The answers, she says, can be found by focusing on simple but effective financial planning strategies for retirees and pre-retirees. Vanguard recently spoke to Quinn about these strategies.
Because of increasing longevity—which, of course, means you need to invest for a longer period of time. At 60 or 65, you’re likely going to live another 20 or 30 years, so you are still a long-term investor when you reach retirement age.
You stress the importance of retirees investing for growth. Why is it risky to be too conservative?
You must find ways of paying to support your lifestyle for decades. Fortunately, I believe, you can expect that over long periods, the American economy will grow, the global economy will grow, and you can capture that growth by investing in stocks. For many people, the best way to get exposure to stocks is through broad-based equity mutual funds, specifically index funds, which I’ve always championed.
Stocks have risks, but you have to balance that against the very significant risk of outliving your money.
Bucket investing helps people think about their money in very specific ways because it attaches a bucket to a particular goal. For example, you may ask, “What are my needs for cash for the future?” That’s your cash bucket. If you use that cash, you need to restore it to keep the bucket full.
The book advocates “bucket” investing. Would you explain what that is and why it’s effective?
A second bucket to think about is one for long-term growth. As I mentioned, you want some percentage of your investments in stock mutual funds for long-term growth.
The remaining bucket is for fixed income—your bonds—to provide stability. You’ve got your growth bucket, you have your fixed income bucket, and you have your immediate cash bucket. I think that’s a very clear way of thinking about how you should invest.
You may be nearing the end of your career and asking, “How much do I need to retire? When do I think I can retire?” What you need to do at that point is project the amount of income you can reasonably expect from your savings and investments, Social Security, and pensions. Then you project what your expenses are going to be.
An entire chapter of your book is devoted to rightsizing. Would you explain what that means and how it’s achieved?
If your expenses are going to exceed your income, you need to rightsize your life, which means you need, over time, to develop a lifestyle that will fit within the retirement income you can reasonably expect. That’s really a critical thing.
If you’re married, it’s also absolutely critical that you do this with your spouse because when people start thinking about retirement, they often discover that they think in very different ways.
It comes back to where we started the conversation: longevity. The longer you wait to take Social Security, the higher the initial check you’ll receive. Instead of taking Social Security at 62, if you wait until 70, your initial check is going to be 76% higher, plus inflation, and that’s a big difference.
Your book makes a case for waiting to take Social Security. Why should the vast majority of people wait?
Many people say: “Well, if I wait until 70, I might be dead by then.” You might be. But the numbers say you are going to live to your mid-80s or later. My dear mother is an example. We are celebrating her 101st birthday this year.
The greatest benefit you have from Social Security is longevity insurance, and it’s inflation-adjusted longevity insurance. So if higher inflation should return, you are completely protected. I would bet on living a longer life, in which case waiting to take Social Security is very advantageous.
If you’re married, and you wait to collect Social Security, you will leave a higher survivor’s check to a dependent spouse when you die. It’s important to think of your spouse when you’re making this decision.
Obviously, if you don’t have enough money, and the only way you can maintain a decent lifestyle for yourself is by taking Social Security at 62 or 63, then, of course, you’re going to do that.
I would say simplify your financial life. Couples wind up with all kinds of bits and pieces of their financial life in various places. Consider simplifying by gathering your savings and investments in the same place so you can keep track of them. Having several bank accounts scattered around that your heirs might not know about is just absolutely not worth it.
Do you have a final piece of advice for readers?
You don’t want to worry about your money all the time in retirement. That’s why you rightsize, that’s why you simplify your finances, that’s why you set it up so it runs on a simple bucket basis: because you want to get on with all the more important things in life.
All investing is subject to risk, including the possible loss of the money you invest.
Investments in bonds are subject to interest rate, credit, and inflation risk.
The views expressed by Quinn are not necessarily those of Vanguard.