Five steps to ease money, health worries for retirees
What keeps you up at night when you think about retirement? We asked financial planners what their clients who are planning for or living in retirement worry about and what can be done to alleviate those worries.
❚ Catch up if you haven’t saved enough: Rita Cheng, a certified financial planner with Blue Ocean Global Wealth in Gaithersburg, Md., says preretirees worry — especially since many don’t have a defined benefit pension plan — if they have saved enough in their 401(k) to pay for retirement.
If you have such worries, estimate how much income your nest egg will generate in retirement. Do this by estimating how many years your money would last if you withdrew 4% a year for 30 years. If you can’t make your money last that long, increase how much you are saving for retirement and take advantage of the catch-up contribution rules. Employees 50 or older can save an additional $6,000 a year on top of the $18,500 they can salt away in their 401(k) this year.
❚ Rethink spending: Steve Branton, a senior financial planner with Mosaic Financial Partners in San Francisco, says pre-retirees also worry if they will have enough income to cover expenses once they stop working.
If you’re worried about this, Branton recommends a cash flow analysis: Compare all income sources in retirement to all expenses to determine if there is an expected surplus or deficit at various stages of retirement. If there are shortfalls, go back to the drawing board: Reduce expenses, retire later, save more. But if there are surpluses, Branton suggests saving that amount.
Branton also suggests conducting a Monte Carlo analysis to determine the long-term viability of your retirement when investment returns and inflation are varied greatly over extended periods of time, such as 25-30 years.
❚ Discuss long-term care: People also worry about paying health care expenses in retirement. How might you deal with this? Talk to a qualified professional about long-term care and its costs. Talk also to a trusted health care broker who, Branton says, often helps cut through all the options of Medicare and drug plans and can home in on what clients should do, based on their preferences and needs.
“Planning for the possibility of a long-term care event is essential whether the client opts to obtain insurance, set cash aside, earmark certain accounts and the like,” he says.
❚ Have an investment plan: More than a few pre-retirees worry what will happen if the stock market plunges.
“The obvious pressing issue for many approaching or in retirement is the length of this current bull market,” says Mark Beaver, a certified financial planner with Keeler & Nadler Financial Planning and Wealth Management in Dublin, Ohio. “Many of them still have the financial crisis of 2008 fresh on their minds ... and the fear of that happening again is significant.”
Beaver suggests a financial and investment plan. Having one that details retirement income goals and tolerance for risk will go a long way toward calming their nerves about what the market may do in the short term and redirect them to a long-term mind-set, he says.
Branton recommends using a program that allows for sustained money withdrawals, even in a recession. “Some reductions may be recommended during a prolonged recession, but in general this type of plan should be able to sustain and provide for ongoing withdrawals despite what is happening in the larger economy,” he says.
One other tactic to consider to ease worries about withdrawing money during a bear market is to set aside 15 to 18 months of cash to cover expected portfolio withdrawals during the length of a typical recession, Branton says.
Similar worries include watching one’s net worth decline.
“Strong market returns over the past few years have enabled clients to enjoy their retirement while also increasing their net worth,” says Howard Pressman, a financial planner with Egan, Berger & Weiner in Vienna, Va. “But as returns come closer to long-term norms, and client spending continues, some are finally seeing their assets decline, and they don’t like it.” If this is your worry, ask an adviser to run your numbers through a financial planning program.
❚ Plan for cognitive decline: According to Cheng, retirees fear dementia and Alzheimer’s disease, a decline in quality of life, becoming a burden to loved ones and an inability to age in place.
To alleviate this worry, put in place documents and plans in case you experience dementia, Alzheimer’s disease or cognitive decline. Those documents include a power of attorney, a power of attorney for health care, a living will, a standard will, a living trust and guardianship/conservatorship.
Robert Powell is the editor of The Street’s Retirement Daily and contributes regularly to USA TODAY. Email Bob at rpowell@allthingsretirement.com