Advertisement
retirement

5 Big Problems to Solve Before You Retire

Unless you have a solid game plan in place to address these five potential problems, you are not ready to retire.

It seems, sometimes, as though financial professionals come in only two flavors.

There are those who promise everything is going to be fine; you don’t have to fret about retirement, they say, because they’ll help you make more than enough money to get you through.

And then there are the hand-wringers who just can’t stop with the worrying and their warnings that you’ll never have enough.

Advertisement - Article continues below

Somewhere in the middle is the reality, of course. Retirement should be a reward for years of hard work, and you don’t want to have to pinch every penny. You should be able to do the things you couldn’t when you were punching a clock every day.

You should be able to look forward to retirement as one of the best times of your life.

But, that said, if you want your money to last, if you want to live comfortably in your 60s, 70s, 80s and beyond, you should consider some common concerns, including:

1. How much will you have available to support yourself?

Maybe not as much as you think. Financial professionals used to commonly say you’d likely be OK in retirement if you started with a 4% annual withdrawal rate. But some 2013 research by Morningstar’s head of retirement research, David Blanchett, may have changed that theory.

Advertisement
Advertisement - Article continues below

Co-authored by two college professors who are experts in retirement planning, Michael Finke and Wade D. Pfau, the analysis found that a 2.8% withdrawal rate over a 30-year retirement had a much higher chance of success (90% vs. 48.2%) if interest rates remain low.

Advertisement - Article continues below

If you have $1 million saved, that would take you from $40,000 a year down to $28,000. That’s quite a difference, and definitely something to keep in mind when you’re drawing up an income plan.

2. Have you protected yourself against inflation?

Most experts are forecasting that inflation will go up over the next 30 years — maybe even more than originally predicted, now that President Trump is in office. But many retirees don’t even think about inflation when they’re making their plans. They say, “I’ve got $1 million divided by $40,000 a year, and that should last me 25 years.” But if the rate of inflation does increase, and you haven’t made adjustments to deal with it, it could take a real toll on your future income.

3. Are you managing risk?

One of the worst things I see retirees do in retirement (and pre-retirement) is have the same risk profile that you had in your 30s and 40s. When you’re drawing income from your assets, it’s incredibly difficult to come back from a market downturn – just ask the folks who were getting ready to retire back in 2008. If you’re taking $3,000 or $4,000 a month from a depreciating asset, you’re going to run out of money much faster.

Advertisement - Article continues below

It’s important to bring risk under control, and you can do that with some common strategies such as:

Advertisement
Advertisement - Article continues below
  • Diversifying your assets: Don’t have all your eggs in one basket. Control volatility by choosing investments with a proven track record and having enough fixed income in your portfolio.
  • Emphasizing stocks that commonly pay high dividends: Income-producing holdings can help supplement your Social Security and pension. But remember, dividends are not guaranteed.
  • Considering income annuities: This is one of the strategies Pfau and Finke came up with in the Morningstar study. Guaranteed annual payouts are normally 4% to 5% per year of the contract’s accumulated value, which has the potential to double the amount of income you’ll have.

4. Is your retirement plan tax-efficient?

We’re sitting with a national debt that’s nearing $20 trillion and rising. And we have nearly $25 trillion sitting in retirement accounts in the United States — 401(k)s, IRAs, 403(b)s and so on — according to the Investment Company Institute. It would be foolish to think that Uncle Sam won’t figure out how to make the most of those tax-deferred dollars.

Advertisement - Article continues below

We’ve created a situation with our nation’s debt that we’ll eventually have to deal with, or it will be passed down to our kids and grandkids. You should consider a tax strategy in your plan to help reduce your tax liability.

5. Are you prepared for health care costs?

According to the U.S. Department of Health and Human Services, 70% percent of people turning age 65 can expect to use some form of long-term care during their lives. Those are awfully high odds, and yet many Americans have no way to pay those bills — and Medicare only covers short stays under specific circumstances.

There are long-term care insurance policies, but because they’re expensive, many consumers aren’t buying. Instead, many are turning to alternative strategies, including life insurance riders that provide the option of tapping into your death benefits early. But even with insurance riders, the insurance contract must be suitable for the individual and they must have an underlying need for that product.

It really is all about planning for the worst and hoping for the best.

If you have a blueprint in place that addresses with these five concerns — a plan that’s amendable as times change so you stay on the right track — you have the greater potential to enjoy retirement.

Kim Franke-Folstad contributed to this article.

Advertisement

About the Author

Mark A. Lloyd, RFC, CEP, Investment Adviser Representative

Ownder, The Lloyd Group, Inc.

Mark A. Lloyd is the principal owner of The Lloyd Group Inc.. He is a Certified Estate Planner and a Registered Financial Consultant. Lloyd is the host of the "Financial Symphony" radio show and the author of "Protect Yourself and Those You Love: Estate Planning Essentials."

Advertisement

Most Popular

Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020
5 Unfortunate Estate Planning Myths You Probably Believe
estate planning

5 Unfortunate Estate Planning Myths You Probably Believe

These all-too-common misconceptions can steer your estate plans in the wrong direction right from the start. Here’s how to overcome them and tips to b…
September 17, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020

Recommended

Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020
Most-Overlooked Tax Breaks for the Newly Divorced
tax deductions

Most-Overlooked Tax Breaks for the Newly Divorced

Filing taxes after a divorce can add yet another problem to an already long list of challenges. But here are some tips to make your return to single l…
September 18, 2020
Insurance for Long-Term Care at Home
retirement

Insurance for Long-Term Care at Home

In the wake of COVID-wracked nursing homes, increasingly more people are looking at options to age in place with long-term care insurance.
September 17, 2020
A Step-by-Step Guide to Being an Estate Executor
retirement

A Step-by-Step Guide to Being an Estate Executor

Whether you’re planning ahead for your own heirs or have been asked to serve as an executor of an estate for someone else, it pays to understand what …
September 17, 2020