Ellen Rinaldi recently started to think more seriously about retirement, and wanted some advice. Unlike most of us, she has an unbelievably rich pool of potential advisers. Rinaldi is head of information security at Vanguard, the investment and retirement firm based in Valley Forge, Penn. She has held other positions there as well, including being in charge of financial planning.
While there are plenty of experts she could have turned to, Rinaldi says the most powerful advice she's received has been provided by Vanguard customers. As one of several Vanguard leaders who contribute to the company's blog, Rinaldi tossed out the question of retirement readiness on a post last month. Since then, she's heard back from hundreds of Vanguard clients who have thought about, planned for (or not planned for) retirement, and who have had to live through their retirement years marked by the Great Recession and market collapse of 2007 and 2008.
I do not recommend or endorse individual investment companies or their products. But if you are thinking about your retirement prospects, it would be time well spent to read about how lots of other people are approaching the same issue. The responses to Rinaldi's blog post are uniformly thoughtful and heartfelt. Rinaldi learned a lot from them. So did I. So can you.
"I'll admit I'm over the age of 50," Rinaldi says in an interview. "In the next 10 years or so, I have to seriously consider retirement." Her early thoughts about retirement readiness included a number of objectives—travel, volunteer work, family, and leisure time. "But as I've spoken to [Vanguard customers], everybody came back to 'the number' immediately. That's where it starts and, for a great number of people, that's pretty much where it ends."
The Number is the title of a popular 2006 financial planning and retirement lifestyle book by Lee Eisenberg. And the concept continues to be emphasized. ING, the insurance and financial firm, has a long-running ad campaign in which people carry outsized, bold orange numbers representing the amount of money they will need to support successful retirements.
"The simple, hard truth is that retirement readiness really does come down to numbers," Rinaldi wrote in her blog post. "Whatever your vision of the 'perfect' retirement happens to be, your first (and second, and third!) question must be: 'Will I be able to support myself financially when I'm no longer working?'"
Renaldi has read and re-read all the responses to that posting. Even though she is considered a retirement expert herself, the responses have had a big impact on her thinking. "If someone was coming to me today for advice," she says, "I'd say, 'Be ready early.' That was one of the things that was traced through" the responses, "either because some of the people were ready early, or because they weren't."
In particular, she was struck by how the failure to plan left people defenseless when unexpected problems occurred. And as many people stressed, such problems do occur, time and time again. "Outside events took over their lives," Renaldi says. "If there's an unexpected hit, you need to be prepared for it, or at least prepared for it as well as you can."
Preparations go far beyond having an emergency fund, she notes. For example, if your "number" is based on working for seven more years, what would your retirement future look like if you could only work another four years? Perhaps you will have a health problem or need to care for an ailing family member. Or you could lose your job.
"That might be a very good way of looking at things," Renaldi says. "It might bring some issues to you sooner than you otherwise might address them." For example, could you still afford the mortgage on your home? If not, perhaps now is the time to deal with that issue, on your terms and not when a crisis hits.
Perhaps the most compelling advice Renaldi received was the value of voluntarily cutting expenses in advance of retirement. "Living below their means was huge, absolutely huge," she says in describing what Vanguard customers advocated. "It provided more discretionary income for them to save, and it also meant they could live for less in retirement." It also provided people a sense of comfort and confidence about their future. "People were saying, 'We've lived below our means, we have no debt, and our house has been paid for. We're going to be okay.'"
Vanguard provides extensive retirement advice, of course, and it is easy to take valued "rules of thumb" and cast them in stone. In the real world, Vanguard's own customers illustrate the need to be flexible and understand that a guideline is, in the end, only a suggestion—not a hard and fast rule.
"One of those rules of thumb is that you need about 80 percent of your income in retirement," Renaldi says. Some of the people who commented on her blog posting "would argue with that. They can work with less and still have a good retirement ... They show a remarkable flexibility in managing what they have."
It's also very clear, she adds, that successful retirements include constant review and adjustments as circumstances change. "Adjustment and flexibility is what's going to be critical," Renaldi says. "A lot of the people who commented said they had figured out what their expenses were, and then went through the numbers again and again. This is not a 'once and done' process."