It isn’t a bad idea to talk to your parents or grandparents about retirement and what worked for them. You probably can learn something from their successes — and their mistakes.
But if you’re thinking about following the exact retirement routine they used — with the same portfolio mix, income-distribution plan and claiming strategy for Social Security — you may want to reconsider.
I often warn my clients that getting advice from someone who’s been retired for decades is like asking a friend who ate at a restaurant years ago to recommend what you should have for dinner there tonight. The chef and menu may have changed many times, and there may be other delicious dishes to try. You’d be better off consulting your server — someone who has inside information about what’s best now and who will benefit along with you if the recommendation is a good one.
In the same way, the world of financial and retirement planning is always evolving, and the tactics that worked 10, 20 or 30 years ago may not give you the best results today. A financial professional who has both experience and cutting-edge knowledge can guide you through those changes and help you reach your goals.
Here are eight things you’ll have to pay attention to as you move to and through retirement:
1. Life expectancy.
The average life expectancy for those reaching age 65 has increased nearly seven years (to 84.3 for men and 86.6 for women) since the Social Security program began paying monthly benefits in 1940. And about one out of every three 65-year-olds today will live past age 90. Your various income streams might have to last a lot longer than your grandfather’s did. And he likely had a pension to count on; many of today’s retirees do not.
2. Health care.
Just because we’re living longer doesn’t mean we’re living healthier. According to the Pew Research Center, 75% of U.S. adults 65 and older report living with one or more chronic medical conditions. The latest retiree health care cost survey from Fidelity Benefits Consulting estimated that a 65-year-old couple retiring in 2018 would need an average of $280,000 to cover medical expenses through retirement. That’s a 2% increase from the prior year’s estimate — and it doesn’t include long-term care costs. Your plan should include ways to stay active in retirement — and a backup for any costs that Medicare doesn’t cover.
3. Long-term care.
Health care bills are one of the top reasons people give when filing for bankruptcy, and long-term care needs can add to the overwhelming cost. Genworth’s 2018 Cost of Care Survey puts the current median annual cost of care anywhere from $18,720 for adult day health care to $100,375 for a private room in a nursing home, depending on the care required and where you live — and those costs are expected to keep rising. Your adviser can suggest insurance products and other ways to help plan for the worst.
In 2008 and 2009, many pre-retirees learned the hard way what can happen if you put all your money into your home. Those who bought in early 2006 watched their equity disappear within a year or two as the housing market crashed. Some homeowners had time to recover, but in retirement you need a mix of assets that allow you to remain flexible, in case you decide to downsize, renovate or relocate.
5. Market conditions.
Thanks to technology and our global economy, the market changes constantly, and we’ve experienced an incredible amount of volatility in recent history. If the market falls just before or early in your retirement, your entire plan could be at risk. Remember, if you lose 50% of your portfolio, you’ll need to earn 100% to get back to even. In retirement, you’re also withdrawing money and you lose recovery time. It’s important to regularly evaluate market conditions and income-distribution strategies with your financial professional.
6. Social Security.
While pundits and politicians debate the future of Social Security, it’s up to you to determine when you should claim your benefits. While most retirees still file before their full retirement age, many advise delaying payments as long as possible to maximize your benefits. Your adviser can help you decide what’s right for your plan. (The nice folks at your local Social Security office cannot.) Factors to consider include your family’s medical history and your own, whether you have a pension or other guaranteed sources of income, and if you think you’ll want or need the money while you’re younger and more active.
If, like many modern-day pre-retirees, you’ve been socking all your money away in a tax-deferred investment account, you could be looking at a problem in retirement. Although most people expect to be in a lower tax bracket when they stop working, that isn’t always the case. Even if you’re usually in a lower bracket, if you need extra funds for a vacation or some other major purchase, the money you withdraw could temporarily bump you to a higher rate. You’ll also have required minimum distributions to deal with when you turn 70½. If tax rates go up in the future, the problem will only get worse. You may want to consider diversifying your savings into accounts (such as a Roth IRA) that are taxed in different ways.
Inflation means the market is growing and the economy is doing well. It also puts your purchasing power at risk. It’s crucial to plan for how inflation could affect your 20- to 30-year retirement. The options for growing your money safely keep changing, so you’ll need up-to-date advice. What worked for a different generation may not be the most lucrative or efficient way to save or invest today. Like the menu at the restaurant that changes over time, the strategies and products available to you may not even have been conceived of back when your dad or granddad was retiring. Your qualified financial professional can go over your options, see which ones fit your needs and help design a custom — and current — retirement plan.
Securities offered through GWN SECURITIES Inc. Member FINRA/SIPC. 11440 N Jog Road, Palm Beach Gardens, FL 33418. 561-472-2700. Voyage Retirement Solutions LLC and GWN Securities Inc. are non-affiliated companies. Investing involves risk, including the potential loss of principal. Any references to guaranteed income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Voyage Retirement Solutions LLC is not affiliated with the U.S. government or any governmental agency. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.
Kim Franke-Folstad contributed to this article.
Daniel Rey is the founder and CEO of Central Florida-based Voyage Retirement Solutions. Daniel developed the Retirement Navigator, a proprietary planning process designed to help Voyage's clientele achieve their long-term financial goals. He is passionate about helping investors, from public pensions and other employee retirement benefit plans to individual retirement planning.
How To Use Sector Rotation In Investing
Anticipating turns in the economy through sector rotation can pay off for nimble investors.
By Nellie S. Huang Published
A Disability Doesn’t Have to Force an Early Retirement
A feature on what people who experience disabilities later in life can do about work.
By Alina Tugend Published
Four Reasons to Rent When You Downsize for Retirement
Renting is great when you want to test-drive a location, or you want more predictable costs. It might be easier for family relationships in the long run, too.
By Evan T. Beach, CFP®, AWMA® Published
Give Your Charitable Giving a Boost With These Strategies
Donating to charity is easy. Getting the most from your donation and paying less in taxes can be more complicated.
By Jared Elson, Investment Adviser Published
A Plateful of Financial Topics That Might Come up Over Turkey Dinner
From higher prices and mortgage rates to AI planning our retirements: These are some of the conversations you might have as multiple generations gather for the holiday.
By Jerry Golden, Investment Adviser Representative Published
Four Holiday Shopping Strategies to Keep You in Check
Overspending during the holidays is so easy, but if you go into the shopping season with a plan and a budget, you’ll be so much happier in 2024.
By Tony Drake, CFP®, Investment Advisor Representative Published
Four Tips for Discussing Your Estate Plans at the Holidays
Family gatherings are the perfect time to talk with family members about representing you in your estate plan and to let them know what the expectations would be.
By Allison L. Lee, Esq. Published
What to Do if Your Employer Stops Its 401(k) Match
If other companies follow in IBM’s footsteps, employees will need to make some adjustments in their retirement savings.
By Mike Palmer, CFP Published
How Do Non-Compete Clauses Work? Are They on the Way Out?
Even low-skilled workers are subjected to non-compete clauses, but that could change as lawmakers take them on for restricting mobility and keeping wages low.
By H. Dennis Beaver, Esq. Published
What Is the F Reorganization, and Why Is It So Popular?
This year has seen an uptick in F reorganizations. Let’s explore the advantages and disadvantages for buyers and sellers.
By John M. Goralka Published