjust your asset allocation by selling stocks.
Orman recommends being conservative with your savings in retirement. “Keep two years of living expenses in cash.” “Plan to spend no more than 3% of your portfolio in the first year of retirement,” and increase this amount by inflation each year. Later she allows that if you delay retirement to age 70, “then 3.5% or 4% can make plenty of sense.” She also recommends being prepared to reduce spending if markets crash, or spend a little more if markets outperform.
“There is one type of annuity that is good for retirees. Income annuities.” “Not variable annuities. Not fixed indexed annuities.” I worry about the lack of inflation protection with income annuities. Receiving $1000 per month sounds good now, but it won’t be as good after inflation cuts its purchasing power in half or worse.
One section on taxation of index funds in taxable accounts was somewhat misleading. “If you own index mutual funds or ETFs, you will typically not owe any other tax until you sell the shares.” She goes on to explain that actively-managed funds often distribute capital gains to shareholders each year. The truth is that you’ll pay taxes on dividends, and index funds sometimes distribute capital gains, but they’re usually only a small fraction of the capital gains actively-managed funds distribute.
“I don’t want you to own long-term bonds.” “The risk we need to focus on is what might happen to your bond investments if interest rates were to rise.” The purpose of bonds in a portfolio is to dampen the riskiness of stocks. They do that best when we choose short- or medium-term bonds that don’t have huge interest rate risk. Another thing to consider is that if we look at just holding long-term bonds until they mature, returns are dismal.
Many books offer advice on choosing a financial advisor. Orman’s is better than most. “An advisor must be a fiduciary.” Ask the following questions: “Will you always act as a fiduciary?” and “Will our client agreement include a written statement signed by you that you will always act as a fiduciary?” When you ask “How will I pay you,” “Fee-only is the only right answer. That can be hourly, project-based, or an annual percentage of assets the advisor will manage on your behalf.”
If you have a pension, Orman recommends asking “Do you recommend taking a lump sum or an annuity?” “An advisor who unequivocally tells you a lump sum is the smart move, before studying your situation, is up to no good.”
The book ends with an entertaining personal note on what Orman has been doing in her retirement. I won’t spoil the amusing story beyond saying that it involves fish.
This book is worth a read for people over 50. Orman might change your mind about some aspects of your retirement plans.
“I want you to plan on working until you are 70. Maybe not in a high-powered, mega-demanding position. But working at a job that brings in some income.” This is important advice for the majority of people who simply won’t have enough retirement savings to retire much earlier.
ReplyDeleteI don't know about this, but I may be missing nuance from a short excerpt. For family history reasons I'm planning on being able to retire in my 50's, and I don't like planning to keep working until 70 -- our health may not allow it.
But of course the title says it's a guide for 50+, so starting from there one may have to plan to work to 70.
Hi Potato,
DeleteI'm already retired, so I'm obviously not following this piece of advice. If we think of the typical person who hasn't saved enough to retire comfortably at 60, the advice to plan to work until age 70 makes sense. Orman also warned that health issues might make working until 70 impossible, so saving more money earlier is a good idea. She just knows that most people will fail to save enough to retire earlier.
I doubt that Orman would have any problem with someone retiring sooner if they really have sufficient savings.
I didn't read the book, but did she mention something that a new retiree needs a "minimum" of $5 million before even thinking of retiring?
DeleteAt least, that what she said a couple years back on a TV show!
Unknown,
DeleteIf there was anything like that, I certainly would have mentioned it. She's said some weird things over the years, but what's in the book is mostly quite sensible.
I believe the $5M Suzy was referring to was directly replying to folks in the FIRE movement. She is seemingly quite against this community citing "possible" health costs as the main issue requiring this arbitrary $5M number before anyone should even consider FIRE.
DeleteFolks like Jason Fiber for example, living on a reasonably small dividend portfolio. (until recently, because he has monetized his knowledge now) In her opinion FIRE bloggers set a dangerous example for others.
Hi Paul,
DeleteI think many FIRE bloggers mislead people somewhat. If you retire at 40, you're unlikely to have a good handle on how your expenses are likely to increase as you age. Further, the 4% rule isn't safe for 50-60 years. All this can be accounted for reasonably by setting a higher savings target before retiring, but many FIRE bloggers either deny this or don't make it clear.
Another thing some FIRE bloggers do is encourage quitting a job and finding another gig you like better. This works for some, but others are better off sticking it out for a couple more years to get a better financial cushion. This depends greatly on the job you have, your other skills, etc.
All that said, I think the FIRE movement has a mostly very positive message. If Orman's $5M comment was meant to convey the criticisms I mentioned above, she failed miserably.