Getting Ready for Retirement
As you plan ahead to retire someday, there are some common planning areas to cover. Will your income be sufficient? When do you begin taking Social Security? What about health insurance? Where will you choose to spend your time? These are the easier questions. As a financial advisor, we will help address some of the tougher issues that you may face in retirement.
Longevity Risk: With medical advances, people will live longer in the future. Many retirees tend to underestimate how long that they will live- how long their money will need to last. Decisions made early in retirement can have significant impact on income, either positively or negatively. Early retirees may live as many years in retirement as they spent working!
Forced Retirement Risk: Everyone has an idea of the age at which they wish to retire. From that they base their savings rate, beginning years before the target date. What happens if you are forced to retire early? Health changes for you or your spouse or cutbacks at work are just a couple of examples of a sudden need to retire early. How will your lifestyle change? Will you need to deplete emergency funds, causing you to tap into retirement accounts earlier than planned, potentially leaving you short?
Health Care Expense Risk: We are all familiar with the high costs of nursing homes and long term care. What about the cost of health insurance before being eligible for Medicare? It often comes with high deductibles, with the possibility of a large claim making a dent in assets that were allocated for longer term needs.
Frailty Risk: You have done a great job of making decisions in building your portfolio over the years. As you get older, it becomes more difficult to see the issues that need to be addressed, much less making the hard decisions that are required. Children can provide important help, but what if they are not located nearby, or are not themselves skilled with money matters? Is the financial advisor that you have trusted over the years also retiring?
Loss of Spouse Risk: You may have plenty of income at retirement, with money coming from pensions, Social Security and other structured programs. At the death of a spouse, your income will most likely be reduced, while your expenses do not always fall in similar fashion. In addition, tasks performed by the deceased spouse will need to be replaced by sources that may cost money to perform. It is difficult enough to have to deal with the death of your life partner, then have income worries that previously did not exist.
Legacy Risk: You wish to maximize retirement income, but also wish to leave assets for your children or charities. This is not a case of saving your cake and eating it too, but rather one of choosing the correct investment and insurance programs that will keep balance for you and your legacy objectives. Attention needs to be paid to structuring a base income for essential needs and growing other assets with the intent of gifting to children or charities.
Planning for retirement is a complicated, but rewarding process. Building flexibility in your plan and being aware of the issues that exist is the first step to success.