On self-reliance
This comment on Steve Utkus’ recent post about retirement struck a major chord with me:
“Our children’s incomes are not increasing, and they have their own children to support, let alone saving for their own retirement. No one is to blame or is being stingy; we simply must plan for and take charge of our own later years.”
At the risk of disturbing a number of readers, I strongly agree with the message. My husband and I sometimes joke with our children about making sure they pick out a good nursing home for us—but we are doing our level best to make sure we don’t have to rely on them for support in years to come. Throwing up our hands once we reach a venerable age, leaving what happens to the winds, hardly seems to be what responsible adults should do—especially in an environment where our children’s standard of living could very well be lower than our own at the same ages and stages of life.
Nothing in life is guaranteed, and we’ve seen what devastation an economic downturn or an unscrupulous so-called investment expert can wreak on people’s lives and their livelihood. So, planning only goes so far, but it has to help. What parent wants his or her own needs to be a significant financial drain on a child’s resources?
So, what can we do?
My husband and I sat down and put together a realistic estimate of our expenses and plans for the future to arrive at a basis on which to make decisions. Everyone says this isn’t easy, but I don’t think it’s as difficult as reported. Once we had that, we looked to spreading out our risks.
Diversification of investments across a broad set of asset classes, with choices between index/active, growth/value, and global/domestic, is the first thing that might come to mind. Diversifying investment managers also seems to me to be a pretty important one. Had a number of Bernie Madoff’s victims or their advisors spread their investments out, they might have avoided catastrophe.
And diversifying sources of income is a good idea. Maybe an annuity is a good choice for some, as it can provide guaranteed income. (Or maybe now’s the time to acquire that rental property you’ve been considering.)
Structuring assets in before-tax (401(k), IRA) and after-tax buckets is a basic technique to diversify tax risk, giving some ability to manage withdrawals around future rising or decreasing income tax rates.
Carrying disability insurance during our working lives and long-term care insurance, if affordable, once we retire may be a way to directly reduce the risk we’ll need to be supported by our children later on.
These are some potential steps we can take to protect what we’ve accumulated and reduce the risk of family dependency. What are you doing?
Note: All investments are subject to risk. Diversification does not ensure a profit or protect against a loss in a declining market. Links to third-party websites will open new browser windows. Vanguard accepts no responsibility for content on external sites.
With the exception of long-term health care insurance, all our investment eggs are in the Vanguard basket. True, they’re diversified across both managed and index funds, and diversified further in both categories. But what about Vanguard itself? Suppose Vanguard itself (e.g. one of its employees) proves to be unscrupulous, or some external evildoer gets into our accounts and cleans us out? Thoughts?
What am I doing?
Praying, and investing in a diversified portfolio with a low-cost mutual fund company in PA.
I AGREE with ABOVE. As a physician, I believe that living within ones means and diversification are key. I plan to live on my dividend income as much as possible and allow the body of my retirement funds to continue moderate and hopefully steady growth. It is impossible to predict your life span, so prepare for the longest time possible. Controlling the variables of health include no smoking, keep weight reasonable, regular exercise and remaining mentally and socially engaged. Keeping blood pressure and cholesterol under control are also important. Life enjoyment, concentrating on things within ones means makes life worth living. Caring for others/family also indispensible. As Henry David Thoreau one said, simplify, simplify. I believe this gives you the best possible chance (nothing is gaurenteed unfortunately) for a long and productive life.
One must do much better than living within their means.
For more than 37 years of married life, we have consistently lived on 75% of our after-tax income and put the rest into savings. We borrowed only for home ownership, paying cash for everything else including cars, vacations and college educations for our two children now grown and on their own.
Hence, we anticipate an easy transition to retirement income limits. But we greatly reduced our equity positions in early 2007 and will never regret it.
Likewise, we have been living within our mean, have no debt and save agreesively. What happened in the last 3 years, however, clearly indicated that there is a gap in our planning: trusting the financial services companies (investment), the insurance companies (life and sort and long term disability) and the rating companies who rate the former two to carry out their fiduciary duties. Not to throw the baby out with bath water, how do we re-establish the fundamental trust of the system ? We can buy bond from the Treasury but not the insurance ! It seems to me that we need to tell our law makers to start looking at aligning executives pays with shareholders’ interest.
I have 100% of my IRA retirement funds and 50% of my personal funds invested with Vanguard. I wonder if that is a mistake. What if something goes wrong with Vanguard? I am retired and would be almost wiped out financially and cannot rejoin the workforce. How should I diversify and what other fund family should I look at?
Question I am 88 years old & have my own home that I am able to care for & need no assistance at in these cercomestances I feel it is alrigt for me to give moneys to family from investments that I will never use but be sure i can afford to have help come in if I need it, or is there a law that says I can’t do that? There are 6 childern.10/8/09