It’s Your Money: Planning retirement in a post-pension economy

If you’re old enough to remember how Santa’s Village Road in Scotts Valley got its name, you’re old enough to be thinking about retirement.
You’re also old enough to know that after you stop working for a paycheck, gifts won’t magically come down the chimney and land under a tree in your living room.
Santa’s Village amusement park opened in 1957 and brought much cheer to Baby Boomers, the kids born between 1946 and 1964. The park had real reindeer, a bobsled ride, elves, and gnomes.
As the Baby Boomers grew up, the park’s popularity faded and it closed in 1979. About that time, a new, less merry, reality was taking hold in the world of retirement.
That year, more than 60 percent of workers were covered by a pension that would provide a paycheck for life after they retired.
By 2011, that number had shrunk to 18 percent. Employers replaced pension plans with 401(k) plans, in effect telling workers that they needed to fend for themselves in retirement.
Today, there are 78 million Baby Boomers approaching retirement. Americans are living longer, and their years of retirement may stretch into decades. To feel secure, they need to know that they won’t run out of money.
A big part of that financial security will come from Social Security. How big a part is determined by three factors: how many years you contributed to Social Security, how much you put in, and when you start collecting.
The more you put in and the longer you wait before collecting, the bigger the checks will be.
Full retirement age is 66 or 67 for people born after 1943. Let’s say yours is 67, and Social Security calculates that your primary insurance amount (PIA) will be $2,000 a month if you start collecting at that age.
You could start collecting at age 62, but you would only get $1,500 a month — a 25 percent reduction from your PIA.
Instead, if you wait till age 70, you would get $2,640 — or 32 percent more than your PIA. So, the difference between taking payments at 62 or at 70 is a monthly check that is larger by $1,140 — an extra $13,680 a year.
Plus, your cost-of-living adjustments, a percentage increase that Social Security gives you to help offset inflation, will amount to more dollars if you start with a higher base. And if your spouse also collects Social Security, when one of you dies, the surviving spouse will get the higher of the two checks.
Two reasons you might start taking payments at age 62 are: You are retired without enough savings, so you need the money ASAP; or your family has a history of short life spans.
But if you expect to live a long life and can afford to wait, you could collect hundreds of thousands more from Social Security by having at least one spouse delay payments until age 70.
Even the larger payment probably isn’t enough to live on, but Social Security provides a good start in replacing your paychecks with lifetime income. The rest will come from withdrawals from your retirement accounts and other investments — or, if you’re short on savings, possibly dipping into your home equity.
You also may consider exploring annuities, a broad category that includes many bad ideas but some good.
In my next column, I’ll continue this discussion of how to piece together a care-free, unstressed retirement, like people enjoyed in the old days, when employers took care of you for life, and elves and reindeer roamed north Scotts Valley.
– Mark Rosenberg is a financial adviser with Financial West Group in Scotts Valley, a member of FINRA and SIPC. He can be reached at 831-439-9910 or mr********@fw*.com.