Retirement
Navigating the final frontier - written by Ryan Sobel
It is considered by many that retirement is the final frontier of a person’s financial journey and that this would be the point when the fruits of all their life’s work would finally be realized. For most Americans this dream is not a reality. Many Americans feel as though they might be far behind on their retirement goals and those who have already stepped off the retirement ledge often worry if they have enough to make it. People worry about making an investment mistake that might cost themselves and their families their dreams. There is concern about the rising costs of health care in retirement as well as concern about how their spouse is going get by should the pass before them. In addition to this retirees often worry about how their children are going to make it in a world so different from the one they grew up.
While overcoming these many obstacles may sound daunting, the good news is that the best and brightest financial minds in the country have been hard a work building a system to not only have people survive in retirement but to truly thrive. Because of the uniqueness of each retiree’s situation individually designed strategies are necessary however some common risks that a large portion of retirees face.
Risk and Reward Management - They key to succeeding in retirement
Succeeding in the retirement game is about playing well on both offense and defense. From a defensive perspective it is imperative to protect against several major risks that can derail retirees. To some extent this is a game of winning by not losing. Most retirees, will do great as long as they protect themselves from several fatal mistakes. Once a plan has been created to handle the list of Achilles Heel, a good offense can be the best defense. Below is a list of the items that are imperative to work through and address to ensure a successful retirement.
1. The possibility of living too long.
2. The possibility of the cost of living increases more than expected.
3. The possibility of the stock market crashing when a retiree is dependent on their stock portfolio for income and the retiree is then forced to take withdrawals in a depressed market.
4. The possibility of interest rates falling after a person retires prevent them from earning enough interest on their bond portfolio to maintain their lifestyle.
5. The possibility of one retiree needing extended care for dementia or Alzheimer’s that costs so much money that the well spouse no longer has enough money to maintain their lifestyle.
6. The possibility of one spouse losing their ability to work before they have saved enough money for retirement
7. The possibility of one spouse passing away before they have saved enough money for the surviving spouse's retirement.
8. The possibility of an economic crash happening before retirement that causes a working pre-retiree to lose their job
9.The possibility of children needing financial support.
10. In the case of split families, there is the possibility of children from the first marriage not receiving any inheritance if it all passes to the surviving step-parent.
12. In the case of non-split families there is still a possibility of children not receiving any inheritance in the case after the first spouse dies, the surviving spouse remarries and then in inadvertently leaves all of the money to the new spouse.
13. There is the possibility that if one spouse dies during retirement there will be a substantial loss of social security income to the surviving spouse.
14. There is the possibility that if a family is reliant on one spouse’s part-time works during retirement and the working spouse dies that the surviving spouse will not have sufficient income afterword.
15. There is the possibility that if substantial costs are incurred due to one of the spouses' inability to take care of themselves, the family attempts to give their remaining assets to their kids to qualify for Medicaid that the government will reject the Medicaid request and attempt to “clawback” the gifted assets from the family.
16. There is the possibility that a pre-retiree loses their job and then becomes disabled due to injury or illness that they will receive no disability income because the disability coverage was lost at the time of their job loss.
17. There is the possibility that a business owner is unable to sell their business for enough money to replace the income that the business was creating.
18. There is the possibility that tax laws change causing retirees to pay additional taxes on their 401k distributions.
19. There is the possibility that a pre-retiree or post retiree will have an excessively high percentage of their wealth in their current or old company’s stock and that sock does worse than the overall market.
20. There is the possibility that a retiree purchase a financial product that they do not fully understand and are forced to pay a large surrender charge.
21. There is the possibility that a retiree chooses to invest a substantial amount of money in gold thinking it’s a safe investment and loses a large portion.
22. There is the possibility that a retiree does not have sufficient guaranteed income to fund their lifestyle and becomes emotionally obsessed with their stock portfolio which causes stress and a shorter life expectancy.
23. There is the possibility that even though a retiree might have a significant amount of assets they live in perpetual fear of losing them and as a result never get to enjoy the money they’ve worked hard for.
24. There is a possibility that a retiree who begins to experience cognitive decline forgets to pay their long term care insurance premium and the policy lapses by the time they need care.
25. There is the possibility that a retiree fills there investment portfolio with dividend-paying stocks that they are reliant on for income and some or all of those stocks lose value which reduced the amount of dividend they are paying.
26. There is the possibility that a retiree has a substantial amount of assets in their 401k and when they are required to take minimum taxable distributions out of this account at age 72 the increase in their income results in a substantial increase in the amount tax they are paying on their social security income which then reduces their cash flow.
27. There is the possibility that a retiree chooses to purchase a variable annuity with money from a taxable investment account and pays a high amount of ordinary income taxes on the first several years of that variable annuity’s distribution.
28. There is the possibility that a retiree or their advisor, in attempt to asses the probability of that retiree’s success, performs a Monte Carlo retirement analysis that uses historical bond return data rather than current bond return data and grossly overestimates the client’s chances of succeeding resulting in the retiree running out of money.
29. There is the possibility that in an attempt to time the market or pick individual stocks that the retiree ends up in inadvertently increasing their risk a loses a substantial amount of their wealth unnecessarily.
30. There is the possibility that the use of cash value life insurance is used improperly in a client's retirement plan resulting in unnecessary income taxes and potentially the loss of the death benefit.
31. There is the possibility that a retiree does not own a large enough umbrella policy to protect their asses and they lose a substantial amount of their wealth in a lawsuit following a car accident.
32. There is also the possibility that a retiree chooses to retire without doing any planning or consulting with a financial professional and without doing the proper work to make sure their plan is solid.
While this list of retirement hazards may seem long, a competent financial advisor will proactively address all of these issues with you and ensure that your plan is resilient enough to handle these circumstances.
Once a solid plan is in place to handle these issues, it is now time to take the offensive and use retirement as an opportunity to succeed and thrive. With worries, fears, and anxieties now out of the way, the door is open for uninhibited creativity and has the potential to be a time for extraordinary contribution and fulfillment. Many choose to use this opportunity to start businesses or join organizations that are not only enjoyable but also make a meaningful difference in the world. Those who succeed in the retirement game can one day look back on their life and enjoy a deep sense of satisfaction knowing that the world is a better place because they were there.