What keeps you up at night when you think about retirement?
We asked financial planners what their clients who are planning for or living in retirement worry about and what can be done to alleviate those worries.
Catch up if you haven’t saved enough
Rita Cheng, a certified financial planner with Blue Ocean Global Wealth in Gaithersburg, Md., says pre-retirees worry — especially since many don’t have a defined benefit pension plan — whether they have saved enough in their 401(k) to pay for retirement.
If you have such worries, estimate how much income your nest egg will generate in retirement. Do this by estimating how many years your money would last if you withdrew 4% a year for 30 years. If you can’t make your money last that long, increase how much you are saving for retirement and take advantage of the catch-up contribution rules. Employees who are age 50 and older can save an additional $6,000 a year on top of the $18,500 they can salt away in their 401(k) this year.
Steve Branton, a senior financial planner with Mosaic Financial Partners in San Francisco, says pre-retirees also worry whether they will have enough income to cover all their expenses once they stop working. Will they be able to pay all those bills? Or will their standard of living drop?
If you’re worried about this, Branton recommends a cash flow analysis: Compare all income sources in retirement to all expenses to determine if there is an expected surplus or deficit at various stages of retirement. If there are shortfalls, go back to the drawing board: Reduce expenses, retire later and save more. But if there are surpluses, Branton suggests saving that amount.
Branton also suggests conducting a Monte Carlo analysis to determine the long-term viability of your retirement when investment returns and inflation are varied greatly over extended periods of time, such as 25-30 years. According to the Massachusetts Institute of Technology, Monte Carlo simulations are a statistical technique used to model probabilistic systems and establish the odds for a variety of outcomes.
“The two types of analysis together give both a gut-check and long-term view of the retirement question for the client,” he says.
Discuss long-term care
People also worry about paying health care expenses in retirement. How might you deal with this? Talk to a qualified professional about long-term care and its costs. Talk also to a trusted health care broker who, Branton says, often helps cut through all the options of Medicare and drug plans and can home in on what they should do, based on their preferences and needs. “Planning for the possibility of a long-term care event is essential whether the client opts to obtain insurance, set cash aside, earmark certain accounts and the like,” he says.
Have an investment plan
More than a few pre-retirees worry what will happen to their income if the stock market plunges.
“The obvious pressing issue for many approaching or in retirement is the length of this current bull market,” says Mark Beaver, a certified financial planner with Keeler & Nadler Financial Planning and Wealth Management in Dublin, Ohio. “Many of them still have the financial crisis of 2008 fresh on their minds, even now 10 years later, and the fear of that happening again is significant.”
To manage that worry, Beaver suggests having a financial and investment plan in place. Having such a plan, one that details retirement income goals and tolerance for risk, will go a long way toward calming their nerves about what the market may do in the short term and redirect them to a long-term mind-set, Beaver says.
For his part, Branton recommends using a program that allows for sustained money withdrawals, even in a recession. “Some reductions may be recommended during a prolonged recession, but in general this type of plan should be able to sustain and provide for ongoing withdrawals despite what is happening in the larger economy,” he says.
One other tactic to consider to ease worries about withdrawing money during a bear market is to set aside 15 to 18 months of cash to cover expected portfolio withdrawals during the length of a typical recession, Branton says.
Similar worries include watching one’s net worth decline.
“Retirees don’t like to see their net worth declining,” says Howard Pressman, a financial planner with Egan, Berger & Weiner in Vienna, Va. “Strong market returns over the past few years have enabled clients to enjoy their retirement while also increasing their net worth,” he says. “But as returns come closer to long-term norms, and client spending continues, some are finally seeing their assets decline, and they don’t like it.”
If this is your worry, ask an adviser to run your numbers through a financial planning program. Such an exercise will give you confidence that your plan is sound, or that it needs to change. The worst thing to do is worry and take no action.
Plan for cognitive decline
According to Cheng, retirees fear dementia and Alzheimer’s disease, a decline in quality of life, becoming a burden to loved ones and an inability to age in place.
“They fear losing independence, choice and control,” she says.
To alleviate this worry, put in place documents and plans in case you experience dementia, Alzheimer’s disease or cognitive decline. Those documents include a power of attorney, a power of attorney for health care, a living will, a standard will, a living trust and guardianship/conservatorship. Visit: www.alz.org/care/alzheimers-dementia-legal-documents.asp
Robert Powell is the editor of TheStreet’s Retirement Daily and contributes regularly to USA TODAY. Got questions about money? Email Bob at firstname.lastname@example.org