Learning From Japan and Other Shocks: Diversify Your Retirement Income
During the first three months of 2011, we've already seen some memorable and remarkable events that have a direct effect on our money -- the tragedy in Japan, the political upheavals in the Middle East, the stock market rally during the first two months, the subsequent market decline due to events in Japan, and then the rally of the past few days. Is upheaval the "new normal," or is it just normal to have upheaval?
2011 marks the 30th anniversary of my father's retirement (he passed away in 2005). My mother retired in 1981, along with my father, and she turns 90 this year. At this point, she's been retired for one-third of her life. Let's take a look back and review what's happened during the past 30 years of her life:
- When my parents retired in 1981, inflation was coming down from an all-time high.
- We've had four economic meltdowns -- the 1987 stock market crash, the S&L debacle of the early 1990s, the tech bubble that burst at the beginning of this century, and the crash of 2008/2009.
- On the political front, we saw the end of the Cold War, political pendulum swings in both directions (think Reagan-Bush-Clinton-Bush-Obama), several important tax law changes, the growth of terrorism, oil price volatility and sharp increases, awareness of global warming, and two wars in the Middle East.
- On the technological front, we saw the introduction of the PC and the Internet, the growth of bio-technology, introduction of social media, and the creation of the space shuttle and the space station.
- On the natural disaster front, in addition to the tragedy in Japan, we've seen Hurricane Katrina, the 2004 earthquake and tsunami in Asia, the Haitian earthquake, the 1991 Bangladesh cyclone, the recent flooding in Pakistan, famines in Ethiopia, heat waves in Russia, Europe and Chicago...well, the list is almost endless.
- At my mother's local level in Southern California, she's lived through the 1994 Northridge earthquake, the Rodney King riots, several wildfires, and the local economic decline in the early 1990s caused in part by the exit of the aerospace industry in the area. Within her extended family and friends, she's seen several births, divorces, retirements, and deaths.
First off, we can learn a lot from my mother's experience during her retirement. In spite of the above events, she continues to do just fine:
- Her Social Security check, indexed for inflation, keeps getting automatically deposited each month, and will be paid to her for the rest of her life. My father didn't shortchange their Social Security by retiring early, unlike half of all retiring Americans.
- She also gets a fixed monthly income from my father's pension, which will also be paid to her for the rest of her life.
- She also has dividend and interest income from a modest portfolio of stocks and bonds. While the cash amount of this income has fluctuated both up and down, over the past 30 years, it's grown substantially.
- Her living expenses are low: The mortgage to her house was paid off a long time ago, she drives a 10-year-old car, and she grows a lot of her own food. She lives within her means and doesn't incur any credit card debt.
- She stays healthy for her age, keeping her weight down and getting exercise by walking and gardening.
- She's still "working," volunteering once a week at a thrift store. If she needed more money, she has the energy and the skills to work for wages..
- She has family and friends close by who help with day-to-day living and emergencies.
More on MoneyWatch:
- Recession-Proof Your Retirement Years
- Why You Need to Diversify Your Retirement Income
View all articles by Steve Vernon on CBS MoneyWatch»
Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops
and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.
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