Cramming for retirement

From the back of Room 3311, Kathy Gruhn has a question.

Retired for about 18 months, the former speech pathologist from Weddington wonders how to calculate her expenses in the years ahead. Are they based only on savings and investments, or do you include other income, such as part-time work and Social Security?

That's important because of how much value her husband's investments have lost recently. When he first retired last year, Gruhn says, “you could look at 5 or 6 percent return. Now you're looking at 1 or 11/2.”

Gruhn is among nearly 30 people in their 50s and 60s gathered Thursday night for a retirement planning class at Central Piedmont Community College in Matthews.

Teaching the course is Bill McDonald, a certified financial planner with Hilliard Lyons in Charlotte. Ideally, he says, Social Security would be only a supplement to primary income from savings and investments, but many retirees depend on that money to cover expenses.

Classes such as these have become a hot ticket during the economic downturn and recent Wall Street crisis. Enrollment in CPCC's financial education classes is up more than 200 percent from the summer, associate dean Bill Dillon says, with courses ranging from basic issues such as “Understanding Credit” and “Identity Theft” to investing in different situations or stages of life.

In fact, many of McDonald's “students” tried to get into retirement planning classes on other days, only to find them full. That left them with Thursday night's class and conversations about various acronyms – from basics such as IRA (individual retirement account) to the more obscure TIPRA (Tax Increase Prevention and Reconciliation Act).

As couples and individuals – an even split of men and women – trickle into the classroom, McDonald introduces himself, apologizes for the mid-70s room temperature and holds up a bottle of Diet Dr Pepper.

“Here's the first retirement savings tip,” he says. “Don't buy your drinks from the vending machine.”

He isn't the only joker. As McDonald goes over the schedule, Dick Eaker – a Realtor – asks: “Is it true that at the end of this course we each get $100,000?”

“If you get 100 grand,” McDonald says, “it'll be the chocolate bar.”

Good-humored as he is, Eaker has serious reasons for being there.

As he explains later, Eaker, 59, used to own a wholesale wine company but sold it in 2005. His wife is eligible for retirement from Charlotte-Mecklenburg Schools, he says, but both still work – partly because they have two mortgages after moving last year to Indian Trail from Dilworth, where their old home is still for sale.

Then came the stock market plunge, which made their retirement options even fuzzier.

“We don't have a plan,” Eaker says, “and that's part of the reason for coming tonight.”

Staying out of the basement

Despite the bear market, neither McDonald nor the attendees dwell much on recent investment losses. Rather, the prevailing attitude in class is yes, our stocks are struggling, and let's adapt.

Besides procrastination, the biggest mistake many people make is thinking about how much money they want to set aside, but not what they want to do with it. Once you know that, he says, you can do the math on how much that life will cost.

Since he has “yet to run into someone who wants their personal stuff up here on the overhead,” McDonald speaks in hypotheticals.

His charts show how planning means not only calculating interest on investments – a tougher task these days, he admits – but also accounting for inflation and increased health care expenses.

Not doing that, he says, can mean relying on your children for support, aka “moving into Jimmy's basement.”

“I see some grimaces,” McDonald says. “Very few people want to become dependent on their children.”

One of the more active participants in class, Gruhn, 56, asks if she should factor her husband's older age, 64, into her plans, since the chances are greater that he'll die before she does.

During a break, she says her two daughters are in their 20s and in graduate school but have had a hard time securing student loans in the tighter lending environment.

“So where do you think they're going for the money?” Gruhn says.

Have these pressures and the market downturn affected their retirement?

“Absolutely,” she says. “We may go back to work part-time. Not this year, but maybe next year.”

Savvy questions

Halfway into the class, McDonald's Powerpoint presentation becomes haunted. On several occasions, slides change while he is in mid-sentence and walking around. He blames static electricity.

Technical problems don't deter questions, though. After talking about saving money through flexible spending accounts and tax credits, McDonald spends much of the second half of class on types of retirement plans, prompting more raised hands from a somewhat savvy audience.

For instance, many know the basic difference between an IRA and a Roth IRA; the latter has fewer withdrawal restrictions because you pay taxes upfront. But they dig for nuggets that can yield more financial gain, or at least give them more options in retirement.

“Can you put more into a Roth IRA than you earned?” Gruhn asks. No, McDonald says.

“What happens if you do?” another woman asks. “Do they come take you away?” They just make you withdraw it, McDonald says.

Then there's Social Security, which McDonald says was supposed to be a cushion in retirement and now accounts for 40 percent of the average income for people 65 and older.

The big concern is how much money will be left for those who follow baby boomers into retirement. For a slide on the future of Social Security, McDonald says, “This should just be a blank right here.”

Even if he doesn't have all the answers, questions keep coming. Are penalties for early withdrawl on your total investment or just part? How can you own land inside an IRA?

Gruhn appreciates the free flow of information. After bringing plenty of questions, she'll take home pages of scribbled notes and come back this Thursday for the second part of the course.

Before leaving the first session, though, Gruhn leans to her left and whispers to a woman in the next desk.

“I'm glad I came to this class.”