01 Dec Help! I want to retire, but I’m off track!
by Michael Cocco, CFP®, AXA Advisors
Sometime around the age of 50, we start to think more seriously about retirement. After all, the kids (if we have them) are out of the house, or at least relatively selfsufficient, we’re at the peak earning stage of our careers, and thoughts of soon having time for whatever we please are becoming more and more pervasive.
But those daydreams of freedom and folly are often interrupted with anxiety and doubt. Can I even afford to retire at all? Will I be able to sustain my lifestyle? Why didn’t I do more? Is it too late?
If You’ve Fallen off Track
Perhaps you always intended to save more, but just didn’t have a solid plan in place or the extra money to follow through. Intentions are commendable, but if life has gotten in the way of saving enough, there’s no time like the present to get back on track.
It is not too late, but you need to act quickly.
Five Key Concerns for Retirement
To have a well-rounded retirement where you can maintain and protect the lifestyle you and your family have become used to, there are five key areas to address:
1. Income Management
3. Health Care
4. Long-Term Care
5. Leaving a Legacy
The income you’ll need during retirement is dependent on the lifestyle you plan to have. Will you be relocating or staying where you are? What hobbies or activities do you intend to pursue? Do you plan to work part-time or not at all? All of these variables should be examined as you create your overall budget.
Typically, retirees need to replace all or most of their pre-retirement income.
Consider this: you may not need as much in the first few years of retirement, but as inflation bites into the dollar’s buying power year after year, it will eventually cost more to buy the same things. Make sure your budget takes inflation into account.
Social Security will meet part of your income requirement, but not enough to rely on exclusively. To create an adequate cash-flow, take advantage of tax-advantaged retirement savings accounts such as 401(k) plans or Individual Retirement Accounts (IRAs). If your employer or union sponsors a pension plan, find out if you’re eligible and what the plan entails. Keep in mind that if you are over 50 years of age, you may be eligible to make additional contributions to retirement accounts through a catch-up provision. For 2015, the regular contribution limit to 401(k) plans, as set by the IRS, is $18,000, and the catch-up limit is an additional $6,000.
Additional personal investments and/or annuities may also help generate a retirement income, therefore, you should speak with a qualified financial professional to determine which products may work best with your risk tolerance and investment horizon.
If you have a spouse or dependents, ask yourself what would become of them if anything were to happen to you. You need to protect their future.
Often, when one spouse dies, the survivor’s cost of living remains nearly the same. Think about it: the mortgage and taxes still need to be paid, food needs to be bought, electricity needs to stay on, and things you used to do must now be hired out to someone else. Yet, the surviving spouse typically loses a large portion of their retirement income when their partner dies.
To help a surviving spouse or other beneficiaries maintain an income when you’re gone, carefully review your pension and IRA documents. There may be options that guarantee continued benefits for the surviving spouse either in a lump sum or at a reduced rate. Also, there are joint and survivor annuities which create an income stream for the rest of the second spouse’s life.
The death benefit of life insurance is an option which can provide tax-free income to your beneficiary. There are a variety of contract options, including Term, Permanent, Universal, and Variable which should be explained to you in detail by a professional.
Often, life insurance offers families protection so that their financial lives can remain intact even after the loss of a loved one.
Though everyone hopes for the best, the truth is, your health during retirement is unpredictable. At age 65, you will qualify for the country’s largest health insurance plan: Medicare. If you are among the lucky minority, your former employer may offer continued health coverage for their retirees. However, if you’re like the majority of Americans, this type of coverage will be unavailable. Therefore, if you plan to retire before you become eligible for Medicare, you will be responsible for purchasing personal coverage to fill the gap.
The Medicare program does a good job insuring the health of America’s seniors. But it doesn’t cover everything. There are out-of-pocket costs to pay for premiums as well as services outside the plan’s scope, such as vision, hearing, dental, and podiatric care. Considering most seniors need these types of care, the costs can add up. According to a non-partisan report published in 2013, the average senior could expect to pay 36.9% of their income toward healthcare. Therefore, it is of great importance to figure in anticipated medical expenditures when working through your retirement budget.
Long Term Care:
As we age, there is an increased probability that we may eventually need assistance with the activities of daily living, such as bathing, dressing, and eating. This type of care– regardless of whether it’s in-home or at a facility – does not come cheap.
Medicare does not cover long-term care, and most of us can’t afford to pay for it out of pocket without depleting our retirement nest egg.
Many pre-retirees are opting to buy long-term care insurance policies. Depending on the contract and issuing company, these policies usually begin paying for the costs associated with long-term care once you become unable to independently perform several of the activities of daily living.
Though most people recognize the value of long-term care insurance, often the expense of buying a standalone policy deters them from seeking coverage. Some insurers now offer an alternative in the form of a long-term care or “living care” rider that can be attached to a permanent life insurance policy. If the owner ever requires care, the rider makes it possible to accelerate the death benefit of the insurance contract to pay for qualified costs. For more specific information about long-term care coverage options, contact your financial professional.
Leaving a Legacy:
Even if you’ve fallen off track saving for your own future, it is never too early to speak to an advisor about creating an estate plan to transfer your assets to heirs upon your death. With the help of estate planning and tax professionals, you can create a strategy to structure your bequests in the most advantageous way – both for you and your beneficiaries. Whether you intend to pass your assets to relatives, friends, or a charity near and dear to your heart, there are a variety of tools at your disposal, including living trusts, charitable remainder trusts, and charitable gift annuities.
When it comes to saving for retirement, time is of the essence. The longer your investment horizon, the more time your money has to work for you. Therefore, you shouldn’t delay any longer. Contact your financial professional today to arrange a meeting to assess your situation. From there, commit to a strategy and stick with it. Before you know it, those daydreams of retirement will no longer dissolve into anxiety and worry because you’ll feel confident that you are back on track just in time.
Michael Cocco is a certified financial planner with AXA Advisors in Nutley. He may be reached at email@example.com or (973) 667-8650.
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