Jane Bryant Quinn Shows You How to Make Your Money Last

Episode: 163
Originally Aired: February 19, 2016
Topic: Jane Bryant Quinn Shows You How to Make Your Money Last

The Lange Money Hour - Where Smart Money Talks

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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  1. Guest Introduction: Jane Bryant Quinn
  2. Safe Withdrawal Rates
  3. Immediate Annuities: Who Are They Right For?
  4. Pension Decisions:  Single or Two-Life?
  5. Reverse Mortgages

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Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.

1. Guest Introduction: Jane Bryant Quinn

Dan Weinberg:  And welcome to The Lange Money Hour.  I’m Dan Weinberg along with CPA and Attorney, Jim Lange.  This week, we are thrilled to welcome back to the program one of America’s leading commentators on personal finance, and one of Jim’s favorite authors, Jane Bryant Quinn.  Jane’s popular and widely respected syndicated column ran in hundreds of newspapers throughout the country for twenty-seven years.  She wrote a bi-weekly column for Newsweek for thirty years, and hosted financial programs on CBS and public television.  Currently, she’s writing a regular column for the AARP monthly bulletin and blogging on her own site at janebryantquinn.com, and Jane is the editorial director of Daily Voice, an online community news company that she founded with her husband.  Jane Bryant Quinn has written a half dozen books and will be talking about her newest one tonight, and it is brand new, just out this week.  It’s called How To Make Your Money Last: The Indispensable Retirement Guide.  Over the next hour, Jane will share with us some of her tricks for squeezing higher payments from your assets.  We’ll cover things like the safe withdrawal rate for retirement (and why it might be higher than you think), index funds, bonds and what percentage of your assets should be in the market, whether we should be optimistic or pessimistic about the future of the American economy in this election year, and different types of annuities and when they’re a smart buy.  With that, let’s get right to it as we say hello to Jim Lange and Jane Bryant Quinn.

Jim Lange:  Welcome Jane!

Jane Bryant Quinn:  Hi Jim.  Nice to talk to you again.

Jim Lange:  Well, it’s always a pleasure, and I always love your material, whether it’s articles or books, but I think you outdid yourself this time.  How To Make Your Money Last by Jane Bryant Quinn is just a wonderful book, and I would recommend that everybody listening, don’t even think about it, just go out and buy it.  It has kind of like a cheat sheet at the end.  It has the answers, and then it has, chapter by chapter, saying how Jane gets to these answers, and it’s just a marvelous book, and I was hoping that we could go through some of the concepts in the book, as well as get your take on a whole bunch of areas, if that’s okay with you, Jane?

Jane Bryant Quinn:  My pleasure.  I’m looking forward to it, Jim.

2. Safe Withdrawal Rates

Jim Lange:  Good. Well, the area where I want to start is with safe withdrawal rates, because maybe it’s not right, but I kind of think of you as a little bit conservative and proper, and not wanting to tell people to take too big of a chance, and you just want to make double, triple, quadruple sure that nobody ever runs out of money in their lifetime, and some of the things that you said in the safe withdrawal rate chapter surprised me.  So, if we could go through some of that analysis, that would be terrific.  Is that okay with you?

Jane Bryant Quinn:  I would be delighted to do that.  I like to think of myself as conservative, but not so crazy conservative that you’ve got all your money in the bank and it’ll never last you for thirty years.

Jim Lange:  Well, that’s actually one of the things I’d like to discuss, but before we get to that, the first thing I want to congratulate you on is having the best discussion of how the classic four percent rate came about with analysis by Bill Bengen.  Very frankly, I think you explained it better than even Bill Bengen did.  I actually had Bill on the show, and if anybody’s interested, they can go into our archive and they can type in ‘Bill Bengen,’ and I did an hour with him.  But I think your explanation of his analysis was terrific.  And by the way, he confirmed, or updated, his analysis about twenty-three years (because I think he was on about two years ago) after the analysis, and the basic idea was that you could take four percent of your portfolio and spend it every year.  Perhaps you could give our listeners a little bit of background on what does that mean, and how does inflation fit in, and how do taxes fit in with that four percent?

Jane Bryant Quinn:  Okay.  First, let me say what a withdrawal rate is.  We’re talking about people who need to withdraw from their retirement investments and savings, probably before they’re seventy-and-a-half.  So, you know, at seventy-and-a-half, if you have it in an IRA, there’s a rate at which you must withdraw it.  We’re talking about people who retire, they have some savings, they have various investments, and they don’t have enough income to pay their bills.  And so, a withdrawal rate means at what rate can you withdraw money from your savings and investments and be reasonably sure that it will last for thirty years.  And I’m actually going to correct you a little bit here, Jim.  The gold standard, the standard that they started with, but I think you can go higher, but it started with you can take four percent, but that is not four percent every year, and a lot of people, listeners, I know would make that mistake.  The four percent withdrawal rule means the first year you retire and start withdrawing on your savings and investments, you take four percent of your financial investments, your investments, your cash, whatever, and then each year thereafter, you take the same amount plus an increment for inflation.  So, you are taking the same real dollar amount out of your savings and investment pot every year.  If you took four percent a year, you know, you’d get more one year and less another year.  But if you take four percent the first year plus an inflation adjustment, you have a steady, real income, and that’s where the four percent rule came from.  Bill Bengen created it.  It was successful even during the great recession of the seventies and early eighties, which was a great stagflation, I should say, which was a very difficult time for investors and retirees.  It was successful during the Great Depression, and although we don’t have a thirty-year evidence yet, it has been successful since the collapse of the tech stocks in 2000.

Jim Lange:  Okay, Jane.  Well, that makes sense to me.  But you yourself said that your plan is to spend 4.5%.

Jane Bryant Quinn:  Oh, the four percent rule (four percent the first year, plus inflation increments afterwards) was based on owning the S&P 500 average.  So, these are large, major stocks in the United States.  Bill redid his calculations, adding smaller stocks, and when you added smaller stocks (which would be, for example, a total market index mutual fund for investors), it came up to 4.5% being successful all during those periods.  So, I’m diversified.  I own smaller stocks.  I own small stock mutual funds as well as large ones.  And so, I looked at that and said, “Well, for me, starting with 4.5% is an easy call.  But then, of course, you can go higher and maybe I will!”  Which is probably going to be your next question, right?

Jim Lange:  Well, actually, before we go higher, let’s talk about that for a minute because I would say roughly ninety-five percent of the people that I see who are prospects, who are not yet clients, I would say the vast majority of them are significantly underweighted in small companies, and since small companies have historically done better, and what you’re saying is because they have historically done better, and even though there might be some fluctuation, that you could actually spend more money, not less money, and safely do it if you have some representation of small stocks in your portfolio, and I assume that you’re talking about a well-diversified index fund.

Jane Bryant Quinn:  I am always talking about a well-diversified index fund.  You could also do it with one fund, a total market index fund, because it has large stocks and small stocks.  So, the answer to that is yes, a total market index fund makes it easy, and there may be similar higher volatility, but we’re talking here about data that shows that if you stay within this plan and do the 4.5% plus an inflation adjustment, in a year that stocks go down, maybe you’ll withdraw more in dollars, but then the market will come back up again and it will make up for any of the losses that you had.  Remember, this is not just stocks.  The 4.5% rule covers stocks, bonds and bond funds.  So, you’ve got both of those in your portfolio, and if you have treasury funds in your portfolio (which, again, is what the research is based on, basically), then treasury funds go up when stocks go down.  So, it mitigates your loss and you can again afford to do the 4.5%.  I mean, if you’re entirely in stocks, this doesn’t work, which is what Bill Bengen showed.  But if you’re anywhere from, say, forty percent to maybe sixty, sixty-five percent in stocks, it works.  And so, who am I to disbelieve the data?  I’m very research-based, as I know you are.  And so, that’s why I think 4.5% is good.

Jim Lange:  Well, I think this is a groundbreaking issue and a groundbreaking book because I’ve done numerous shows on safe withdrawal rate, including Bill Bengen himself, and nobody was willing to go higher than four percent, and I think of you as the meticulous researcher.  I remember one time, we were on the phone, not me and your assistant, but me and you, for more than four hours for a one-page article.  So, I have enormous respect for your research and your dogged determination to get it right.

Jane Bryant Quinn:  I should also say there is enormous respect for my sources, who are willing to sit with me for four hours!

Jim Lange:  Well, I was literally honored.  But here you have it, and I think that this book is so valuable because it’s telling people…and by the way, I love the soft part of the book.  That I’m not going to probably spend as much time on, just because I guess I’m more of a financial hard-type data person.  But I think you are the first major writer that I can think of that says for thirty years…and by the way, I’ll mention to listeners, and I hope this isn’t private, but you put it in your book, that your mother is a hundred.

Jane Bryant Quinn:  My mother is a hundred years old and she’s sharp.  By the way, my mother, who is one hundred, who was a widow for ten years, remarried at age ninety-seven to a lovely man of eighty-six, and it’s a beautiful love match, and they came and visited us about a month ago, and we live in New York City.  What did they want to see?  They wanted to see the hip-hop musical Hamilton.  So, I just want everybody to know that you can be a hundred and still be very with it, and the way longevity is these days, at sixty or sixty-five, you are still a long-term investor.  Now people think, “Oh dear, I have to go to income investments.  I have to be more conservative because I’m sixty-five.”  Well, you know, baby, you might live till ninety, ninety-five and even a hundred.  And so, you are still in the market for, say, twenty-five to thirty years, and if you’re forty-five, you say, “Oh, twenty-five to thirty years?  Of course I’m a long-term investor.”  The same thing is true at sixty-five.  You just have to think of how long you’re going to live and how the market has behaved in the past, and after ten, fifteen years, your money that’s in the market, in a stock index mutual fund that follows the market, is going to grow and that is what is going to help finance the second half of your retirement.

Jim Lange:  Well, you might have the youngest cougar mother of anybody certainly that I know!

Jane Bryant Quinn:  Oh, but don’t tell my mother she’s a cougar!  The New York Times did a story about her wedding, and predictably, the morning shows wanted to have her on.  Well, she wouldn’t dream of doing something like that!  On The View, they were chatting about it and someone called her a cougar, and mother said to me, “What’s a cougar?”  And I told her.  She was furious!

Jim Lange:  Well, the other thing that I think that I really want to emphasize is, let’s say, now, I certainly have clients who will say, “Oh, you know, Obama’s a moron.  The Senate and the House are completely dysfunctional.  The United States is going down.  I just better keep my money in cash or CDs or bonds.”  And what kind of safe withdrawal rate could an investor like that count on compared to somebody who is better diversified?

Jane Bryant Quinn:  Data shows (again, I’m a data person) that if you stick entirely with “traditional” safe bond funds, CDs, your safe withdrawal rate begins at 2.5% plus an inflation adjustment every year, and to be able to stretch that money over thirty plus years, I think you need to have a whole lot more money than maybe you think.  That’s not a successful strategy for somebody who isn’t really rich.  If you’re really rich, and you’ve got tons of money and you know it’s easily going to last for life, you can do whatever you want.  You know, you can be highly aggressive.  You can be all in CDs.  Basically, you’ve won the game.  You don’t even have to play it.  But for most of us, you know, we have a certain amount of money.  We don’t know how long we’re going to live.  We need to be sure it’ll last for thirty years and that’s going to entail some growth.  So, just being in CDs and bond funds isn’t going to cut it.

Jim Lange:  You know, I think that’s such great advice, and I hope that our listeners are really taking that to heart because it’s unfortunate, but so many people that I’ve seen do become more conservative, and yes, you mention later on, that you should have probably two years in cash or something that will be liquid, but I think that that is great to be able to tell people.

Jane Bryant Quinn:  Just think about your longevity.  The other thing is, you know, Jim, this is an election year, and candidates are out there and they’re all saying, “Everything will be a disaster unless I’m elected,” and so, people, as you say, they say, “Oh, the economy is going down the tubes.  Terrible things are going to happen.”  Well, I don’t know.  Look at the economy.  Forget what somebody might say on a podium, because it’s self-interested, and say, “Well, what’s happening?”  Unemployment is down.  Consumer spending is up.  Consumer sentiment is up.  Business investment is up.  So, there are certainly people who have not done well in this economy.  It’s not that everyone is doing great.  Some people have not done well.  But the economy is not going down.  The economy is going up.  Don’t look at it just with what politicians say.  Look at the data and say, “What is really going on here?”  Because that’s what you need to think about when you’re making investments.  You don’t invest with your politics.  I hope you invest with your rational good financial sense.  I know that may be extreme, but that’s ideally how you should go about it.

Jim Lange:  Well, I wish more people would take that to heart.  The other thing that I really like about this analysis is you are giving people, in effect, permission to spend more of their own money and not be irresponsible about it, and frankly be able to maintain a better lifestyle.  You know, even just to make a million dollars (which is maybe more than some of our listeners have, but I just use that to make the math easy), there’s a big difference between $45,000 (which is 4.5%) and two or three percent, which you’re saying might be more appropriate if you have all the money in fixed income.

Jane Bryant Quinn:  Umm-hmm.  So now, do you want to go totally wild and talk about 5.5%?

Jim Lange:  I would love to do that.  I am being summoned for a break.  But how about if we leave that on how we can go totally wild while still being within a safe margin of error after we come back?


Dan Weinberg:  Jim Lange is talking with distinguished author, columnist and personal finance expert Jane Bryant Quinn about her brand new book just out this week.  It’s called How To Make Your Money Last: The Indispensable Retirement Guide.

Jim Lange:  Which I would recommend every listener, don’t even think about it, just go out and buy it.  If you’re not happy, I’ll personally refund your money.  I’ll double it because this is just a great book and has wonderful information.  We’re here with Jane Bryant Quinn and on the portion before the break, we were talking about the safe withdrawal rate, and we were talking about using the four percent or, if you’re willing to have some small cap representation in your portfolio, even up to a 4.5% safe withdrawal rate.  But now, Jane says that there might be even higher safe withdrawal rates, depending on your flexibility.  Jane, could you tell our listeners about a potentially higher safe withdrawal rate?

Jane Bryant Quinn:  This is based on if you start…again, remembering how it works, let’s say a 5.5% withdrawal rate, withdrawal the first year you start drawing on your assets, plus inflation increments in every subsequent year, and this is certainly higher than the 4% or 4.5%.  One thing about 4 and 4.5 is that they were designed to work over thirty-year periods even during the great recession of the thirties and the great stagflation of the seventies and the early eighties.  And so, these are two rare and unusual times in our history.  All of the other times, things have been better than that.  So, here comes the question: should you base your withdrawal rate on something that will last through a Great Depression, or should you say, “You know?  The odds of a Great Depression are low.  Odds of repeating the thirties are low.  Why should I base my withdrawal rate on that?”  So, the idea here is that you do 5.5%, and if the market turns bad for two or three years, you say, “You know?  I’m not going to have a withdrawal this year,” because you have flexibility.  Anyone who has flexibility in spending could consider 5.5, and in fact, Jim, I’m considering that myself.  I started out with the 4.5, but I can be more flexible.  I’m thinking of doing that.  So, for anybody with a 5.5, you say, “Okay, now I’ve got even more spending money, but now the market’s been down for a couple of years, I can cut back on my spending.  I was using it for extras anyway.  So, I won’t make withdrawals for the next couple of years.  I’ll just wait.  And then, maybe three or four years after that, I’ll start making withdrawals again.”  So, with that kind of flexibility, you could afford to go to 5.5%.  You just have to keep an eye on it, that’s all, and you have to be somebody who isn’t living on every single dime they can withdraw.  You need to say, “Oh, I’ll spend more this year.  I’ll take two big trips.  Next year, I won’t take a trip at all.”  And then, 5.5 is something you can take a look at.

Jim Lange:  I’m going to ask a more detailed question about that because the way I interpreted the 5.5 is if you have a couple down years in the market, you have to cut back.  In other words, you used the example, “Well then, maybe I won’t take two or three vacations.  Maybe I won’t do some of the extra spending that isn’t life or death.”  On the other hand, taking out zero and just being only able to spend, say, Social Security and a pension (we’ll get to immediate annuities), is it okay to spend 5.5% if you’re willing to cut back but not completely cut out any withdrawals?

Jane Bryant Quinn:  Well, here’s another thing, and this goes with how you’re handling your money, and this goes to the section of the chapter that I have on bucketing.  So, I’m assuming that people who are retiring and working on how much they can afford to spend, you don’t have every dime in stock and bond mutual funds.  You have a cash reserve.  And if you have, I’d say, a two-year cash reserve, and that is enough to make sure that between your Social Security and your pension and any other guaranteed income you have, that the cash reserve will cover you for two years, or some people do three years cash reserve.  Then sure, you can take a zero withdrawal if you want to, or if you don’t have a cash reserve, you can just cut back on withdrawals.  But I would highly recommend having a cash reserve.  So, that’s the place to go to if you say, “Oh, I’m going to spend cash this year and I’m not going to take money out of my investment account.”

Jim Lange:  Okay.  So, what you’re saying is, it’s not that you’re going to starve.  You’re just assuming that you have these various buckets that you’re just going to spend your cash bucket while the market recovers.  Is that fair?

Jane Bryant Quinn:  You know, Jim, we’re not talking about people who are going to starve anyway, because when we say people who have the flexibility to cut their spending, we’re talking about people who have basically a surplus, and if they went without that trip for a year, or didn’t draw anything for a year, they’d be okay.  And so, if you’re not going to be okay, if you can’t not take your withdrawal for one year, then you should start lower.  But if you say, “I’d actually be okay if I didn’t take money…”  Usually, it’s all the money.  “I took only part of the money” or “I cut back by 20% or 50%.”  It’s that situation.  And by the way, Jim, that’s what people do anyway.  You know, when you’re looking at the market and it’s done really well, you say, “I’m okay,” and then when the market doesn’t look so good, you may say, “You know?  This year, I’m going to cut back a little and I’m going to wait.”  So, it’s kind of what your gut tells you anyway even if you don’t have a formal plan the way I do.

Jim Lange:  Why don’t we talk about two areas that, let’s say, your gut might not say this is a great thing, but I have such enormous respect for you, and you’re not the only person who I would consider one of the consumer champions recommending these insurance products.  Boy, I even hate to use the words ‘Jane Bryant Quinn’ and ‘insurance products’ in the same breath.

Jane Bryant Quinn:  Normally, you’re right!

3. Immediate Annuities: Who Are They Right For?

Jim Lange:  But could you tell our listeners why you are a fan of immediate annuities for certain investors, and how they work and how they might be distinguished from a traditional tax-deferred annuity that your commission-based broker might be trying to sell you?

Jane Bryant Quinn:  First, a quick definition.  By an immediate pay annuity, this is a very plain, vanilla and reasonably low-cost product.  You put up X amount of dollars to an insurance company, and the insurance company says, “Thank you, Jane, Jim.  In return, I will pay you X dollars per month for the rest of your life.  Or if you have a spouse, I’ll pay X dollars per month to you and your spouse for the rest of your lives, whoever survives.”  Very simple product.  And who is it best suited for?  If you are someone who is living on Social Security and a very small amount of savings, it’s not for you because if you put all your savings into this immediate pay annuity, yes, you have an income but you have no flexibility left because you have X dollars a  month plus Social Security, and that’s all.  And if you’re wealthy and you have a lot of money, you don’t need an immediate pay annuity either because you have all the flexibility that we’ve been talking about before with the stock and bond markets and how much you take out each year.  It’s the person in the middle.  If you have projected your budget and you say, “You know, I think my money will last for life, or thirty years, but I’m really not sure about it and I’m worried about it,” and you’re keeping part of your money in stock funds and part of your money in bond funds, if you took some of the money that you have in your bond mutual funds and you say, “I’m going to use it to buy an immediate pay annuity,” your income will go up because you can get more from that immediate pay annuity than you can prudently withdraw from a bond mutual fund and still count on your money lasting for thirty years, or for life.

So, the person who isn’t quite sure that he or she is going to make it, it makes a lot of sense to me to take in that conservative part of your portfolio that you’re now keeping in bond funds to put part of that money into an immediate pay annuity, and you will get a higher income and you know it’ll last for life.  I really never paid as much attention to immediate pay annuities before until I really started doing the research for this book, and I’m finding more financial planners interested in this idea and in taking this approach because they see that there is a category of person for whom this is very valuable.  Now, one of the problems that’s come up here is that you know that I am a devotee of ‘see only’ financial planners.  They don’t sell products.  They don’t take sales commissions.  And one of the reasons that I think see only planners have stayed away from annuities is that there are sales commissions built in, and so it’s not what they do.  But it can also be something that a choice of not doing it might not be good for certain clients, and these immediate pay, again, are plain vanilla annuities coming along that basically either have the sales commissions stripped out of them, or else you refer it to somebody who you know is reliable and who will sell the product and take the sales commission.  So, it’s just something that I see a lot of financial planners, fee only planners, rethinking for this reason.

Jim Lange:  Well, I personally have…and for whatever its worth, I’ve actually found a fair amount of resistance.  People are worried about leaving money to their children after they both pass.  But I actually see a lot of value to it.

Jane Bryant Quinn:  And of course, the same people who would say, “Oh, aren’t you lucky?  You have a pension,” you know, a fixed payment that will last you for life, and then you say, “Well, you know, if you bought an immediate pay annuity, you could buy yourself a pension.”  And then they say, “Oh, oh, but then what if I died too soon and didn’t use up all my money that I had put into this?  Then I’d be a sucker to do that.”  I just think that’s not looking at it right.  First, let’s say you put money into the immediate pay annuity.  You are now getting a higher income than you would otherwise be getting, and let’s say you die ten years later, and then you say, “Oh, I was a sucker.”  But you weren’t, because during those ten years, you had a higher income than you would otherwise have had, and that’s what you wanted.  And if you are somebody who has a very long life, you will have this higher income for a longer period of time than you could count on getting it out of a bond fund at that withdrawal rate.  So, some people in an annuity, they live longer than average, so they get more years out of it.  Some live shorter than average.  They get fewer years out of it.  But I’m always surprised by people who say, “Oh, well, what if I die?  I’m not going to do that,” because you are betting that you are going to die early rather than betting that you are going to live longer, and given the longevity statistics these days, especially people of means who have always had health insurance and people who have had an education, this group of people has in particular grown in longevity.  I would prefer to bet on living long rather than bet on dying young.  Now, of course, I have my mother to look at here in my family, but nevertheless, the statistics favor people who are your clients and your listeners living longer than their official lifespan, and that’s what immediate pay annuities are good for.

Jim Lange:  Well, I would agree with that, and in the words of Larry Kotlikoff, “For financial planning purposes, you don’t fear dying young.  You fear living a long time because if you and your spouse die young, you’re both dead.  You don’t have any financial problems.”

Jane Bryant Quinn:  That’s right.

Jim Lange:  That isn’t what should scare you.  What should scare you is being like you mom, being a hundred years old, still being vital, and not having any money because you weren’t making prudent decisions back when you were in your sixties and seventies.

Jane Bryant Quinn:  Yep, yep.  You know, seventy is nothing these days, Jim.

Jim Lange:  And before we get into the next area, I just want to put the strongest recommendation to don’t even think about this, just go buy How To Make Your Money Last: The Indispensable Retirement Guide by Jane Bryant Quinn.  We’re talking about one of the great, if not the best, certainly within the top two or three, financial writers in the United States, very active, who just wrote a terrific book that I’m going to highly recommend: How To Make Your Money Last: The Indispensable Retirement Guide by Jane Bryant Quinn.

Jane, before we took a break, we were talking about immediate annuities, and I want to switch the subject a little bit (but it’s, let’s say, related) to pensions, and one of my pet peeves is when somebody puts in their twenty-five, thirty, thirty-five years or whatever it is for their company, or even a teacher or a federal employee, and they are still married, and they have an option between taking a single pension (meaning that if they die, the pension goes away) or a two-life pension (meaning that both they and their spouse have to die before the pension goes away or stops), or perhaps they should take, let’s say, a fifty percent survival rate.  I know that you feel strongly about this, as I do, so I was wondering if you could tell our listeners what you think most people should do in most situations if they are married and there is a pension and a pension decision to be made.

4. Pension Decisions:  Single or Two-Life?

Jane Bryant Quinn:  I say please, please cover your spouse if you are the person getting the pension, unless your spouse is really, really rich and comfortable and you have no concern that your spouse will run out of money if you die first.  In that situation, fine.  Take your whole life pension when you die.  Your spouse will still be fine.  But this is not usual, and if you are somebody who has this option, you tend to take the single life pension because it’s bigger, and, of course ironically, this decision is often made as a couple.  So, the spouse will agree too.  You’re just retiring.  You’re not sure how much it’s really going to cost you and if you’re going to be okay.  So, you say, “Let’s take the bigger check.”  And you do, and that’s fine, and then the pension holder dies, and suddenly, the spouse’s income drops.  Say the spouse is the wife.  She loses that pension.  Also, she will lose one of two Social Security checks because maybe she had a spousal benefit plus his benefit.  So, she still gets a benefit but it’s not as big as it was before.  And so, there she is suddenly with much less money, and it’s so important.  I think through various places in this book, I kind of say, “Protect your spouse, protect your spouse.  Remember that your spouse might live a whole lot longer than you do, and so it’s really important when you make a Social Security decision, when you make an insurance decision, when you make a pension decision, always say, ‘What’s going to happen to my spouse if I die first and my spouse lives to a hundred?’”  And if you look at it that way, you will maybe make some different decisions than you are making now.  I’d spoken to more than one couple that took the single life pension for the reason that I just said.  They both agreed and they thought they needed a larger check and it would be okay, and then he died (in each case, it’s been the man’s pension), and boy, does the surviving spouse regret it.

Jim Lange:  Well, I agree with you, and I wish I could get an opportunity to talk to people before they make this decision because so many people will come in, or they do a compromise.  They’ll say a fifty percent survivor benefit to the surviving spouse on the theory that I disagree with, that the one spouse won’t need as much money as both spouses.

Jane Bryant Quinn:  Yeah, fine.  You’re dead, right?  So, you don’t care!  But your surviving spouse needs the money, and the whole idea that somehow…you know, again, we’re talking about the wife here, that her expenses will suddenly go down by not only the loss of your pension, but by the reduction in the Social Security.  Why on earth would you think that?  And when you’re working on a retirement plan, whether you’re planning to retire or you’ve just retired, you need to be projecting what your expenses are going to be, what your income is going to be, you know, based on one of the withdrawal rates we’ve been talking about, and couples just project it for themselves.  But no, you shouldn’t do it that way.  You should do a second projection assuming the husband dies first, see what the wife has, and you should do a third projection, assuming that the wife dies first to see what the husband has.  And then that will give you a much better picture of what you have as a couple and what the surviving spouse will have and how she’s going to live on that.  I mean, maybe the kids will take her in, but that really was not her idea.

Jim Lange:  No, and I think that’s one of the great fears, but I think that this thinking that obviously applies to Social Security and a pension is critical, and unfortunately, what I have seen, and what you rail against (and I’m going to give you a chance to publicly rail against it on the radio) is spouses…and, you know, I’ll just mention typically women, who will probably outlive us men by about seven years even if we’re the same age, they just kind of defer these financial decisions to the men that make decisions that aren’t in the woman’s best interest.  So, is it okay for the spouse to say, “Well, dear, you’ve always been smarter about the money than I have.  You make those decisions.”  Or is it really time for her to roll up her sleeves and get involved when it’s time to make these decisions?

Jane Bryant Quinn:  Yeah.  Obviously, she needs to roll up her sleeves if this is the case.  But this is why it is so important when you are doing your pre-retirement or your post-retirement planning to look at your incomes together and then separately if one of you dies first, and the spouse should be at the table.  You should both be at the table, and you both should be looking at these numbers.  Pension decisions are made before Social Security decisions are made, and even if the spouse has not taken an interest in the past, believe you me, when she says, “Wait a minute!  You mean we’ll have $50,000 a year while you’re alive, but I’ll only have $25,000 after you die?  How am I going to fit that in with the expenses we’ve just seen that we have?  You want me to move out of the house and get a cheap apartment?  I mean, what are you thinking?”  So, when you’re looking at those real numbers, I think that’s a way to engage the spouse.  Although, I have to say that it’s not always the woman who doesn’t care.  My late husband always took an interest in the money and we did it together, and then I was a widow for several years, and I remarried six years ago.  I’m a very lucky person, he’s a lovely man.  But my new husband?  Man, is he not interested in money, and I looked at what kind of arrangements he’d made and I said, “Are you out of your mind?”  So, our family deal is that he cooks (because I don’t cook) and I handle all the money because he doesn’t have a clue.  So, it’s not only the women who might not take an interest.  Sometimes, it’s the man.

Jim Lange:  Well, and for whatever it’s worth, I mean, as a financial advisor, if I’m with a husband and wife, I believe that I have a fiduciary duty to both members of a couple to make sure that both are protected, and I am often railing against taking Social Security early or taking a one-life pension, and I believe that you have also said that you have run the numbers (as have I) and that taking a one-life pension and coupling it with a life insurance policy is not as good as taking a two-life pension.

Jane Bryant Quinn:  Absolutely not.  An insurance agent can make it look as if it works, but there are so many pitfalls over time because the idea being you take the single life pension, you’ll have some more money, you use the extra money to buy the life insurance.  Well, first, the life insurance might cost you even more than the extra money you have after taxes because taxes are often not included in all these projections when a life insurance agent does it.  Second, something might happen.  So, you might run short of money because of your investments or something.  So, you can’t afford to pay life insurance premiums any more, and then suddenly, who’s going to be stuck if you die?  The wife is going to be stuck.  There’s too many things than can happen to this scheme of take the one-life pension and then buy life insurance that can simply go wrong, and of course, when you die, you’re dead.  You have no idea what your spouse has been left with.  I just wouldn’t do that.  I think pension maximization schemes, I just think they are totally against the spouse’s interest, even though they look good on paper.

5. Reverse Mortgages

Jim Lange:  I would agree with that, and we are wrapping up the show with Jane Bryant Quinn, who just wrote the book that I highly recommend, How To Make Your Money Last: The Indispensable Retirement Guide by Jane Bryant Quinn.  Well, Jane, we only have about three minutes, but there’s one more thing that I wanted to talk about that you bring up because I want to, in effect, give people permission to at least consider, even if they don’t take immediate action.  Could you tell our listeners a little bit about reverse mortgages and why you are sometimes a fan of reverse mortgages when maybe some conservative leaning people would say, “No, no, I never want to owe anything.  In fact, I want to try to get out of debt.”

Jane Bryant Quinn:  I used to say, “No! No to reverse mortgages,” mainly because, really, older people might take lump sums, they would run out of money, they couldn’t pay the insurance and the taxes, and then the bank would foreclose on their house, even though they thought they would stay there forever.  But new regulations were passed about a year-and-a-half ago and ended that, so I am not so concerned anymore.  For your clients and listeners, there’s something else.  At age sixty-two, you could take a reverse mortgage against your home equity in the form of a credit line.  Don’t borrow against the credit line except for the upfront fees, which you can put on the credit line.  They are substantial.  But after that, don’t touch it.  And your credit line grows by the amount of interest that you are paying.  You’re not paying it because it’s compounding inside the loan.  You don’t have to pay your reverse mortgage until the house is finally sold.  But the interest that is due, the credit line grows by that amount.  If you don’t borrow against it, ten or fifteen years later, you have a much larger credit line, you have much more borrowing power, it could be a hedge against inflation, and it could be an extra source of money.  So, if you have money in the market and the market goes bad and you don’t want to take the money this year, you could go and take something out of your reverse mortgage credit line, and if you are using the credit line along with your investments, and if you have flexibility (this sounds a little embarrassing, right?), but you could take even more than 5.5%.  So, there is a way of using the credit line, but this is for someone who’s going to stay in their house fifteen or twenty years because you have to advertise those upfront costs, you have to have a lot of flexibility in your spending.  But this credit line can be a very useful thing if you don’t borrow against it and you just let it grow for ten or fifteen years and consider it later.  If you never use it, fine.  Then you sell your house and you’ve had no problem.  But you could use it.  It’s a wonderful backup, I think, and I didn’t used to think that, so that’s new for me.

Jim Lange:  Well, thank you so much.  Again, the book that I highly recommend: How To Make Your Money Last: The Indispensable Retirement Guide by Jane Bryant Quinn.  Jane, thank you so much.  You’ve just been a great source of information for our listeners, and again, I’m going to recommend everybody go out and buy How To Make Your Money Last: The Indispensable Retirement Guide by Jane Bryant Quinn.  Thank you again.

Jane Bryant Quinn:  Thanks so much, Jim.