5 shocks that could rat­tle your retirement

The Washington Post Sunday - - BUSINESS - Rod­ney Brooks

When it comes to retirement, plan­ning is every­thing. But even for the best plan­ners, the un­ex­pected hap­pens.

As hard as it may be, you must plan for the un­ex­pected. As they say, you can’t do a do-over when it comes to retirement.

“You want to go into the years be­fore retirement mak­ing sure you are pre­pared for the shocks,” says Craig Fer­rantino, pres­i­dent of Craig James Financial Ser­vices in Long Is­land, N.Y.

One big fall­back is an emer­gency fund. Ad­vice varies, but financial plan­ners gen­er­ally rec­om­mend that an emer­gency fund cover six to nine months of ex­penses.

“Think of it out­side of

retirement sav­ings,” says Joe Ready, head of Wells Fargo In­sti­tu­tional Retirement and Trust. “Try to have an emer­gency fund so you don’t dip into your retirement plan.”

And what could make you do that? Here are five things that can un­ex­pect­edly de­rail your so-called golden years.

1 Un­ex­pected job loss. “The big­gest shock you will have is un­planned un­em­ploy­ment,” Ready says.

Down­siz­ing and lay­offs are only a part of it. Many peo­ple de­lay sav­ing for retirement be­cause they ex­pect to work longer. But they are prob­a­bly in for a sur­prise, ac­cord­ing to a yetto-be-re­leased retirement study from Wells Fargo.

“We asked peo­ple how long they plan to work in retirement,” Ready says. “Thirty-three per­cent said, ‘I plan to work un­til I’m at least 80.’ Some of that is born out of try­ing to keep busy. A lot is out of ne­ces­sity — ‘I haven’t saved enough, so to fill the gap, I’ll just work longer.’ ”

But 49 per­cent re­tired ear­lier than planned, mostly for rea­sons be­yond their con­trol. Only 7 per­cent re­tired early be­cause they had saved enough do so. An­other is­sue, Ready says, is that “peo­ple may not have the phys­i­cal or men­tal ca­pac­ity to con­tinue to do what they are do­ing.”

2 Health in­sur­ance. Even if peo­ple have saved enough money, the costs of health in­sur­ance are a wild card. One im­por­tant fac­tor: Medi­care doesn’t start un­til age 65.

“For those who want to re­tire early, a lot say, ‘I have saved enough money and want to re­tire at 62, and ev­ery cal­cu­la­tion I have used says I can af­ford it,’ ” Ready says. “A lot have un­der­es­ti­mated the cost of health in­sur­ance to bridge the gap.”

An­nual health in­sur­ance pre­mi­ums for a per­son in his early 60s and not un­der an em­ployee plan could vary widely, de­pend­ing on health and lo­ca­tion — but could hit $10,000 a year, ac­cord­ing to We­bMD.

3 Taxes: One sce­nario that will af­fect your taxes is the loss of a spouse, says Herb White, pres­i­dent of Life Cer­tain Wealth Strate­gies. For ex­am­ple, he says, a cou­ple earn­ing $70,000 a year and fil­ing taxes jointly would be in the 15 per­cent tax bracket. A sur­viv­ing spouse with the same in­come would move to the 25 per­cent tax bracket.

Prop­erty taxes are an­other is­sue, and can pile up even when the mort­gage is paid off. “We find peo­ple pay­ing $12,000 to $15,000 [a year] on a very mod­est Cape Cod,” White says. “I wasn’t plan­ning to pay those kind of taxes. And they never go down. They only seem to go up.”

4 Your chil­dren. Ev­ery­one wants to help their chil­dren, but it can be risky. The Great Re­ces­sion and dif­fi­culty get­ting work for re­cent col­lege grad­u­ates has re­sulted in a dra­matic in­crease in chil­dren mov­ing home af­ter grad­u­a­tion.

About 26 per­cent of mil­len­ni­als in Amer­ica lived with their par­ents in 2015, de­spite im­prove­ments to the job mar­ket and econ­omy, ac­cord­ing to a Pew Re­search Cen­ter re­port. That’s not nec­es­sar­ily a bad thing if it doesn’t af­fect your retirement sav­ings plan.

“You should help as much as you can, but try not to do it at the ex­pense of your retirement sav­ings,” Ready says. “You’ve got to re­ally think first about your retirement se­cu­rity and po­ten­tial of 25 to 30 years liv­ing in retirement.”

5 Med­i­cal costs. Fidelity In­vest­ments es­ti­mates a 65year-old cou­ple re­tir­ing this year will need $240,000 to cover fu­ture med­i­cal costs, ex­clud­ing ex­tended health care. That’s up 11 per­cent from 2014 and nearly 30 per­cent in the past 10 years. One rea­son is in­creased longevity.

Nearly three-quar­ters of cou­ples in the Fidelity 2015 Cou­ples Retirement Study were wor­ried about be­ing able to af­ford un­ex­pected health-care costs.

If one of the spouses needs long-term care, the costs can be even more ex­tra­or­di­nary. Longterm care in­sur­ance is ex­pen­sive, es­pe­cially for peo­ple over 60. By­ron Udell, chief ex­ec­u­tive and founder of Ac­cuQuote.com, says the odds are that two of three peo­ple will need some kind of ex­tended-care help.

“Peo­ple who are worth a few hun­dred thou­sand dol­lars to a cou­ple of mil­lion run the risk of hav­ing their as­sets run down,” he says. “My mom was in a nurs­ing home, and it cost $350 a day.”

Con­fu­sion about Medi­care causes prob­lems as well. “Some peo­ple go into retirement think­ing, ‘When I turn 65, I am el­i­gi­ble for Medi­care,’ and mis­tak­enly think Medi­care will cover their health-care needs,” White says. “There are a lot of things Medi­care does not cover.”

When that retirement shock hap­pens, talk with your financial plan­ner be­fore you do any­thing, says Kimberly Foss, CEO of Empyrion Wealth Man­age­ment. That way you can avoid mak­ing a crit­i­cal mis­take in a mo­ment of cri­sis, such as raid­ing your retirement ac­count when other op­tions are avail­able.

IS­TOCK

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