December 18, 2019

Don’t Worry, Retire Happy: Seven Steps to Retirement Security


Tom Hegna is a renowned international economist, author, and speaker who has worked in the retirement planning industry for over thirty years. He has written three books, including the best-selling “Paychecks and Playchecks: Retirement Solutions for Life”.

In the preface, Hegna tells the reader that in 2011, only eighteen per cent of American workers were covered by a guaranteed pension plan (down from sixty per cent in the 1980s). Although everyone wants to live a long life, longevity is not just a risk; it multiplies other risks in retirement, including market risk, withdrawal rate risk, a sequence of returns risk, inflation, deflation, taxes, and long-term care.

Happiness is important in retirement. If you struggle to pay the bills every month, you are not likely to be happy. Retirees who receive regular income are much happier than those who don’t. Factor in other items to keep up your happiness: live with a purpose (volunteering, travel, or a new career), remain socially active, and stay healthy.

Step 1 – What Is Your Plan? (Golf is not a plan)

When you are developing your plan, ask yourself two simple questions about your retirement income: what do you need it to do and what do you want it to do. Your retirement income must cover your basic living expenses, and you need a plan to avoid the mistakes that people make when preparing for retirement, including underestimating life expectancy, paying too much tax, not planning for inflation, and not preparing for health care expenses and long-term care.

Step 2 – Maximize Social Security Benefits

Although this is an American book, the retirement savings vehicles and payouts operate similarly in Canada. You can maximize your social security benefits by timing when you begin receiving a payout. Many Americans pay more attention to planning their annual vacation than planning their retirement.

Step 3 – Explore a Hybrid Retirement

A hybrid retirement occurs when a retiree finds full- or part-time work after leaving their primary career. Working an additional five years can boost retirement income by fifty-six per cent. Sixty-five per cent of workers plan to do at least some paid work in retirement.

Step 4 – Protect Your Saving from Inflation

Hegna discusses annuities as well as owning gold and real estate.

Step 5 – Secure More Guaranteed Lifetime Income (GLI)

GLI can make or break your retirement lifestyle. In 2012, Time magazine reported that the happiest people were those who had sources of GLI such as social security benefits (OAS), pension benefits (which teachers are lucky to have), and annuity payouts. Hegna promotes annuities because their payments come from principal, interest, and longevity credits (an actuarial calculation that adds a credit from the entire risk pool of everyone who buys the same type of lifetime income annuity.)

Step 6 – You Must Have a Plan for Long-Term Care

You have a three per cent chance of a house fire, an eighteen per cent chance of a car accident, and a seventy-two per cent chance of needing long-term care. Long-term care insurance protects your assets, spouse, and loved ones while giving you peace of mind, control, independence, and dignity.

Step 7 – Use Home Equity Wisely

Retirees can access the equity in their homes by:

  • selling the house and downsizing (the proceeds from a principal residence are tax-free)
  • taking a loan against the home equity (HELOC)
  • getting a reverse mortgage (with a number of associated costs)

After covering the seven steps, Hegna has tips for those who have started late, a special note for women, and discusses issues for non-traditional couples.

Lastly, he has a chapter on what life insurance has to do with retirement. Life insurance is a tax-efficient way of covering final expenses, providing a legacy, and giving to charity. Some so-called ‘experts’ have advised people to skip life insurance policies, assuring them that by the time they pass, their house will be paid off (it isn’t), they will have a pension (they don’t), their kids will be on their own (they’re not), so there will be no more need for life insurance.

Don’t Worry, Retire Happy: Seven Steps to Retirement Security
Tom Hegna
Arizona: Tross Press. 2015