As I prepare for retirement I find myself a bit aprehensive and a little afraid.
Turns out I’m not alone. Retirement can be scary for a number of reasons and everyone has different reactions and thoughts.
Some people work longer to delay facing those fears, while others put their head in the sand, try not to think about the reasons retirement scares them.
It is best to face your fears well before you retire. Doing this can make a huge difference in our golden years.
I found this article by Ken Waltzer, M.D. and it tackles six of the most common retirement fears and offers some suggestions for dealing with them.
1. Running Out of Money…
This is the first retirement fear that most of my clients express. They worry they will outlive their money, or that high expenses or poor market returns will decimate their savings. For some, these fears are rational. They haven’t saved enough and/or are spending above their means. However, even when the data indicate that such fears are unwarranted, they may nonetheless persist.
The first step in dealing with this fear is to make a retirement plan. Ideally, one starts the plan well before retirement so that there’s time to make necessary changes before it’s too late (and/or too painful) to do so. I recommend engaging a financial planner to run the numbers, including alternative scenarios. The result of this exercise should be a comfortably high confidence level that income and assets are sufficient to cover expenses and liabilities for the rest of one’s projected life (or lives). The plan should also make room for “contingent liabilities,” or expenses that may or may not occur.
If the projections don’t look as good as hoped, there are options to fix this. And the longer until one actually retires, the more options there are. These include:
Sometimes, even when the projections look good, the doubts remain. What if I live past 100? What if the market tanks again (and again)? One option might be a fixed annuity.
While this approach will likely reduce the total amount one can spend during the retirement years, as well as how much one leaves to their heirs, it can assure people that they will always have enough cash flow to cover a certain level of spending. For some, this piece of mind is worth the tradeoff. For more on fixed annuities, see my article, Fixed Annuities Are an Underutilized Tool.
2. Out-of-Control Healthcare Costs…
As a rule, healthcare spending increases as we age. Retirement savers can build these expenses into a plan, but what if a major illness strikes? What if healthcare expenses are far above average?
The key is having the right insurance. Medicare covers the basics, but it’s essential to purchase Part B as soon as one is eligible (at age 65) to avoid the 10% late enrollment penalty for every year delayed. To fill in Medicare’s coverage gaps, there are two options: either purchase a Medicare supplement plan and Part D (medication coverage) or enroll in Part C (Medicare Advantage) to cover excess expenses.
3. Poor Health…
On top of worrying about paying for healthcare, there’s that nagging concern that health during retirement won’t be good enough to enjoy it. What good is having time to travel, go to shows and museums, etc. if health won’t permit it? Although failing health is a real concern as we age, we have more control over this than we might realize. At any time in your life, you can improve your health habits. It’s not that complicated: Don’t smoke or use harmful drugs, don’t drink alcohol to excess, eat healthfully, exercise regularly, get enough sleep, and address stress constructively.
There are plenty of sources for information on staying healthy; in general, it’s safer to stick with the mainstream. One financial bonus of healthier behavior: Your healthcare costs tend to be lower.
4. Requiring Long-term Care, for a Long Time…
Although only a minority of people end up needing long-term care for an extended period, it’s impossible to be sure ahead of time whether or not you will be one of them. Modeling long-term care in a retirement projection is difficult, and adding a large, but relatively unlikely, expense often breaks a plan. And, except for up to 100 days in a skilled nursing facility under specific conditions, Medicare doesn’t cover long-term care. For this reason, many people buy long-term care insurance, but decent policies are increasingly hard to find, and their costs continue to escalate.
There are options: Care by a family member is one, Medicaid planning is another. There are two big misconceptions about Medicaid and long-term care coverage: First, that only second-rate nursing homes take Medicaid; and second, that you need to be dirt poor to qualify. The reality is that many excellent nursing homes will accept Medicaid (and Medicaid can pay your spouse or other non-professional caregiver for home care). The key is to apply to the nursing home as a private-pay patient, switching to Medicaid later on when you qualify.
The rules for qualifying are complex and vary by state, but clever planning, well ahead of the need, can make even a well-to-do person Medicaid-eligible. Some financial planners and elder care specialists can help with this.
5. Facing a Large, Unanticipated Expense…
Other than those related to health and long-term care, or from your relatives, most large, unanticipated expenses come from natural disasters. And these are mostly insurable.
Don’t neglect this important aspect of your retirement plan. Compared with most other types of insurance, property/casualty insurance is generally affordable, or you may be able to use government programs when it’s not.
6. Boredom/Loss of Purpose…
In my experience, this seems to be more of an issue for men than for women. As a physician, I treated some couples. Several months after the husband retired, the wife would pull me aside and whisper, “Find him something to do. He’s driving me crazy!”
For many people, their career is their identity and consumes the bulk of both their time and their headspace. They don’t develop hobbies and other outside interests. After they retire, they feel lost, devoid of purpose. Needless to say, retirement generally doesn’t go well for them.
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So there you have it: Six retirement fears and suggested solutions. Face your fears now, hopefully before you retire. And if you are already retired, it’s still not too late to deal with most of them.
About the author: Ken Waltzer, M.D., MPH, AIF, CFA, CFP is co-founder and managing director of KCS Wealth Advisory, LLC, a registered investment adviser based in Los Angeles.
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