Living on a retirement budget before retirement

When Gary and Mary Beth Bassford first talked to a financial planner six years before they retired, they were shocked.

"I looked at him, and I said, 'How in the world are we going to do that?' " recalled Mary Beth Bassford when she was told how much money they needed to save.


But the former Timonium residents, now both 67, took the advice and put together a detailed budget to build the savings, and they tried to live on their anticipated retirement income even before they retired. While they'd already considered themselves budget-conscious, the dry run living on a reduced income helped them achieve their retirement goals.

Financial planners differ on when people should start trying on their future retirement incomes — some suggest as early as the mid-50s, while others recommend a few years beforehand. But all agree that planning ahead is critical.


Having done it herself, Mary Beth Bassford believes that everyone should try living at their retirement income level in advance.

"They better, or they won't be able to make it," she said. "You have to be disciplined, because when you retire and you don't know what you're spending and what you should spend, you get in trouble."

Gary Bassford retired in December 2008, selling his interest in Media Dimensions Inc., the media production business he owned in Baltimore. His wife, retired about two years later from the Greenwood Group, a towing and repossession company, and the couple started a new life in Las Vegas in May 2011.

"We had peace of mind, because we felt we'd have the kind of income so we didn't have to change our lifestyle," Gary Bassford said. "That whole process has been our road map ever since. We still live by that budget."

These days, both work a few hours a week at a fitness center to make a little lunch money but mostly to lend structure to their week, she said.

Their financial planner, Eric D. Brotman, president and managing principal of Brotman Financial Group Inc. in Timonium, points to the Bassfords as a powerful example of people who can stick to a budget, but he acknowledges that the exercise has had limited success with others.

"A dress rehearsal is just not the same," he said. "You really don't know what it's going to feel like until it goes live."

Brotman believes that people who retire well share three qualities: health, predictable sources of income that they cannot outlive, and no debt.


Most Americans will retire with Social Security benefits, which now average $1,294 a month for individuals or $2,111 for couples. And far fewer workers today can look forward to a pension than they could a few decades ago. While public-sector jobs typically continue to offer traditional pensions with defined benefits, only about 17 percent of private-sector companies do so today, compared with about 45 percent during the mid-1980s, according to the AARP Public Policy Institute.

That means more people must rely on personal savings, either through employee-sponsored plans such as a 401(k) or on their own with Individual Retirement Accounts or other vehicles.

To supplement their retirement income, Brotman recommends that people put away 15 cents of every dollar they earn, starting with their first job, after first taking care of any debt.

But few people do. Brotman cited a survey by the Employee Benefit Research Institute and Greenwald & Associates warning that 36 percent of Americans have less than $1,000 saved for retirement and only 11 percent have amassed $250,000.

"It's the tsunami coming for this country," he said. "We have an entire generation in this country not prepared. Folks have no idea how expensive it's going to be and how long they're going to live."

One challenge with planning ahead is getting people to understand the true value of the lump sum of money in their portfolios, said Gary Koenig, the AARP Public Policy Institute's director of economic security.


"Most people don't quite get what a lump sum means in terms of an income stream," he said. "It sounds like a whole lot of money, but when you think of life expectancy, it doesn't translate into a whole lot of money."

The average life expectancy of a 65-year-old today is 20 years, according to the Social Security Administration.

Many people are on their own trying to figure out how to convert their lump sum savings into a monthly payment that will last, Koenig said.

That's where a financial planner can play an important role. The Bassfords say they wouldn't have reached their goals without Brotman.

"He changed our life," said Gary Bassford. "We owe him big time."

Christine Fahlund, a senior financial planner at T. Rowe Price, has long advocated that people try to live off their estimated retirement income three to five years before they retire. That gives them time to make adjustments, rather than get locked into a lifestyle they didn't want, she said.


"If you can try this on for size, it's a great idea, because the realities aren't what they seem at first blush," she said. "It's nice to dream of walking on the beach and taking out library books, but after a while, some of the realities set in."

The experiment is one that Karen Bucchiere of Columbia is just beginning. The health and life insurance agent said she got serious about a year ago about bringing her current spending in line with her future income.

"I figure it will be about a two- to three-year process," said Bucchiere, who will turn 70 in June. "And then I'm going to teach myself to live on my Social Security. I have to be able to know that I can do it, so I'm going to start now."

Right now, she acknowledged, there is a big gap between what she spends monthly and her expected retirement income. Her Social Security benefits will be $60 less per month than she earns in just two weeks at the job she's worked since 1987.

She has saved consistently in a 401(k) to take advantage of the company match but has not contributed as aggressively as she could have, she said. Even though she has the 401(k) in addition to Social Security, she said that will only go so far.

"I plan on living until I am 82 or 83, so that has to go for a lot of years," said Bucchiere, who is divorced.


As Bucchiere eases into her retirement lifestyle, she eliminated Internet and cable TV service a year ago, saving $100 a month, and reined in her passion for new clothes, shoes and entertaining accessories. She reduced how often she dines out from once a week to about once a month.

Although she knows that a move to a one-bedroom apartment could save $300 a month, she hasn't sold herself on leaving her home, which is just four minutes from work, she said.

That move is one of the things the financial adviser she just enlisted told her she should do. He also told her to put another $5,000 into her 401(k) each year and move her money to less-aggressive funds.

"I feel like I've waited until the last minute," Bucchiere said. "I should have been smarter so that I'd feel more prepared than I do now. But I'm just going to have to work it out. "

Bucchiere is far from alone in getting sobering news from a financial adviser.

Fahlund tells the story of a client in his mid- to late-50's who was offered a golden parachute to retire from his insurance job. He and his wife had a cabin in a rural area and were convinced that they could sell their big house and have plenty of money to enjoy a slower, more modest lifestyle.


But three weeks after the T. Rowe Price financial planner ran some numbers for the couple, they scuttled those early retirement plans and decided he should keep his job. They realized that they didn't have the money they thought they'd have.

"To have all the time and none of the money is not fun," Fahlund said.

T. Rowe Price and many other financial institutions feature calculators on their websites that enable individuals to plug in their own numbers and get an early glimpse of future finances.

Yet even when individuals or couples plan well for their retirement needs, life's emergencies, such as having to rescue children or parents with financial troubles, can derail the best calculations, Fahlund warned.

One obvious way to make retirement more financially sound is to keep working. Fahlund suggested that if people do opt to work longer than planned, they find ways to start doing the things they planned to enjoy during retirement, such as traveling.

"The simple and easiest way is to hold out for a year or two more working, but don't hold out on the fun," she said.


Nevin Adams, director of the American Savings Education Council, cautioned that retirement dates often come sooner than people expect because of disability, downsizing, layoffs or other surprises.

"What you hear people increasingly say is that they are planning and expect to work later," he said. "It's fine to have that in the back of your mind, but I wouldn't have that as a retirement strategy. People don't end up working as long as they think they are going to."

To stay on top of their finances, the Bassfords meet face to face each year and talk on the phone with their financial planner, they said.

"He helps us stay on track," Gary Bassford said. "It's an ongoing process. We'll keep doing that until we're not here anymore."