Many people still see retirement as some sort of finish line. Truth be told, it’s far more than that. Retirement is a rewarding time of life brimming with opportunities and newfound freedom. Forget budget cruises and rocking chairs on the porch; Americans are embracing a new kind of future. About one out of every three 65-year-olds today will live past age 90, and about one out of ten will live past age 95.1
It’s easy to daydream about your ideal future, but don’t
forget: A goal without a plan is only a wish. Let’s explore some common
retirement obstacles and strategies to overcome them — because it’s never too
early to start preparing for your next stage of life.
Consider the Bigger Picture
People approaching retirement face many decisions: Where to
live, how to stay engaged, how to stay fit, access to health care, and future
sources of income. It’s easy to delay these decisions. However, if we fail to
look ahead, we can leave ourselves vulnerable to unanticipated events like
market volatility, an unforeseen tax liability, health challenges, or a
financial emergency involving a child, parent, or spouse. People need to be
able to pivot quickly, and planning provides the necessary flexibility to do
so.
One of the big misconceptions of working adults is that
they’ll spend less money after they retire. For most retirees, that simply
isn't true.2 Spending in retirement often fluctuates. It helps to
picture retirement as three separate phases: Early, middle, and late. Early spending
tends to go up since you’re likely still active, eager to travel, and ready to
start scratching items off your bucket list — without your usual salary to fund
these activities.
In the middle phase of retirement, many retirees may prefer
to eat in, stay local, and enjoy the comforts of home. Therefore, discretionary
spending decreases. Perhaps you’ll decide to stop driving, further reducing
expenses.
In the late years of retirement, people tend to settle down
further. Managing existing health conditions, as well as new diagnoses, can
lead to increased medical care and costs. While individual retiree spending
patterns vary, healthcare expenditures consistently represent a significant
portion of retiree spending.
The Elephant in the Waiting Room
If you walk away with only one lesson from this article, let
it be this: Future healthcare costs may be the biggest obstacle in the way of
your ideal future. The average healthy 65-year-old couple today will need a
projected $363,946 for healthcare expenses during retirement.3
Yes, that sounds scary. But don’t wave the white flag just
yet. There are plenty of strategies, both physical and financial, you can
employ during your journey toward a fulfilling future. We’ll get into these
shortly.
Other Considerations
Inflation. Benjamin Franklin once wrote, “in this
world nothing can be said to be certain, except death and taxes.”4
While true, Mr. Franklin forgot a third certainty: inflation. During our
working years, inflation is usually offset by increases in earnings; but in
retirement, it can become a true thorn in the side. Particularly since most
retirees are balancing some degree of fixed income with investment risk and the
desire to maintain a standard of living. To maintain their vision, workers
should account for inflation and consider properly managing inflation-protected
sources of income.
Longevity. We’re living longer, and while that’s
exciting, the possibility of outliving resources is real. Planning for the
future can often feel like a guessing game. After all, how can you create a
predictable stream of income for an unpredictable length of time? While it’s
impossible to eliminate uncertainty entirely, you can work with your financial
professional to review things like current health history, family history, and
attitudes towards sacrifices that may be necessary. Sustainable withdrawal
strategies can be calibrated to meet individual expectations. Tax efficiency,
withdrawal rate, and portfolio composition should all be considered. A
contingency fund can also be established and kept in reserve if needed to
provide income in years beyond life expectancy.
Investments. As we’re all aware, there are countless
challenges and opportunities associated with investing. Interest rates shift,
the market keeps us guessing, and the timing of contributions and withdrawals
can have a dramatic impact on portfolio performance. One of the few ways to
mitigate market risk is to properly diversify your portfolio. This is a
discussion best had with your financial professional, not the new guy at the
office blathering about bitcoin.
Strategies to Be Well and Stay Well
As we touched on before, the biggest hurdle you may face in
retirement could be healthcare costs, or more specifically, not having prepared
for them during your working years.
There’s an important distinction at the core of retiree
expenses that cannot be overlooked. You can downsize your home, you can cut
down on travel and entertainment, but you can never eliminate healthcare costs.
Quarterly Medicare premiums, supplemental health insurance premiums, high
deductibles, copayments, non-reimbursed expenses, as well as out-of-pocket
medications and supplies can’t be avoided. So, what can you do?
·
Consider tax-efficient strategies when going
through the process of turning assets into income to ensure adequate resources
are available, if needed, for healthcare costs later in life.
·
Optimize healthcare benefits by choosing the
right plan. During retirement years, we no longer have an employer to lean on
for healthcare information and support. Try to take ownership of your decision,
doing your due diligence to make sure you get the plan that meets your needs.
·
Develop healthier habits today. It’s impossible
to overstate the importance of adopting good habits before retirement for both
your finances and your health. Doing so can put you in a better position to
ensure your retirement years are your best years.
·
Consider lifetime income solutions to pad your
retirement income. Many people will earmark assets to create an income stream
to fund certain expenses like health care or housing. Be mindful of the gaps
pensions or Social Security may leave open.
·
Consider all Social Security options. There is
no single filing strategy that works for everyone. Each situation is unique and
calls for a different approach. For spouses or those with ex-spouses, don’t
forget to consider that spousal and survivor benefits may be available.
·
Know your family health history. Understanding
the conditions that run in your family can give you a head start preparing for
the unexpected. Check out this resource that shows common health challenges and
how to address them.
Looking for a Retirement Plan?
Consider the AVMA Trust Association Retirement Plan. To
learn more or schedule an appointment, call 888-310-7605 or email AVMATrustRetirementPlan@transamerica.com.
1 Social Security Administration, Accessed
February, 2019.
2 “Think You’ll Spend Less in Retirement? Think
Again.” The Motley Fool, 2018.
3 “2018 Retirement Healthcare Costs Data Report,”
HealthView Services, 2018.
4 National Constitution Center, 2018.
5 “This is the Real Reason Most Americans File
for Bankruptcy,” CNBC, February 2019