By Nancy Hetrick, a financial advisor on NerdWallet’s Ask an Advisor.
So you’ve worked hard and tried to be more fiscally responsible than the U.S. government, and in the back of your mind, you’re pretty sure that retirement will be a reality for you around age 66 or 67 when your Social Security kicks in. You’ve done some basic planning and are pretty sure that between your savings and 401k plan and maybe a little pension and Social Security, you and your spouse will be able to relax and maybe even go on a little trip once in a while. Are you sure? Has your advisor talked to you about the demons that are lurking in the shadows of your retirement that could yank that cozy rug right out from under you? Allow me to provide you with a little demon defense.
Divorce - Think it doesn’t happen in retirement? Think again. I see a lot of people between 55 and 65 who haven’t worked in years but are now faced with divorce and the realization that 50% of the assets that were accumulated during the marriage won’t begin to cover the spending needs of either party. Do everything you can to keep the love alive! Divorce is no fun at any age. Cherish your mate!
Health Issues - Health is not guaranteed for any of us. Be sure your health insurance is adequate and will carry you through to age 65. Include in your retirement budget enough for a Medicare Supplement. Let’s face it, Medicare benefits in this country are only going to shrink and premiums rise for the foreseeable future. Perhaps most important, STAY HEALTHY! Eat right, exercise, and lay off the booze and cigarettes.
Long Term Care - Be sure you have made a plan for funding the need for long-term care. If you’re not prepared, it can wipe you out very quickly. Over 73% of women that turn 65 in 2014 will need long-term care in their lifetimes. The average cost of a nursing home in Arizona this year is $95,000-$105,000. It’s essential that you prepare for this possibility. Traditional long-term care insurance is going the way of the dinosaur but there are new long-term care riders that when added to life insurance can do the job very nicely. This is a great way to go if you’re already 60 and haven’t set anything up yet.
Retirement. Photo by iStockBehavioral Finance – Your own mind can be your worst enemy. Human psychology makes most of us do exactly the wrong thing at exactly the wrong time with our investments. When times are good, we think we should jump into stocks (usually right at the top of a market) and when recession hits we want to bail out entirely (usually not until AFTER the market losses have happened). Stick to a plan! Don’t worry about the day-to-day or even month-to-month noise of market gyrations. Recessions are critical to retirement success. This is your seldom-seen opportunity to “buy low”. Have the stomach to do it yourself or have an advisor who will.
Risk Aversion - Just because you’re now retired doesn’t mean you don’t have to take risk. The days of our grandparents when they retired and put all their money into bonds paying 9% interest are gone, at least for most of us. You need that portfolio to grow if you plan to live to a ripe old age. Baby Boomers are the first generation that needs to plan for a 30- or even 40-year retirement! You still must be a growth investor. Yes, you will also have an income withdrawal strategy but that doesn’t mean you’re not in stocks anymore. There is an exception to this rule. If you are one of the 3% with a net worth of over $10 million, then maybe your plan is different. If you’re with me in the 97% boat, use a trusted advisor and listen to them!
When planning for retirement, be sure you expect the unexpected! Expect the best but plan for the worst. Oh my, I do believe I am now sounding like my grandfather. Maybe he was smarter than I gave him credit for.