Retirement: Timing Is Everything

With the oldest baby-boomers nearing retirement age, NPR explores some of the questions that surround retirement, beginning with how to pay for it. NPR's Scott Horsley begins our series with a profile of the Baker family of Orange County, Calif. John Baker is about to turn 65. His wife, Christine, is 61; they are both are looking forward to a time when they can take it easy.

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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

The oldest baby boomers are nearing retirement age. For many, that means making decisions about when to stop working and how to spend their free time. This week we'll explore some of the questions that surround retirement, beginning with how to pay for it. NPR's Scott Horsley starts things off by introducing us to the Baker family of Orange County, California.

SCOTT HORSLEY reporting:

John Baker is about to turn 65, and after three and a half decades working for the same architectural firm, he's looking forward to taking it a little easier.

Mr. JOHN BAKER (Retiree): Being able to get up and read the paper till 9:00 in the morning instead of 8 in the morning would be nice at times 'cause I never quite get through it. I want to go fishing. (Laughs)

HORSLEY: Baker doesn't want to quit working cold turkey. He'd like to stay involved with architecture in some capacity if his firm will let him. But he's seen how much his wife is enjoying her newfound freedom. Christine Baker gave up her job running a school district's lunch program almost six years ago.

Mrs. CHRISTINE BAKER (Retiree): It was nice once I retired that I could take a vacation at times when school was in session, which I always had a problem with before. There was, like, three weeks, part of July and part of August, when I could be gone and then I had to be back to get ready for school to start.

HORSLEY: Once John retires, the Bakers want to do more traveling. Photos of Yellowstone, where they like to fish, decorate the couple's Orange County home. John jokes their goal is to die broke, but they don't want to run out of money before that.

Mr. BAKER: To see her folks live till they're both 90 and her mother is still living at this point, she's got good genes. (Laughs)

HORSLEY: To make sure they can afford to retire, the Bakers have been meeting with Chris Rand, a certified financial planner and a member of the Financial Planning Association. As he does with most clients, Rand asked the Bakers to figure out how much they spend each month and to think about how that might change once John is no longer working. Rand says retirees typically save money in some areas. Their house is often paid for, they no longer need work clothes and they might be able to do without a second car, for example. But Rand says those savings are often offset by increased spending in other areas.

Mr. CHRIS RAND (Certified Financial Planner): You know, you have 40 to 60 hours a week now to spend money that you didn't used to have. A lot of times in the first, you know, five to 10 years of retirement as people travel, they--they're--you're doing everything that you wanted to do but just couldn't because you either had children around or, you know, work obligations, things along those lines.

HORSLEY: Once the Bakers had a forecast of what retirement would cost them, they looked at how they would pay for it, beginning with Social Security. John Baker will be eligible for his full retirement benefit when he turns 65 1/2. Christine plans to start collecting her Social Security checks when she turns 62 next year, even though drawing early means for the rest of her life she'll get a smaller monthly payment.

Mrs. BAKER: I'd rather spend it now than have it in 12 years 'cause right now I'm healthy and able to go places and spend money. Twelve years maybe I'll be ready to cut back on expenses.

HORSLEY: Because she worked for a public school district, Christine Baker also receives a state pension that's guaranteed for life. Only about one in five private-sector workers has that kind of benefit, and financial planner Chris Rand says the number has been shrinking.

Mr. RAND: If you go back and you look back 30 years ago, the average American would work for a company for 30 or 40 years, they would retire, they would receive a pension for the rest of the life. Their mortgage was typically paid off and that was the time they retired and, you know, things were very easy and a lot simpler, I think, back then. But today it's uncommon now to have people that are retiring with a substantial pension, if any pension at all.

HORSLEY: Christine's husband, John, for example, does not have a traditional pension. He's counting on retirement savings to supplement his Social Security. A big chunk of those savings are now tied up in the stock of John's architectural firm. Rand recommends spreading that nest egg among a variety of baskets including many stocks, bonds and a bit of real estate. Otherwise, a retiree could be vulnerable to a downturn in any one sector.

Mr. RAND: We've seen what happened with the technology crash, March of 2000, and, you know, Enron is a prime example. We see that, you know, on the news a lot. And what happens when people have all their assets in one or a few stocks, you know, how the negative effect can certainly happen.

HORSLEY: The Bakers expect to receive about $50,000 a year from Social Security and Christine's pension. That's a little below their minimum retirement budget of $60,000 a year, but they figure they can more than make up the difference with savings and investments.

One of their biggest assets is their house, which the couple owns free and clear. About one in three retirees age 65 to 75 still carries a mortgage. The Bakers moved into their house Labor Day weekend 26 years ago and they doubt they could afford it at today's prices. Four of their original neighbors are still around though, and the Bakers are planning to stay.

Mrs. BAKER: At least five years we'll stay here, I think.

Mr. BAKER: Till we can't get up and down the stairs anymore. Then we'll go to a lawn model.

Mrs. BAKER: It's good exercise. I'm glad we bought a two-story house 'cause it really--it's exercise that's just there all the time whether you want it or not.

HORSLEY: After a few meetings with their financial planner, the Bakers feel pretty confident they can afford the retirement they want, and far from dying broke, they'll probably leave a nice inheritance for their children. In fact, like a growing number of retirees who can afford it, the Bakers have begun to think about sharing some wealth now while they're still around. John Baker thinks his two daughters could use the extra money while they're in their 40s.

Mr. BAKER: Right now they're single women out there buying houses and cars and fending for their kids. And is it better to actually give them what you're allowed to give them now vs. this thing when they're 65, 70 years old?

HORSLEY: Christine says if the Bakers do give their daughters some money, they'll encourage the women to make maximum contributions their own retirement plans. Too often younger working people shortchange those savings or tap them prematurely. Financial planner Chris Rand says whether you're 30, 50 or 70, planning for retirement is definitely the way to go. Scott Horsley, NPR News.

SIEGEL: In the coming days we'll have other stories about retirement and savings.

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