Robert Brokamp was the perfect choice to run The Motley Fool's newest newsletter service, Rule Your Retirement. Years ago, after earning a master's in education and nearly going broke, he set out to learn as much as he could about personal finance, focusing on retirement issues. He learned so much on his own that he decided to make a career of it and became a financial advisor at Prudential Securities until he joined the Fool in 1999. He's written hundreds of Foolish articles and contributed to books like The Motley Fool's Personal Finance Workbook and The Motley Fool's Money After 40.
David and Tom Gardner sat down with Robert recently to discuss exactly what retirement means today and will mean two decades from now for many Americans older than 40.
Tom: Robert, first things first. What's your background and how did you get interested in retirement?
Robert: In a previous life, I began as an elementary school teacher, getting paid zilch -- well, almost zilch. My first year's salary was less than $20,000 -- in today's dollars. So I knew I had to be smart with my money. I began reading book after book about personal finance, thinking all along, "Why didn't anyone teach me this stuff? And why isn't everyone taught this stuff?!" It quickly became a mission for me, to educate others as to how to make the most of their money. To that end, I even went on to become a financial advisor with one of the big Wall Street firms.
But I soon found out it was mostly a sales job, and the industry had little incentive to teach and empower its clients. Then I found the Fool, came on board in 1999, and for five years now have tried to educate, to amuse, and to enrich our readers, most often on the topic of retirement because that's the No. 1 goal for most people. They're not saving and investing just to create a fatter portfolio. They want what that fatter portfolio will buy them: financial independence.
David: Robert, what do you see as the major challenges facing the next generation of retirees?
Robert: Well, first off we need to recognize that this generation is much different than previous generations.
Robert: They're not only living longer, but they're also much more active and engaged than their parents. Systems like Social Security just were not built to sustain people for 30 years. In fact, when Social Security was instituted in the 1930s, the average male didn't even make it to 65.
The old version of retirement was supported by the proverbial "three-legged stool": Social Security, traditional pensions, and some personal savings. But that stool's looking a little wobbly, last I checked! Social Security has structural problems. Fewer companies offer defined-benefit plans. And the average baby boomer hasn't saved enough. So there's a disconnect between what people expect -- based on how their parents retired -- and what they'll actually be able to afford. In addition, many are basing their retirement plans on imprecise or out-of-date rules of thumb.
Tom: Spot me an example.
Robert: Sure. Many experts will say, "Retirees need just 70% to 80% of their pre-retirement income." This makes sense in many ways, since these folks are no longer paying FICA taxes or sending 10% of their salaries to their 401(k).
But many retirees have found that the time they used to spend making money (i.e., working) is now filled with activities that involve spending money. Those gas-guzzling RVs and trips to Europe will set you back! So you don't really know how much you'll need in retirement until you sit down, think about how you'll want to spend your time, and see if you have the resources to pay for it.
Additionally, health-care expenses will probably rise in retirement as the employer increasingly no longer foots the bill. The Journal of Gerontology found that 61% of couples ages 70 and older, and 54% of single adults, spent at least 10% of their retirement savings on health care. A startling 45% of couples lost more than half of their savings to medical bills. Of course, people are eligible for Medicare at age 65, but that program is even worse off than Social Security.
Within our Rule Your Retirement service we're going to talk a lot about getting the most out of Medicare and other health-care benefits.
David: On which leg of that so-called three-legged stool will you spend your most time and effort?
Robert: Well, I think that comes down to figuring out the needs of our members and acting accordingly. Obviously, we're going to spend time on each of the three areas. People might say to me, "Robert, what the heck kind of value can you offer on the subject of Social Security?" Well, let me tell you: Despite what you hear, Social Security is not going away. Current and near-retirees will still get their checks. So we'll be showing our members how to find out how much they can expect to receive. We'll also explain what they can do during their last few years of work to maximize the amount they ultimately collect. And as far as pensions, we will certainly provide help thinking through your distribution options.
But I guess I'd have to predict that we'll spend the most time on people's individual savings. I think this is really the area that will make the difference -- protecting and growing what you've spent your life building.
Tom: You can do all that with a newsletter?
Robert: The Rule Your Retirement newsletter is just part of the service. It really starts with our members-only website, which will feature our great Motley Fool discussion boards staffed in this case by retirement experts. We'll also have special sections on assets allocation and model portfolios, and we'll feature online tools, including calculators and our Roadmap to Retirement How-To Guide. When you add all this up, you have a great solution that can meet each of our members where they are, in whatever way is most helpful to them. Our Rule Your Retirement members will ultimately discover where they stand, estimate where they'll be, and what they can do to improve their situations.
I have to speak again to what may be our greatest strength at The Motley Fool, and that is our community. We have this wonderful dynamic where we enable people around the world to meet online and ask questions (privately or publicly), share their ideas, and read and swap stories. That will be a big component of Rule Your Retirement, and so our newsletter service will reflect the interests, hopes, and conundrums of our members.
Tom: Robert, these days I read lots of doom-and-gloom headlines about retirement, and that it's just a fantasy, et cetera....
Robert: Well, then you're encountering the standard mix of truth and sensationalism. Certainly the average baby boomer carries too much debt and doesn't have enough savings to enjoy the "retirement" that most expect. The good news is that each of us does have time to take action, and any and every action you do take will certainly improve your future.
David: And I completely agree, and I hope every member of The Motley Fool, soon-to-be retiree or not, understands that point. Before we close, come on now, if I'm a reader here I've stuck it out with you this far – you gotta give me one free tip or recommendation if I'm looking to take a positive step toward my own retirement.
Robert: OK, Dave, get out your pencil then, because this one's for you too:
Most of us are just not taking full advantage of our retirement accounts. Very few contribute as much as we can, and about a third of all Americans don't contribute anything at all! That is a shocking and most disappointing statistic, and I would really like to think that our Rule Your Retirement service will wind up playing no small part in revising that sad present truism. Let's remember that contributions to our employer-sponsored retirement accounts -- 401(k)s, 403(b)s, etc. -- both reduce our taxable income and allow our money to grow tax-deferred. Plus, your boss may often pay you extra to contribute! So let's stop leaving this future retirement on the table!
Let me make that general advice really specific by putting it in real dollars -- you ready?
Let's say your household income is $75,000 a year and you contribute $7,500 to your 401(k). First off, that immediately cuts your tax bill by approximately $1,800. Second, if your employer matches 50 cents on every dollar contributed to the plan up to 6% of your salary (the most common matching formula), then your boss will deposit an additional "free" $2,250 into your account. Put that together and you're now up to $4,050 of tax savings and free money. Cocking your belled cap and looking at that from a slightly different angle, Uncle Sam and your boss are willing to pay you more than four grand to save for your future. Even if your contributions aren't matched, you'll still reap hundreds to thousands of dollars' worth of tax savings while doing something that's good for your financial future.
You should try it out, Dave.
David: [Laughing.] Hey, we really should offer employees like you a better match at this company, eh, Robert?
Robert: You're going to learn a lot from my service, David.
And that's not all, by the way. Workers ages 50 and older can contribute even more to their retirement accounts, known as "catch-up contributions." So I'm going to make sure our members think hard about increasing their contribution rate, especially if they're behind on their savings now.
Tom: Tough love?
Robert: Hey, if that's what it takes. But we're more about sugar than sticks. What's most important is that whichever way we get there, your future, retired self will thank you.
Robert Brokamp's new newsletter service, Motley Fool'sRule Your Retirement, is on sale now and already building a great community. We are proud and excited of this latest service, and we hope you'll consider joining with thousands of others who are making The Motley Fool their trusted advisor and friendly guide on the way down that primrose path -- jester bells jingling!
You can join our service and try us out for free, right now, for the next 30 days. Click here for further information, or to do just that.