WASHINGTON (Reuters)- My mother passed away recently, a few months before her 91st birthday, after having spent the better part of the last 70 years smoking heavily and avoiding exercise whenever possible. But this isn't a health article, it's a financial one, and on that score I have learned a lot from my mother.
She was really smart about money, though she never had huge amounts of it. And she had a real-life experience that departed in many ways from the retirement scenarios that academics and financial companies churn out daily.
She spent 30 years as a widow, having inherited no life insurance or pension when my blue-collar father died too young. Her own income, as an elementary school secretary, was modest. Yet she managed to have a long and busy retirement, involving golf, travel, grandchildren and fun with friends.
She was of that frugal Depression-era generation, so she washed out plastic bags and made two cups of tea from every teabag. But it wasn't just the home economics that saw her through; it was some much larger financial moves made at key turning points.
For the last few years of my mother's life, I was responsible for her finances, and so I learned a lot about longevity, long-term care and retirement spending and investing.
Here's what I observed by watching my mother and her money:
-- Retirement spending is a roller coaster, not a flat line. When my mother initially retired, she owned a small condominium in Florida and her home in New Jersey. She had golf clubs specially made to fit her short stature and she traveled a bit, visiting Scotland and England with a friend, and traveling back and forth between New Jersey, Florida, and her Washington, D.C.-based grandchildren.
But by the time she was in her mid-70s, she'd sold her home in New Jersey and was living very modestly in Florida. Her Social Security payments covered her comfortable but not wild life style. In the final years of my mother's life, her health deteriorated and she ended up spending thousands of dollars every month to cover her care. The lesson? Those flat-line annuities that pay you the same amount month in and month out for the rest of your life probably don't address the way real people actually spend money in retirement.
-- Retirement spending is flexible, and downsizing doesn't ruin your life. There's a lot of talk now about people 'running out of money' as they age. And that's certainly possible. But what's more likely to happen is that people will curtail their expenses to make their money last longer. My mother had fun when she lived in her one bedroom condo in low-cost, income tax-free Florida, though she spent very little in those years. And not hanging on to her New Jersey life enabled her to have the money she needed for the end of her retirement.
-- It's good to keep money in stocks, no matter how old you are. There's a lot written about rules of thumb, and how the percentage of assets you have in the market should never exceed 100 minus your age. But up until the day she died, my mother had a substantial amount of her savings invested in individual stocks and stock mutual funds. This enabled her money to grow as she moved through a three-decade retirement. It also enabled her to collect sizable dividends every month, which, in later years, were more valuable than the small amount of interest she was collecting on certificates of deposit.
-- Some regular income is nice, too. My mother had a small pension from her school system job. By her final years, it was paying a little more than $300 a month, just enough to cover the payments on her (very good) private Medigap health policy. It was one thing she (and we) didn't have to worry about.
-- Long-term care really is as expensive as they say it is. In the last year of my mother's life, we were spending almost $7,000 a month of her money so that she could live in a nice place and get good care. If she had annuitized too much of her money or was living simply on pension checks, she wouldn't have had the cash to do that. On the other hand, if she had a good long-term care policy, that might have helped. She had bought a long-term care policy decades ago, during the early years of those policies. But that policy only would have covered care in her home and had a ton of exemptions. When she moved into an assisted living facility at 88, it nullified that long-term care plan.
-- Your home really is an asset. Many retirement plans don't count home equity as a resource: they reason that since you have to live somewhere, you shouldn't count on your home to provide income. But most people don't stay in their big child-rearing home their whole lives. And if the mortgage is paid off (or close to it) and you sell the home in your 70s, that can provide substantial wealth for the second half of retirement. When my mother was ready to downsize, she hired a painter to give her home a fresh, clean coat, and then sold it. The money she collected was what she lived on for the rest of her life. Even retirees who do stay at home can tap their home equity with a reverse mortgage, to pay for some retirement life "on the house." People who have ended up upside down -- with more mortgage debt than value in their homes -- as they approach retirement, will lose out on this valuable resource.
-- The right paperwork really is helpful. My mother did all of the things she was told to do: She had written a will and also had filled out forms giving me her power of attorney and making me her health-care decision maker. She also had a living will and a living trust, and a joint checking account with me. All of that made it very easy for me to manage her care and pay her bills when I had to. It was emotionally difficult to watch my mother give up her health and her spirit and her life, but I didn't have to waste any of my time and worry on those bureaucratic details.
(Editing by Gunna Dickson)