Dear Baby Boomer: You Need to Deal With a Few Issues

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I know you’re ready. You’re so close to retirement, you can taste the cool beverages on the beach and feel the sand between your toes.

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Unfortunately, at the rate you’re going, dear Baby Boomer, your retirement might not be exactly as you dreamed it.

Maybe it’s because you never could quite imagine getting this old, or because they keep changing the rules (or threatening to) as you go along, but your retirement is going to be a bumpy ride if you don’t exercise a little tough love.

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Here are four issues you’ll need to tighten up on in order to enjoy that sunny future.

1. Boomerang kids.

According to a study by Federal Reserve Board economists, the number of young adults (ages 18 to 31) who lived with their parents rose 15% between 2005 and 2014 — to a historic high of 36%. And those parents who aren’t housing their adult children are often helping them financially — paying student loans, co-signing car loans and more.

I’ve talked to people who have taken out money from a 401(k) to help their kids — who are in their 30s and 40s — buy a home. That’s a huge blunder, for a couple of reasons.

Besides creating a potential dependency problem that could dog your kids for life, all that help is drawing from resources you’ll need when you retire. Parents who are 65 years or older with financially independent kids are more than twice as likely to be retired as those who financially support their adult children, according to a 2015 study by retirement market research firm Hearts & Wallets. If you can’t bring yourself to kick them out, at least insist that your kids contribute something toward room and board. And stop paying for their cellphones and car insurance!

2. Longevity.

You’re likely to live longer than you think, which, of course, is a blessing — but one you’ll have to plan for. A man who is 55 years old now can expect to live to 83 or 84; a woman the same age will likely live to 87. When the Social Security program was initiated in 1935, the average life expectancy was 61.

Still, a lot of people just can’t imagine decades of retirement — or what it will mean when it comes to their income plans. It used to be that the standard withdrawal strategy was to take 4% from the initial value of your savings — and if you did that annually with a balanced portfolio (which used to mean 50% in stocks and 50% in bonds), you’d be able to avoid running out of money.

That’s no longer the case — not in our low-yield world. Mutual-fund managers T. Rowe Price and the Vanguard Group as well as online brokerage Charles Schwab have issued reappraisals of the guideline, to now lower than 4%. And many advisers are reassessing withdrawal percentages annually based on market fluctuations. So — yay! — you’ll probably live to see more grandkids and grand sights than you ever thought, but it will require a much bigger nest egg than the one you’ve been building.

3. Health care costs.

Just because you’re going to live longer doesn’t mean you’ll stay healthy all that time. The average 65-year-old couple retiring in 2016 will need $260,000 to cover their medical expenses throughout retirement, a recent Fidelity report concluded. That’s not all the bad news. What makes it worse is that, according to a 2016 PWC survey, roughly half of all Baby boomers Boomers have a nest egg of $100,000 or less to pay for everything.

If you’re counting on Medicare to cover your costs, don’t. You’ll need a supplement or advantage plan to help with some of your expenses, and if you need to recover from an illness or an injury, your Medicare coverage will stop as soon as you are better, which is not the problem. What can be a significant issue is if the benefit allotment runs out. The Genworth 2016 Cost of Care Study found that the national median cost of long-term care rose across all settings, except adult day care — and the sharpest increase was for services provided in the home.

How would you cover such expenses? Options include long-term care insurance, annuities or a cash-value life insurance policy with a long-term care rider. (Pointing to how healthy your Great-Aunt Edna was at 92 doesn’t count as a plan.)

4. Income streams.

Financial professionals used to talk about the three-legged stool of retirement income: Social Security, employee pensions and personal savings. But that’s a pretty wobbly stool these days.

You’ll need a plan that’s built to handle the possibilities that inflation and taxes will rise. Protect yourself by moving your retirement savings out of any investments that carry a lot of risk. And don’t count on Social Security as your main source of income — it’s projected that the trust won’t be able to fully fund benefits starting in 2034.

To give you a little perspective: The youngest Baby Boomers, born in 1964, will be 70 that year.

The road to retirement is littered with obstacles — some of which you can control. Put your daydreams on pause and pick up the phone: If you haven’t already, find a trusted adviser to help you clear the way.

A Word of Caution to Retirees Tempted by Stock Market Records

Investment advisory services offered through Kingdom Financial Group, LLC, an SEC Registered Investment Adviser. We are an independent firm helping individuals make retirement income planning more successful by using a variety of strategies to custom suit their needs and objectives. By contacting us, you may be provided information about insurance products and investment opportunities. Annuity product guarantees are subject to the claims-paying ability of the issuing company and are not offered by Kingdom Financial Group, LLC.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Steve Fullerton is co-founder of Fullerton Financial Planning and is FINRA licensed with Series 7, 63 and 66, as well as health and life. He is the founder and president of Kingdom Financial Group LLC, a Registered Investment Adviser with the SEC.