Retiring the retirement plans

Posted: Aug 15, 2006 12:57 PM

Americans, on a whole, spend too much on their retirement plans! That should get the keyboards pounding with objections without even going any further. Let me start with the exclusions: social security, unfunded corporate pensions and existing plans. That said, some people have stopped typing. But don't give up yet because I am sure that I am a rare voice in the wilderness that feels you are spending too much on retirement and not enough on your life. Now for the big caveat: this is especially true and directed to people who own their own homes. (You realize I am talking to you even if your equity is 1% and the bank owns 99%). My thinking is simple: pay off your house, whatever price it is, and that will be all the retirement you need! Now you can start objecting.

Why do I feel that way? People in my experience do not change their habits, lifestyle, or hopes and fears just because they quit working. My father who was in the garment business all his working life insisted we buy quality clothes because they would last longer. Expensive did not equate directly to quality. As a kid we shopped until quality really equaled value. When my father finally quit working (around 80) and had money from his house he sold that was paid off, he never stopped shopping for quality and absolutely refused to pay for expensive clothing even if it did equate to value. His lifetime of habits didn't change.

My friends in the travel industry tell me that although many people talk about extensive travel when they retire, if they hadn't traveled in their working years they generally take one or two trips and that's that. They do not enjoy the discomfort of normal travel and miss their life long routines. Does this mean nobody continues to travel? Absolutely not, but I am generalizing.

Let's take a running total to this point. You most likely will not change your shopping habits when it comes to clothing and other merchandise, and you probably won't take more trips than you normally take. Even though you put additional monies away in a retirement plan, those dollars earmarked for the aforementioned activities might not ever be spent in your leisure years.

Before we go any further I am a big believer in 401(k)’s because your employer matches some part of your contribution, and that is free money. If it is matched dollar for dollar I would maximize your investment every year, and if you don't have the money to do that I would take it out of my house. (Contradictory advice? Not really because you will have time to pay off your house while you may not get the matching opportunity again.).

Food, recreation and entertainment are items that are elevated in importance when you retire, but probably not the way you are thinking. We have big dreams about at least recreation and entertainment, but when the time comes to enact them, it will most likely be done in a more restrained way than we had thought.

Let us start with my passion: golf. I get to play on an average 1 or 2 times a week as I have a second home an hour and a half from my main residence on a golf course. In fact I am a member of the club and we have six courses, but that doesn't give me any more time to play than if I wasn't a member at all. When I retire I will be somewhat like the rest of the guys (except I will probably be in my 90’s) and play every day. The only added expense is lost golf balls.

Fishermen will fish more, hikers will hike for longer periods of time, and tennis players will go for more sets. I don't anticipate going to St. Andrews to play golf as something I would do more than once, nor would I expect tennis players to need to play Wimbledon. In retrospect, I don't need a big retirement savings for recreation.

Food is easy. Most people will be restricted by their doctor or their stomach, from having all the great things we have been holding back on during our lifetime. Just because you have gotten old doesn't mean you don't feel young, want to look good or relish walking the floor all night with an upset stomach. No extra dollars expended here.

If you live on the west coast you may go to Las Vegas or Lake Tahoe a few more times, but you probably will find a little less expensive place to stay, eat in the buffet more than you did when you were working and of course get all the early bird specials because you and I will eat at the sensible time and forgo being seen at the "right time".

My point is saving for retirement is a fine thing to do if you have extra money. Most people have extra credit card debt, not money. Most people have homes and cars and clothes and golf clubs and retirement plans, but no reserves. Before you can retire you need to get through life. Start retiring your debt, followed by the debt on your house, and if you don't get to the part where you have built substantial balances in your IRA you will still be okay. Add as little as $25 a month to your house payment and you will be amazed what that can do for you.

Let me now add a dose of reality. If you live in a $300,000 house, paid for or not, your lifestyle generally will reflect your economic condition. With rare exceptions you will not find a Bentley in the driveway of a $300,000 house. If you can get the house paid off as quickly as you can, you will be able to maintain that lifestyle when you retire. Those who pay it off quickly can build liquid assets for their retirement, those who don't might take a reverse mortgage when they retire or simply supplement what ever else they may have by borrowing against the house (equity that is now your savings account) or maybe they will sell it, put the money in the bank and move to a rental.

I see too many people with large retirement funds struggling through life, for what?

To create a large estate for your heirs, some additional tax revenue for the government or to compare Roth IRA balances at a cocktail party? I wouldn't, and I do believe if you sit down and inventory your current and future life you won't either.

The biggest part of your retirement is your health. Would it be too much to pray that everyone should have reasonably good health until the end? I certainly pray for that on a daily basis but it is out of our control. As a friend of mine has said for years, if after all the care he has taken for himself, the herbs and vitamins he has swallowed, the miles he has jogged, the food and beverage he has passed on consuming, he is stricken down prematurely (what ever that is) it would be really chicken ---! Frank Sinatra answered that in one of his better songs "That's Life".

You need a good overall plan to face the uncertainty ahead which would include long term care, health insurance or Medicare supplementary insurance, and most of all a healthy outlook on life. My remedy for the blues is to look at the natural beauty that we live with: the mountains, streams, trees, golf courses (I slipped that one in) and realize we have nothing to fear from a Creator who brought us all this.

Now as I end this piece I want to hammer home once again what most people forget: You need to get through life before you can retire. When you do retire you just might find out why everyone loves their grandkids, and aren't as fervent about their own kids. You might find the things we take for granted now are the things we will treasure then: good friends, a quiet walk with your spouse, a chance to smell the roses and the thrill of the start of a new day and the beauty of the setting sun.

You really don't have to set a lot of monetary assets away to enjoy your golden years. All you really need is a great outlook and just enough to see it through.

Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom. Roger is the President and founder of Manhattan West Mortgage.