We talk a lot about “risk” in retirement, because there are a lot of issues to consider. That’s why retirement planning is so important—it includes contingency plans to cover potential adverse events.
Here are five examples:
Even young people face the possibility that they will become disabled or incapacitated in some way, like getting hurt in an accident—it’s far more likely to happen than we realize. But aging brings with it the risk of slow health deterioration; our bodies and minds can start to slip. It’s important to have all our estate planning documents and various provisions in place to manage our financial affairs should we become unable to do so, like powers of attorney, trusts, wills, etc. A good financial advisor will work closely with your estate attorney and accountant to help structure things to suit your unique desires, needs and family situation, as well as plan for tax-advantaged wealth transfer for the future.
- Health costs
Many people think that once they sign up for Medicare, all their health care costs will be covered. But this is not true at all. According to Fidelity, the average couple will need $285,000 in today’s dollars for medical expenses in retirement, excluding long-term care. A whopping 42% of that—$119,700—is for copays, coinsurance and deductibles. Thirty-nine percent, or $111,150, is for premiums for Medicare parts B and D, while the remaining 19% is for prescription medications.
Original Medicare Parts A and B cover limited hospital care and doctor visits, but don’t cover dental, vision care, or prescription drugs, premium costs or deductibles.
Another huge potential cost not covered is long-term care. Medicare may cover a stay of up to 30 days, but the average person who needs care will need it for around three years. The Department of Health and Human Services estimates that 70% of retirees may need some form of assistance. Long-term care is extremely expensive, the average cost for a semi-private room in a full-time nursing facility was $7,441 per month in 2018 according to Genworth. That’s close to $90,000 per year!
Your retirement planner should work with you to create a realistic budget to meet your lifestyle expectations. Excess withdrawals, or spending too much on yourself or your children/grandchildren, should be avoided. But spending too little, or not spending while you are fit and able to do things is also not wise. We can work to develop the proper asset allocation to help you have the income to meet your lifestyle desires in retirement.
- Economic volatility
Market risk is always an issue, and as you get older, your portfolio should be weighted toward more safety and principal protection, which is what we do at Alpha Beta Gamma Wealth Management. Interest rates are at rock bottom lows, therefore standard savings accounts and bonds are still not yielding much. And should interest rates go up, the value of bonds will go down. Your retirement plan should also include provisions to cover future costs of inflation. Protection is key in retirement.
There’s no crystal ball to help us, but we must plan on living a very long time. People in America today who’ve made it to age 65 can expect to live another 19 years on average according to the Centers for Disease Control. Running out of money is a bigger fear than dying for many retirees; therefore, making sure your retirement funds last throughout your lifetime is critical.
Longevity exacerbates all the other risks you face in retirement—we can help you plan accordingly. Please call us at our headquarters in Palm Beach Gardens, Florida at (866) 837-0999.