Welcome to the New Retirement! These are not the golden years as we used to know them. In general, we are healthier, more prosperous, and better educated than any seniors before us. Science tells us that we'll live longer than them, too. But that's a double-edged sword because all those additional years will bring additional costs, too. This is no time to take your eye off the ball.
Some of us will work, some will find physically active pursuits, some will devote time to help others, and some will while away the hours counting raindrops. Whatever your lifestyle choice, be sure to continue to manage your health. See your doctor regularly, get all recommended tests, and sleep and eat well. Your risk for cancer and other serious conditions increases with age. Annual physicals-- for both men and women-- are not optional. Neither are regular colorectal screenings. Women should have mammograms regularly and should inquire about bone-density screenings. Men need prostate exams.
Your Retirement Plan
The name of the financial game at this stage in your life is not saving, but capital preservation. A good rule of thumb is that you can plan to withdraw about 4% of your principal per year for a long time without jeopardizing your principal. As usual, though, each situation is different, so you'll need to discuss yours with a qualified independent advisor.
At this point, you're not so much planning as managing the execution of your retirement plan. Still, things change, and some people are surprised to learn, for example, how much they miss the purpose and routine of work. Others are surprised to learn how much they enjoy NOT working.
In our experience, the typical retirement has three phases:
- You finally get to do all those things you've been saving for and dreaming of, like touring the southwest in an RV. The danger here is that fuelling an RV is expensive, and you may have such a good time that you'll spend too much. In general, in your first few years of retirement, you will spend more money than you did in the last few years before retirement
- You sell the RV and stay closer to home, spending time on things like gardening. Needless to say, mulch is cheaper than diesel, and this is a relatively low-cost period.
- Later, as health inevitably declines, expenses again rise, this time because of medical costs, particularly for long-term care.
If you see yourself in any of these descriptions, or if your retirement is following a less typical course, be sure to consult with a qualified independent advisor.
Next, identify your sources of income for retirement and do some realistic calculations about how much each will contribute. How much will your current savings, investments, and Social Security benefits be worth when you retire, and how long will they last? What effect will inflation have on your nest egg? If you have difficulty with these calculations, be sure to consult with a qualified independent advisor.
When you turn 65, you're covered by Medicare.
If you're not yet 65, you'll need to be sure that you have adequate medical coverage. Options include:
- Your company's retiree medical coverage
- Your spouse's workplace plan
- COBRA and/or HIPAA continuation coverage
- A private plan (although these are expensive and difficult to purchase)
If you're 65 or over, we'll assume you're on Medicare. Be sure to also consider Medicare Supplementary Insurance; if you do, be sure to review your options regularly: Unlike other forms of insurance, which have varying options, inclusions, and exclusions, this insurance is the same wherever you go. So your only considerations should be price and the reliability of the insurer. We can help you with your supplementary insurance review.
Long-Term Care Insurance
A little-known fact: For all practical purposes, Medicare will not cover your long-term care. At this writing, a year of LTC in the Lehigh Valley can run $96,000 a year and in New Jersey, it is about $330/day; that's enough to blow a hole in anyone's legacy. If you're not already covered for LTC, the cost of the insurance may be prohibitive. What to do? The answer's not easy, but a qualified independent advisor can help.
If your kids are grown and financially independent, the mortgage is paid off and your spouse would survive without your income, you may no longer need life insurance. On the other hand, if any of these are a concern, you may need to keep a policy in place-or even purchase additional insurance. Another exception is if you've got an estate of more than $11.2 million. Life insurance could help to pay the 40% tax on amounts over the $11.2 million estate taxes exemption.
Homeowners and Liability Insurance
Throughout your retirement, a home can remain a cornerstone of your financial stability. So protect it, with sufficient homeowner's insurance. In addition, make sure you have adequate liability insurance. Raise the liability limits on your homeowners and auto insurance policies to the maximum, and consider adding a personal liability policy (also called an umbrella policy). In general, maintain liability coverage equal to one to two times your net worth.
Contact us today to get started.