By Linda Stern
I have a particularly resourceful friend who lives a pretty good life, despite never having quite enough money. She is hardworking and popular with her wide circle of friends, neighbors and colleagues. She networks, barters and works for what she really wants.
A former chef turned teacher, she finessed enough grant money to pay for a two-week trip to cooking school in Italy. She knows where all the good used furniture stores are, has bartered home cleaning for a two-week stay in a vacation home in Vermont, and is working on an arrangement now that will get her free housing in France for several weeks this summer. Tres bien!
I'm pretty sure my friend will do really well in retirement, though I strongly suspect she has nowhere near the $1-million plus that you would think her lifestyle would require. She has a different kind of capital: skills, smarts, and a great social network.
"Everyone is focused on the money, but when somebody retires, they usually manage," said Larry Cohen, director of Consumer Financial Decisions, a consulting group that studies consumer behavior. "If they don't have the money, they have human capital like skills and education, and social capital in terms of friends, neighbors or a church. All these things help."
Cohen predicts that "The (retirement) solutions for the future are going to involve more of these other forms of capital."
Experts are increasingly focusing on the non-financial assets that workers can bring into retirement to help them manage on fewer dollars than might be optimal.
The Retirement Income Industry Association, a group that represents a cross section of insurance, investment and research firms, has its own program for training and certifying "retirement management analysts." The training handbook used in that program includes items such as membership in religious and civic organizations, and the ability to earn money as forms of "capital" that are foundational in the new retirement world.
So what are the best non-financial forms of capital that pre-retirees can invest in now to ensure a good retirement? Here are a few.
Investing knowledge. Even (or especially) in this era of auto-enrollment in 401(k)s and the proliferation of financial advisers and products, nothing good can come of being uninformed about investing. The more you know, the more you can grow small contributions into a retirement kitty you can live off of. Break it into small bits and learn a little every month. Learning about mutual funds, stocks, taxes, portfolio management and the like will help you, at the very least, choose the right adviser. And it will also help you stretch your income after retirement.
A money-earning skill. The baby boom may well have psychological problems adjusting to the "withdrawal" era of their lives. It could be harder than you think to pull money out of a treasured 401(k) plan to go see a movie or make a car payment. So develop something now that can earn money in the future. Some popular money-earning side business include eBay sales, handyman work, cooking, babysitting and driving.
Practical money-saving skills. Gardening, appliance repair, lawn mowing, scratch cooking, vacuuming... got it? If you're the kind of person who currently pays others to do all of these things for you remember this: In retirement you'll have more time and less money. For every $100 a month you want to pull out of your tax-deferred retirement account, you need to have roughly $37,500 in assets in that account. So, save $200 a month in do it yourself activities and that's $75,000 you won't need to have saved.
Good friends and neighbors. Can you drive each other to the airport? Share big bargain packages of toilet paper and tomatoes? Check in on each other when you haven't surfaced for a while? Does someone in the crowd make their own tomato sauce and another fix cars? Or own a beach house or a garden tiller? There's no end to the savings that a supportive collective like that can generate. And, of course, people who are connected to others enjoy life more and may be able to entertain themselves more cheaply.
The best body possible. Healthcare costs for retirees will top $350,000 for their lifetimes, the Insured Retirement Institute, an industry group, reported yesterday. And that's for the healthiest folk. The better shape you are in going into retirement, the less you'll spend on pain pills, back braces and more. Of course, you can't control everything that befalls you, but moving into retirement with strong bones and muscles, a good sense of balance, and cardiovascular fitness will improve your retirement fun and cut your retirement expenses.
That hard-to-define craftiness. Retirement can be like a second chance; the rules come off and you can do things you might not have considered while you were in your main buttoned-down job. Practice creativity now, just like my friend, and you'll be ahead of the game when your new job is making that smaller-than-you'd-hoped retirement fund last a long and happy time.