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Posted on February 21, 2020

4 Hurdles in Retirement Beyond Your Investment Portfolio

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Becoming hyper-focused on only one aspect of a problem is pretty much never a good approach. A racecar driver who only focuses on speed and ignores strategy won’t win races, at least not many of them. A carpenter who only hammers in nails won’t build strong structures. 

The same is true of retirement planning – if you zero in on your portfolio and nothing else, you’ll miss out on some major factors that can make a huge difference in your retirement and ultimately your bottom line. 

Let’s look at some of these “peripheral vision” hurdles to retirement planning that can cost you – emotionally, relationally, financially – if you’re not prepared for them.

Hurdle #1: Long-Term Care 

The statistics speak for themselves here: 52% of us will make use of long-term care insurance at some point. We might not all end up living in a care facility, but 99% of policies also cover in-home care which many of us will need at some point. 

You might be able to get around okay, but food preparation, bathing, trips to the bathroom, cleaning and other fine motor activity often require assistance. Home health spending has gone up $90 billion since 1980 for a variety of reasons, making it a huge industry that most of us will take part in at some point. 

Long-term care insurance also helps relieve family tensions and headaches when you reach the need for it. We’ve seen this tension many times as advisors: families fighting over whether to put a loved in a facility or keep them at home, and most of all, how do you pay for it?! Having a solid insurance plan in place will help simplify a complex, emotional situation ahead of time. 

Hurdle #2: Unexpected Deaths

There are no guarantees in life, and usually the best we can do is prepare well. The third leading cause of death in the U.S., after heart disease and cancer, is unintentional injuries or accidents. Unexpected deaths are part of life, whether we like it or not, so it behooves us to make them part of a financial plan.

A Current Will

Make sure your will is up-to-date, not only with your assets, but your family structure as well. Blended families are the new normal for so many Americans today, and that could change the way your estate is distributed. Make sure you talk with your advisor and attorney to get your will to match up with your life. 

Life Insurance

Life insurance is a great way to help your family take care of costs and make the transition to life without you. Many providers are now offering a hybrid of long-term care and life insurance. If you pay into the policy for a long time and don’t use it up, then the remainder is paid out via life insurance to your family. 

Information Under Lock and Key 

Make sure your information is accessible and current, regarding financial and other matters. In our first-hand experience, 99% of the time, one spouse is stronger or more informed on financial matters than the other. If that spouse dies, the remaining person often comes to us scared and lost about what to do with assets – and even what assets they have. 

Make sure everything possible, from the password on your phone to the key for a safety deposit box, is accessible and available to your spouse or other trusted family member. They will need to know the PIN number for your bank account and contact information for your financial advisor in the future. 

Hurdle #3: Tax Efficiency 

Now we move on from death to taxes – the other “sure thing” in life. Taxes can be a huge drain on your retirement funds, and you need to be proactive about planning for them. As the old saying points out, taxes aren’t going anywhere, they’re a guarantee. 

If you’re around retirement age, you’re at a pivotal point to make tax decisions. After age 59½, you can start withdrawing from your retirement funds without penalty, but you’ll still have to deal with taxes. Should you convert it to a Roth? When should you take Social Security and are you paying attention to tax liability there? You have to start taking Required Minimum Distributions at 70½, how will you minimize the tax bite there?

There are a lot of questions at this point in life, roughly between age 60 and 70 that will help you create a tax-efficient plan that fits your lifestyle. It’s more than just tossing information into tax software and crossing your fingers for a refund. 

Using Qualified Charitable Donations, which may already be a part of your life, is one way to reduce your tax footprint. Bunching these for a few years at once is another strategy an advisor can help you with. The time and energy it takes to see an advisor is a small investment compared to the money and hassle you can save in future years.    

Hurdle #4: Supplementing Your Income in Retirement 

Statistically, people are more afraid of running out of money in retirement than they are of dying. And the fear is not without merit in many cases: if you retire at 62 and live to 92, that’s thirty years you have to cover! People are living longer thanks to better (and much more expensive) healthcare. 

Keep in mind that Social Security is only meant to replace about 40% of your income at most, which is far less than most of us can live on. 

Your investment accounts could also run into a bear market, which many experts have predicted for a while now. That might not be as painful to your portfolio at 45, but what if you’re 62 and just about to retire? 

In the “fragile decade,” five years before and after retirement, your portfolio is especially vulnerable to loss and you’re a huge shift to a post-paycheck lifestyle. A major cut into your 401(k) or IRA could affect your whole retirement plan. 

All that to say, supplementing your income in retirement isn’t something you should impulsively dismiss. You’re also going to need something to fill your days. This is one of the biggest complaints we hear as advisors: what do I do with my time now?

Find something you’re passionate about, or at least a hobby you love. Many retired people help their income by working on golf courses or becoming tour guides. Owning and maintaining rental properties is another strategy, just make sure you enjoy handiwork or know someone who does! 

Plan for Tomorrow, Today

Retirement planning seems more complex than ever, and the world is changing quickly. These are just a few hurdles to retirement planning – outside of simply your portfolio – that you should take into consideration to make a comprehensive plan. 

To learn more, download our free guide: 3 Methods to Not Run Out of Money in Retirement

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