One of the best parts about being retired is that Monday is just another day of the week. Yet data suggest that many retirees continue to work in some manner.
There’s still a little magic in every motorcycle ride to the country. When I was young, our family took automobile rides on many Sunday afternoons, and I always loved to watch the farms and forests roll by, imagining what it would be like to live where we passed. Sometimes my father stopped and talked with people we saw near the road.
On a recent motorcycle ride I stopped to watch a small herd of Holsteins in a roadside pasture. They were grazing slowly toward me, but once I dismounted and walked toward the fence, they turned and headed away. Their owner came out from the farmhouse across the street to say hello and ask about my interest in cows. He looked about my age, but he was smaller, more wiry.
“Pretty, aren’t they,” he offered.
The last post related how emergencies can put a retiree’s living standards at risk. Now the discussion turns to thinking and working through emergencies in ways that manage the risk appropriately.
If retirees pay regular living expenses from their investment portfolios, and then spend some of those investments to resolve emergencies, they put future withdrawals at risk. It’s different in middle life when living expenses are paid from salaries or wages, and savings are commonly used for emergencies.
Some Financial Approaches
One solution is to set aside a portion of a retirement portfolio for emergencies. A retiree with a $500,000 portfolio could set aside $100,000 for emergencies, using only $400,000 for ordinary living. If the withdrawal rate is 4 percent, the retiree would withdraw $16,000 annually for ordinary expenses. The $100,000 emergency fund would be left alone.
In addition, retirees have other options:
Last time we introduced a Census Bureau report that describes some characteristics of the oldest segment of our population—those 90 years old or older (90+). The group is small, mostly women, and mostly widowed. Still, about three-quarters of them live in households. Less than one quarter are institutionalized.
The median income in the group was $14,760 (2008 dollars)—that’s annual, per person, personal income. For men, it was $20,133, and for women, it was $13,580. Social Security has become nearly universal among this group: 92.3% of them receive it, and it is about 48%, or almost half, of the median personal income. The rest comes from investments, public assistance, other retirement income, or other sources.
During the same time, the median annual per person income in the US was about $27,500. The 90+ group has a per person income of about half the overall population.