Mountain Surfing

The Times They are a Changin'

I wonder if Bob Dylan had retirement planning and health care costs in mind when he wrote those lyrics. I happen to be a pretty big Dylan fan, and although his new stuff is great, his message and priorities certainly have changed over the years.

What are your priorities to and through retirement?

As we all get closer to retirement, there is no doubt that our priorities change: Perhaps it starts with substituting a soda for a glass of Cabernet, wearing shoes for actual comfort and of course taking a little less risk with the money we've saved. No longer are we or should we be willing to take the chance of significant losses. A National Retirement Risk Index has shown that even if people annuitize all their financial assets including executing a reverse mortgage, 44% will be at risk of being unable to maintain their standard of living in retirement.... And that does not include rapidly rising health care costs. When these costs are included, the percentage of households at risk rises from 44% to 61%! Therefore, making important decisions about our finances as we approach and live in retirement is critical to maintaining our way of life.

Retirement reality
Unfortunately, as the reality sets in that our working years are limited, our concerns begin to change. It's no longer just about asset allocation and what stocks or funds ought to be a part of that allocation. Outliving assets, health care costs, long-term care, inflation, longevity risk, income and mortgage protection....those are the things that that top our minds. Of course asset allocation and portfolio management are the foundation to successful retirement planning and need careful attention. However, people are living longer than ever due to recent medical innovations which only add to the dilemma. People over age 65 spend four times as much on healthcare as their younger peers, according to AARP research, and that end-of-life care can easily eat up 50% or more of an individual's lifetime funds. Failing to prepare for retirement's major expenses can be the biggest challenge to living comfortably in our golden years.

For the most part, the major health care expenses faced by retired households are premiums for Medicare Part B (which covers physician and outpatient hospital services) and Part D which covers drug related expenses: the co-payments related to Medicare covered services and or services not covered at all. Keeping track of all the many concerns is overwhelming to say the least. It is no wonder that in a recent PBS program, people in the street were asked what was their greatest fear about aging. The most frequent answer was ending up in a nursing home.

Below I have illustrated the 7 key steps for a successful retirement. I have called these:

The 7 great wonders of successful retirement planning:

1. Stop losing money: A proper Asset Allocation and Risk tolerance of assets is essential. Most retirees are simply taking too much risk than they should and they are not getting paid enough in return. Review your allocation and rebalance constantly.

2. See the doctor: Treat any health ailments as soon as possible. Many insurance companies are changing policies to not include many seemingly minor health issues such as bunions and hemorrhoids.

3. Pay yourself first: It's the distribution that counts...not just accumulation. Position your assets and manage them appropriately so they will be able to distribute guaranteed income for life. Say goodbye to those risky investments of yesteryear, and stop holding that old portfolio out of emotional or sentimental reasons. This money has to last you the rest of your life and you can't make it back. Many people fail to realize that they may spend more time in retirement than they did working.

4. Don't give Murphy's Law a chance: Stay covered by insurance all the way up to 65 when Medicaid kicks in, and don't risk it. You would be amazed at the number of healthy people suddenly get sick the day after their warranty ends. COBRA usually covers you for 18 months so liberation day may be at 63 .

5. Mothers little helper: Prepare for your long term care....now. More than two thirds of those over 65 will need long term care for two years or longer at an average current daily rate of $213 or $77, 745 per year.

6. Keep that day job: Work as long as possible. Each year a person postpones retirement reduces his or her need for retirement savings by about 5%, while increasing Social Security benefits by 7%.

7. To be or not to be, that is the question: Quite simply, be the expert or work with one. Find a professional who understands the goals and needs of people preparing for and living in retirement. Most advisors are trained primarily in investment products for the accumulation phase and are ill prepared for the real challenges you will face in retirement.

Be the expert...or hire one!

Personal finance and creating a retirement plan is serious business, and outliving your money can ruin your whole day! You had better understand the impact of sky rocketing health care costs, long-term care, inflation etc., and get the fundamentals of guaranteed income down pat. There are no second chances. Successful Wealth Management Advisors as well as investors spend a lifetime updating the ever-changing rules and laws, and constantly keep informed on the ins and outs of calculations for retirement. Managing your own money is a daunting task. Become an expert or hire one. The overwhelming number of choices, accompanied with the fear of making a mistake is paralyzing, and often leads to the bad decisions. The Retirement Income Challenge is a real one for all of us as we attempt to live comfortably through our golden years.

For our recently published Special Report on Estate Planning necessity for retirees, entitled, New IRS Rules to Help Your Retirement and Estate Planning, visit http://www.capfas.com

Keith Springer is Registered Investment Advisor and President of Capital Financial Advisory Services, providing Wealth Management and Mortgage Consulting Services. For more information on how to build and maintain a solid retirement plan, please contact Keith Springer at 916-925-8900 or keith@capfas.com, http://www.capfas.com

Dear Margo - DEAR MARGO: My husband and I have been married for five years.