To Succeed in Retirement, Start Living Like a Retiree Now

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By Joanne Cleaver

The problem with delayed gratification is that it doesn't translate to any fun today.

"It's like living on the layaway plan," Deborah Price, founder of The Money Coaching Institute, says of endless retirement saving.

The "eat your spinach" tone that permeates most financial advice about saving for retirement explains why so many Americans don't do what they know is good for them, Price and other financial advisers say. They know they should save 10 percent to 15 percent of their annual income for retirement, but many don't. They know they shouldn't touch those savings for emergencies, but many do.

We want to have our cake the day we retire and every day before that as well.

Actually, that is possible if you redefine "cake." The trick is to replace the stereotypical before-and-after scenario of work-life deprivation rewarded by endless (if sedate) retirement partying with a lifestyle that scales today's habits to transition seamlessly into retirement.

Depressing, Misunderstood Numbers

A PNC Bank (PNC) survey this spring, which included more than 1,200 adults from 25 to 75 years of age, found that just over half of retirees withdraw savings without a plan and are worried about running out of money. In fact, 63 percent of retirees are worried that they don't have enough in guaranteed income to stay solvent while retired. Yet 40 percent of early retirees (age 64 and younger) are hitting up savings for routine living expenses, which increases the chance that they will outlive their money.

Joseph Jennings, senior vice president of wealth management with PNC, detects in those actions a lifelong misunderstanding about how to scale daily life with actual financial resources.

Millennials and Gen Xers still have time to adjust today's lifestyle to pay it forward to their future retired selves. If they save as much as possible (ideally, 15 percent) through workplace savings plans and live within the remaining means, they will both put aside meaningful retirement savings and develop the habit of not touching savings.

"That forced savings habit early on pays off. As it becomes a habit and as you see it build, it starts to become its own reward," Jennings says.

Replicating Your Own Pension

Angie Grainger, an accountant, certified financial planner and money coach, says that she has seen a spate of new clients determined to structure a guaranteed retirement income stream that replicates a pension.

That strategy can work, using annuities and specialty life insurance products, if the lifestyle people hope to continue is already scaled for their post-retirement income. In other words, she counsels clients to start living on the budget they believe they will have in retirement, and save the difference to fund that income stream.

A smart way to get into the "live like a retiree" mindset is to break down savings goals and income expectations into a monthly plan. That demolishes the "impossible dream" reaction to goals of saving millions of dollars.

"You don't think, 'I have to save $50,000 to buy a car.' You think, 'I need $300 a month to buy a car,'" Grainger says. Apply the same approach to what you can save and spend each month now and each month in retirement, and the gap between what you need each month and what you have to save each month becomes manageable.

Once you've digested that, prioritize lifestyle wants and needs accordingly so you can sustain your lifestyle into retirement. For example, instead of indulging in a quarterly spa weekend to recover from working hard, indulge annually with the expectation that you will be able to continue that luxury after you retire.

Sustainable Lifestyle

Realign your lifestyle now to support sustained saving. A sustainable lifestyle will also help you avoid the "school's out" overreaction that Price often sees with clients who have pinned all of their dreams on the moment they wake up retired. "They're like adolescents who want to live it up. But if you don't pace yourself, you'll have to go back to that awful job," Price says.

But who doesn't want to celebrate that first year of freedom? If travel, home renovations or plunging into a new career is No. 1 your bucket list, create a bucket of money for that pursuit, Price advises. "Get it out of your system. And expect that once you've run through that mad money, you'll go back to a more reasonable lifestyle," she says.

Another way to have your cake and your party too is to invest some time and money on that pursuit before you retire so you truly know what you are getting into. Experiment for a week as a business owner before pouring all of your resources into a new venture. Take a one-week cruise before committing to an around-the-world cruise. Get some quotes for remodeling the house before taking out those grimy kitchen cabinets.

And, adds Price, think about the underlying outcome of the items on your bucket list. You might be able to find less-expensive alternatives that accomplish the same goals. After all, when you are working, time is money. When you are retired, your time is a less valuable commodity. Try out several routes to the same destinations. If you start before you retire, your journey will be as much fun as the arrival.

10 Cities Your Financial Adviser Is Begging You Not To Retire To
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To Succeed in Retirement, Start Living Like a Retiree Now
  • Cost of living -- 114.1
  • State tax burden -- 8.4 percent
  • Median house price -- $377,625, per
  • Climate -- 69/39 January, 105/75 July
  • Traffic congestion -- Didn't make the Forbes list
Scottsdale is a retirement mecca, with a reasonable cost of living, state and local taxes well below the national average, a great quality of life and plenty of amenities. But housing costs are nearly double the national average. Winters are warm, but summers are sizzling hot. Peak temperatures can reach close to 120 degrees -- after all, it's in the desert. The locals will dismiss it as "dry heat," but that kind of heat will still send your electric bill for air conditioning soaring, and can necessitate you buying new cars more frequently than you'd like.
  • Cost of living -- 130.0
  • State tax burden -- 9.3 percent
  • Median house price -- $417,600, per
  • Climate -- 74/64 January, 89/80 July
  • Traffic congestion -- Didn't make the Forbes list

Key West offers Caribbean weather in the U.S., an attribute that makes it a natural choice for retirees. And who could resist the Jimmy Buffett-Parrot Head thing, especially once you're living a life of leisure? 

You might be better off if you resist. The cost of living is 30 percent higher than the U.S. average, and housing costs at least twice as much. Travel is another issue. Key West is the most remote location in the continental U.S. The only road off the 6-square-mile island is the Overseas Highway, a 127.5-mile causeway that is largely one lane in each direction.

Hurricanes -- all too common in Florida -- are rare in Key West  -- though Wilma did hit it in 2005. But when they do impact the island, though, it's worth noting that the city has the Atlantic Ocean on one side and the Gulf of Mexico on the other, and there's no part of it that's more than 18 feet above sea level. So homeowners must pay several thousand dollars a year for hurricane insurance.

  • Cost of living -- 132.3
  • State tax burden -- 11.2 percent
  • Median house price -- $482,000
  • Climate -- 66/50 January, 77/67 August
  • Traffic congestion -- Didn't make the Forbes list
As big California cities go, San Diego is a bargain. But compared to the rest of the country, San Diego is certified high-cost. Yes, the weather is near perfect year-round. But the cost of living is one-third higher than the rest of the country, and house prices are nearly 2½ times the national average. Add in California's high state and local tax rates and the earthquake issue, and San Diego should be crossed off your list of potential retirement cities.
  • Cost of living -- 165.7
  • State tax burden -- 10.2 percent
  • Median house price -- $680,000
  • Climate -- 80/66 January, 88/75 July
  • Traffic congestion -- Second worst gridlock in U.S.
Can you imagine a more idyllic place to retire than Honolulu? Probably not. But as beautiful as it is, it shares many of the financial strains common to other cities on this list, plus a few more.

The overall cost of living is second only to New York City. After all, most of the goods people need have to be shipped across thousands of miles of ocean. The state tax burden is only slightly higher than the national average, but the median house price is triple the national average.

Finally, as far as cost of living is concerned, Honolulu has an unusual financial issue: travel expenses. Sooner or later, you'll want to get away from Hawaii. And there's no cheap way to escape from this paradise.
  • Cost of living -- 164.0
  • State tax burden -- 11.2 percent
  • Median house price -- $860,000
  • Climate -- 57/46 January, 70/55 September
  • Traffic congestion -- Third worst gridlock in U.S.
San Francisco frequently makes those "favorite cities in America" lists and for good reason. Situated on a peninsula between the Pacific Ocean and the San Francisco Bay, it is one of the most scenic cities in the world. Mild weather year-round, world class cuisine, charming neighborhoods and an eclectic population make it one of the most desirable places to live anywhere in the world.

But it has the highest median house prices in the country, which should scare off retirees. Its cost of living trails only New York City and Honolulu. And like the rest of California, its state and local tax burden is second only to New York.

One other reason people might avoid living in San Francisco is that it's prone to earthquakes. While that's certainly a concern for personal safety, few people from non-earthquake prone areas realize how it increases your cost of living. Homeowners need to pay several thousand dollars per year for earthquake insurance.
  • Cost of living -- 140.1
  • State/district tax burden -- 4.0 percent on first $10,000 and up to 8.95 percent on income greater than $350,000 in D.C., 10.2 percent in Maryland, 9.3 percent in Virginia
  • Median house price -- $395,000
  • Climate -- 43/29 January, 88/71 July
  • Traffic congestion -- 10th worst gridlock in U.S.
Washington is centrally located, is filled with historic attractions and has some of the most beautiful neighborhoods in the country. It also has one of the highest effective local income tax rates in the country. The district taxes the first $10,000 of income at 4 percent, then 6 percent to $40,000, then 8.5 percent on all income over $40,000 (you can exempt up to $3,000 in retirement income).

Like other cities on this list, Washington sports a high cost of living and some of the highest housing prices in the country. The area also has its share of toll roads, and traffic is a recurring problem. This is especially troublesome during the holidays and summer months. Interstate 95 -- which bisects the metro area -- is the principal travel corridor between the Northeast and Florida. Making traffic matters worse: the near-permanent road construction projects.
  • Cost of living -- 136.4
  • State tax burden -- 11.2 percent
  • Median house price -- $456,000
  • Climate -- 68/48 January, 83/64 July
  • Traffic congestion -- Worst gridlock in U.S.
As recently as the 1970s, Los Angeles was widely viewed as the city that all America was looking to move to -- or at least to imitate. Perfect weather, endless beaches, palm tree-lined streets, plentiful housing, a powerhouse economy and the lure of rubbing elbows with a celebrity or two. Today, about the only things L.A. has going for it are near-perfect weather and In-N-Out Burger. The rest is mostly a faded memory. The city's success was, in fact, a key contributor to its decline: The near-doubling of the metro population since the 1970s has created East Coast levels of human congestion.

Property values are higher than New York's and nearly twice those of Chicago. The state and local tax burden in California is second only to New York, and the overall cost of living in L.A. is more than one-third higher than the national average. California's unfunded pension liabilities are nearly as high as those in Illinois, threatening serious tax increases that could squeeze retirees. Nagging quality of life issues include the worst traffic congestion in the nation and smog that could lead to higher medical costs.
  • Cost of living -- 132.5
  • State tax burden -- 10.4 percent
  • Median house price -- $370,000
  • Climate -- 36/22 January, 81/65 July
  • Traffic congestion -- Ninth worst gridlock in U.S.
Boston is the quaintest large city in America, sporting centuries-old but impeccably maintained architecture, neighborhoods and surrounding communities that just ooze with charm and close access to the beaches of Cape Cod and the mountains of Vermont and New Hampshire. If Boston were a less expensive place to live, it could well be an popular and smart retirement destination.

But it isn't. The high cost of living and high housing prices are the main reasons cited by former residents for leaving the state. The state tax burden is higher than the national average; the cost of living is about one-third higher than the national average; and house prices are nearly double the U.S. median. Translation: a large chunk of your retirement income would be spent just covering basic living expenses.
  • Cost of living -- 116.9
  • State tax burden - 10.2 percent
  • Median house price -- $247,000
  • Climate -- 32/18 January, 84/68 July
  • Traffic congestion -- Didn't make the Forbes list
Based on the numbers, Chicago wouldn't seem to be the retirement financial disaster that other cities on this list are. The state tax burden is only slightly higher than the national average; the cost of living is tolerably higher than the U.S. average; and house prices -- while higher than the nation in general -- are downright affordable compared to the coastal cities.

However, in addition to being a generally more expensive place to live than the nation at large, the area faces burgeoning problems just over the horizon. Illinois faces the highest unfunded pension obligations of any other state in the country, at around $100 billion. Chicago faces a nation-leading $20 billion unfunded pension liability. Such deficits scream out for higher taxes across the board. We can only speculate as to which taxes will be raised (or created).
  • Cost of living -- 216.7 Manhattan, 145.7 Nassau County
  • State tax burden -- 12.8 percent
  • Median house price -- $972,000 Manhattan, $440,000 Nassau County
  • Climate -- 38/27 January, 84/69 July
  • Traffic congestion -- Fifth worst gridlock in U.S.
The area has fantastic amenities -– theater, music, concerts, festivals, ethnic foods, diverse and quaint neighborhoods and close access to beaches and mountains. It also has probably the most comprehensive public transportation system in the U.S. But it breaks down spectacularly when it comes to the costs. The area has close to the highest cost of living in the country, which gets markedly worse the closer you are to Manhattan. House prices are out of sight, particularly in the more desirable communities and neighborhoods. New York State has the highest state and local tax burden in the country. New Jersey has the highest real estate tax burden in the country. And nearby Connecticut isn't much better.

Weather runs from winter-time deep freezes to protracted summer heat waves. The preponderance of bridges, tunnels and their tolls -- as well as antiquated roads running through quaint town centers -- makes congestion a constant problem, even on the weekends.

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