Solving the Retirement Cash Flow Puzzle
According to Roger Roemmich, author of Don’t Eat Dog Food When You’re Old! How to Solve Your Retirement Cash Flow Puzzle, the number one retirement mistake made by Americans is retiring based on a preconceived notion of an appropriate retirement age—before reaching an appropriate level of savings.
The bottom line? Don’t retire before you’re financially ready. In the following Q&A, Roemmich addresses ways to measure retirement readiness, essential rules for saving and smart money moves for retirees.
Smarty Cents: We Have to give it to you. The title of your book is pretty attention-grabbing—what was your inspiration there?
Roger Roemmich: Two factors inspired the title: 1. It has been long believed that a major reason Franklin Delano Roosevelt made the original efforts to develop a Social Security System was that he was advised that many individuals had been reduced to eating dog or cat food during the great depression. FDR wanted citizens to not lose their pride and dignity in addition to surviving very difficult times. 2. I strongly believe that the combination of seniors living longer retirement lives and seniors preparing inadequately will result in a retirement crisis.
SC: What are your essential rules for saving—regardless of generation or distance from retirement?
RR: Saving requires both discipline and consistency. With corporate and government pensions shrinking dramatically, individuals are increasingly responsible for their own retirement. They can do it if they take maximum or reasonable advantage of tax-deferred savings opportunities, but U.S. taxpayers are frighteningly unwilling to forego today to save for tomorrow. Unfortunately, those chickens will come home to roost resulting in depressing and sad retirements.
SC: What would you say is the most common misconception concerning retirement preparedness in the United States?
RR: The most common misconception is that today’s retirees can afford to retire in their 50s and 60s. Longer life expectancies mean that workers should shift their retirement time back until they are adequately prepared. Retiring too early is the number one retirement mistake!
SC: Can you share an introduction to the methodology and purpose of your unique CAMP score method? What exactly does it measure, and how is it beneficial?
RR: The CAMP Score measures retirement readiness. It has four components:
- Cash flow during retirement
- Aging or long-term care costs and protection (not necessarily insurance)
- Medical coverage through Medicare, Medicare Supplements and government or corporate retiree coverage
- Purchasing power or inflation protection
The CAMP Score is very important, because it provides both a quick measure of “retirement readiness” and provides suggestions on potential remedies for lack of readiness.
RR: Consistent contribution to tax-deferred retirement savings and avoidance of high-cost debt are probably the two most important keys for millennials. Credit card debt is high-cost debt. Buying furniture and cars on long-term payment plans is high-cost debt—even if the debt is disguised in a higher purchase price. By contrast, mortgage debt is low-cost debt. Paying too much down on a mortgage is also a frequent mistake home buyers make. Mortgage debt is currently very inexpensive. Millennials should save their current cash to enable them to make as much use of tax-deferral opportunities through their employers as they find possible.
SC: Assuming you’re adequately prepared once you reach retirement, what essential money moves should retirees make to ensure continued financial health?
RR: Retirees should postpone drawing upon principal [retirement savings] as long as possible. Principal is the proverbial Golden Goose. Once you kill the goose or consume the principal, it can rarely be replaced. Retirees should exercise caution and not use short-term thinking in early retirement. It is easy to think you are in great shape, only to realize you will run out of principal and therefore cash flow because you lived too lavishly in early retirement.
SC: What would you say is the greatest difference between the way members of Gen X view retirement compared to younger generations?
RR: Generation X-ers tend to fall into two camps. One group despairs and thinks they will never enjoy a high quality retirement. Ironically, those who worry are the most likely to adequately prepare for retirement. Group Two is what I call the “mañana retirees.” They haven’t begun to prepare for retirement and they don’t have bright retirement prospects. Younger generations will watch their parents and grandparents struggle from poor retirement preparation. My optimistic view is that younger generations will learn from the mistakes of Generations Xers and the Baby Boomers.
Interested in more tips and inspiration for retirement savings? Check out these related videos… How to Manage Your Savings for Retirement, Think Twice Before Taking a 401(k) Loan, Retirement Income Funds: What You Need to Know