Leave a penny

Chia-Li Chien has ideas to help us outlive our money.

Download photo

Chia-Li Chien’s most recent book is Enhancing Retirement Success Rates in the United States: Leveraging Reverse Mortgages, Delaying Social Security, and Exploring Continuous Work.

Photo: Brian Stethem

What was something that surprised you while writing this book?

The biggest aha! moment for me was finding out that portfolio allocation, as we’ve typically talked about it, isn’t a big concern. Advisers will tell you that, before retirement, you should be at least 60% in stocks; but the moment you reach retirement, you ought to be 50-50 or even switch to 60% in fixed income and 40% in equity (stocks). That’s a rule of thumb and every adviser is still telling people to do that. But the percentage of the population where that actually makes a difference is so small. In fact, you should be more aggressive.

You consider a lot of financial strategies for retirement. Is there one you’d most like to recommend?

Yes, number one, delay claiming Social Security retirement benefits. That’s an easy task; people just don’t do it. Approximately 60% take it at age 62. At 70, you would get a 30% increase in the monthly payment.

If you don’t want to wait until 70, I get that. But bare minimum, take it at full retirement age to get the full benefit. For me, that’s 67. For someone older, it might be 66 or 65.

Thirty percent more is a lot.

Only 3-5% of people wait to take retirement benefits at 70. No matter how much incentive the government puts in there, they know people tend to take it early. They know. Look at them as a casino – they win. The Social Security Administration doesn’t do a very good job of telling people, You really need to delay this.

Please explain how your approach in this book is distinctive.

In financial planning, the majority of the research is all simulation of fictitious people. You have $1 million and they run a simulation to see if you’re going to make it.

I don’t like that idea, so I went to the Census Bureau for data. This census data is not taken every 10 years, but continuously. It’s on a group of people they’ve followed since the 1980s. I took a more recent snapshot of that, looking at people who are already retired and already taking Social Security. Then I matched it with another data set from the Bureau of Labor Statistics, which goes and finds out the actual expenses, all kinds of living expenses. And then I map all of the different age groups. And I try to answer, Are they going to make it or not?

You define “success” as having at least one penny to your name at death. Do your clients ever see it that way?

No, they don’t. People always have something else in mind. Clients who can afford financial planning services will typically talk about having something for their family.

The biggest conflicts I see working with clients who are about to retire are: They want to pay for the children’s education or a child’s wedding. Oftentimes I have to tell clients, No, you just cannot do that.

Do regular people need to understand “scaling factors”?

They do. The scaling factor is a measurement based on the average living expenses for their state. You’d better not spend double the average amount because that’s just going to eat up your resources very quickly.

You need to find a way to stretch your resources as long as possible. A reverse mortgage could be a good strategy, but I say downsize. Downsize quickly to save on heat, electricity and all of that. Or move to a lower-cost-of-living state.

Your top five least expensive states to retire in are totally different for singles and couples, with no overlap. How could that be?

Again, those are all based on a survey that the U.S. government conducted. It’s different depending on expenses for one person versus two. You have to really do your homework before you make that migration.

But remember, we should not be planning just for two people. We also have to plan for one, from the very beginning. In the data set, about 80% of the single retirees are women, and most of them are widows. Most of these singles households, these widows, outlive their assets.

Another strategy you raise is moving in with family.

In the old days, we tended to have seniors living in homes with us and multiple families living under one roof. I think that’s a good idea that we really need to take into consideration going forward. We have to not be so individualistic. Seniors will avoid loneliness, and it will be a benefit for the whole family spiritually, socially.

I would encourage people to do it, although my in-laws and my parents don’t like that idea. They have lived with their in-laws and had a terrible experience, so now they don’t want to bother their kids. But I feel like that’s the only solution, for many families, that will get us out of the state funding crisis for homeless seniors.

So be nice to your kids. Be nice to your friends and family because that might be your last resort. Or you might offer your home to others. Those are all good options to consider.

Chia-Li Chien is an assistant professor and director of the financial planning program in the School of Management; a succession program director at Value Growth Institute, a business succession consulting practice; a frequent speaker about succession and retirement planning at national conferences; and a board member for various national financial service associations. She holds a doctorate in financial planning and is a Certified Financial Planner as well as a Project Management Professional.

CLU Magazine