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June 19, 2015 at 09:39 AM
(Bloomberg Business) — Americans worry about affording retirement, but that doesn’t usually translate into hard-core financial planning. Then there’s David Littell, the 61-year-old director of the retirement-income planning program at the American College of Financial Services, a nonprofit that educates financial advisors. If anyone ought to have a well-thought-out plan, it’s this guy.
So we asked him what’s in it.
It’s a little intense — this is one well-prepared pre-retiree, and one who knows his insurance products, since the College’s focus has historically been on educating insurance agents. While the challenge of ensuring he won’t outlive his money isn’t unique, his attitude may be. “I find this fun,” he said. A sign of how into this stuff he is? Before a follow-up call, he emailed a three-page, 1,500-word, bullet-pointed outline of his thinking.
Here’s how a retirement income geek puts theory into practice.
The situation
Matching increasing longevity with increased savings is among the biggest challenges facing retirement savers. It’s not an abstract one for Littell, whose father retired at 75 and is 103. His father has managed his own finances well, and when he started spending down assets at 84, bought an annuity with some of his money. “It let him sleep better at night,” Littell said.
Littell’s doing well on the savings side. He earns a salary in the low six figures and has saved throughout his career, putting 10 percent, on average, into a defined contribution plan.
He said he’s an example of how the defined contribution environment — that’s 401(k) territory, an environment without defined benefit plans, the traditional pension — can work “as long as you contribute, roll the money into an IRA when you change jobs, and invest for the long haul.” A $20,000 rollover made years ago has more than quadrupled and is his biggest retirement asset. Most of the money is in a variety of low-cost stock mutual funds. He also has a small defined benefit plan, which was frozen.
Littell and his 70-year-old husband, Edward Selekman, have been together for 30 years; they married about a year ago. They own their home and have long-term care policies. Edward, a psychotherapist who worked out of their suburban Philadelphia home, just retired. They have no children as a couple; Edward has three children from a prior marriage. If Edward hadn’t retired, Littell said, he probably wouldn’t be thinking about retirement himself. Now he’s thinking he’ll retire in about three years, rather than five or 10.
The vision
After training financial reps on the importance of getting clients to really plan what their retirement will look like, Littell is realizing it’s not so easy. ”This idea that somehow you have this clear picture of what you want as you approach retirement is kind of a fantasy,” he said. “Life’s more fluid than that.”
For example, the couple might want to move somewhere warmer, but haven’t decided where yet. You have to know the details of housing costs to figure out how much you need to retire comfortably. There’s a “crazy expensive” continuing care retirement community in California they’re interested in, but if they move there, it means much higher expenses than for other options.
Littell’s main retirement objective is one many people share: having the financial freedom to choose how he spends his time. He expects to work in retirement, educating consumers, but work won’t be the highest priority, if his planning works. And he doesn’t want to worry about that work being compensated.
Littell, who was a fencer in the 1988 Olympics in Seoul, would also like to coach fencing; he coached the men’s and women’s varsity teams at Haverford College from 2000 to 2006.
The first consideration
The wisdom of waiting as long as possible to take Social Security is one of the personal finance Ten Commandments. Here’s how that works in Littell’s situation.
The Social Security benefit paid at the full retirement age of 66 is 100 percent of what’s called the primary insurance amount (PIA). Edward took Social Security at 70, so he got four years of what’s called deferral credits. At 8 percent a year, those credits add up to a 32 percent increase, so he gets 132 percent of his PIA.
When Littell turns 66, he will make a “restricted filing for a spousal benefit.” Doing that gets him half of Edward’s PIA (not half of his enhanced benefit for waiting). Spousal benefits are based on the PIA and age of the partner whose benefit the filing is being made to access, and — surprise, surprise — are complicated. Doing the restricted filing lets Littell get some benefit for four years while deferring his own benefit. At 70, he’ll get 132 percent of his own PIA.
What’s it like living with someone who knows how to make a restricted filing for a spousal benefit? Great, apparently. “He’s not so geeky that it bores me,” said Edward. “He explains it beautifully and brings it right down to the consumer level.” Once in a while Edward finds his eyes glazing over if an explanation has been going on for a while, “but it’s been very beneficial to me, and I feel very secure knowing that he knows so much about it.”
