10 Secrets to a Financially Secure Retirement 

By Lynn O'Shaughnessy, Special for USA Today 

September 23, 2008

5 Ways to Boost your Income

1. Don't retire impulsively.

Each year, the Employee Benefit Research Institute surveys Americans, and every year without fail they tell the pollsters that they plan to retire at age 65. Regardless of what they say, though, retirees usually bail at age 62.

"There's a disconnect between what people say they will do and what they end up doing," observes Alicia Munnell, director of Boston College's Center for Retirement Research. Munnell used to find this reality puzzling, but she thinks she's found an intriguing reason to explain the behavior.

"The decision to retire is sometimes made for superficial reasons," Munnell says.

She's heard many stories of older workers quitting suddenly because they had been stuck on airplanes too long during business trips. She heard of a woman recuperating from a sprained ankle who decided she really liked to watch daytime television, so she retired. Some quit because they were peeved at younger bosses.

Leaving in a huff without developing a solid exit strategy, though, can be financially foolhardy. 

2. Invest in stocks for the long term

Plenty of investors turn timid as they age, so it's no surprise that many retirees consider stocks off-limits. What they fail to realize is that an ultra-conservative portfolio stuffed with bonds and certificates of deposit can't keep up with inflation. It may be hard to imagine, given the current bloodbath on Wall Street, but over the long run, returns from stocks and stock mutual funds tend to surpass the returns on other investments. 

Adding stocks to a retirement portfolio can boost your returns without exposing you to reckless risk. "If you have a portfolio with 20% to 30% stocks, your volatility is about the same or less than if you bought long-term bonds," says Larry Swedroe, an investment adviser in St. Louis and the author of The Only Guide to Alternative Investments You'll Ever Need: The Way Smart Money Diversifies Risk. 

3. Seek pension help.

Those lucky enough to retire with a pension must often decide whether to take a lump sum or a lifetime of monthly checks. Grabbing that huge chunk of change all at once is exceedingly tempting, but retiring workers should consider consulting a pension actuary before making such a momentous decision.

Where do you find an actuary? The American Academy of Actuaries sponsors a program called the Pension Assistance List, which links pensioners who need assistance with actuaries who will provide up to four free hours of help. You can contact the academy at (202) 223-8196 or www.actuary.org. 

4. Delay Social Security.

You can start collecting Social Security checks at age 62, and most Americans go for it. But their eagerness can curtail their retirement income. If you delay Social Security past age 62, your benefits will increase significantly. Crunch your own numbers, using various retirement scenarios, by visiting the Social Security Administration's website at www.ssa.gov.

5. Be a smart investor.

What's required to be a successful investor hasn't really changed from the days when stock prices were ripped off ticker tapes. 

"The whole purpose of investing for the long term is to make your money grow faster than inflation deteriorates it, " says Lewis Schiff, author of The Middle-Class Millionaire: The Rise of the New Rich and How They Are Changing America. "For those investors who take the long view and practice the simple arts of diversification, compound returns and dollar-cost averaging, and especially those who do so in tax-advantaged accounts, this growth is well within reach."

If you're not confident in your own investing skills, consider using low-cost target retirement funds offered by big mutual fund companies such as Fidelity, T. Rowe Price and Vanguard.

5 Ways to Reduce Expenses and Debts

1. Pay attention to after-tax performance.

"People need to remember that it's after-tax returns that matter," says Taylor Larimore, co-author of The Bogleheads' Guide to Investing. The after-tax performance of mutual funds can look shockingly different from their posted figures. During the decade that ended in 2007, for instance, Lipper estimated that fund investors lost anywhere from 17% to 44% of their returns to taxes.

Many retirees woefully underestimate their tax hit because they incorrectly assume that their tax burden will plummet once their paychecks dry up. But that's not always true, especially when retirees are forced to begin making mandatory withdrawals from their individual retirement accounts. 

A great way to stanch the tax hemorrhaging is to invest in tax-efficient index and exchange traded funds.

2. Shrink credit card costs.

Obviously, carrying a credit card balance is a no-no, but if you haven't managed to erase your debt, there's a painless way to tackle the problem: 
Call your card issuer.

"If you have good credit — a 700 FICO score or better — you have a ton of leverage with credit card companies, which are scared and worried about their profit margins," observes Liz Pulliam Weston, author of Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number That Shapes Your Financial Future. Card issuers hate losing customers, so they're generally willing to negotiate. If you enjoy good credit, you should be able to capture a rate below 10%. 

3. Track expenses.

No one's asking you to deny yourself a $4 latte, but if you're living beyond your means, it makes sense to root out the budget-busters. "You have to know where the money is going in order to know where to cut back," Weston says. Recording your purchases for a week can prove a tremendous help.

4. Be a frugal investor.

Investment fees are a natural enemy of retirement portfolios. But many investors are oblivious to this predator. Why? Because investors of mutual funds and annuities aren't billed for these expenses. Instead, the fees are automatically deducted. 

You can see for yourself the damage that even average expenses can wreak on a mutual fund by using the U.S. Securities and Exchange Commission's mutual fund cost calculator at www.sec.gov/investor/tools.shtml. Try sticking with mutual funds that charge an annual expense ratio of 1% or less.

5. Think healthy.

Regardless of your age, take care of your health and you'll probably save money. "Eat right, exercise and care for your teeth, eyes and ears," says Henry Hebeler, the creator of AnalyzeNow.com, a financial website geared toward retirees.

"By the time we get to retirement age," Hebeler adds, "health care costs are the single largest item in most of our budgets, and early prevention of health problems pays huge financial dividends."

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