5 Roadblocks to Retirement
Failure to manage the process of your retirement income stream
For a majority of baby boomers retiring in the coming years, most, if not all, of the retirement savings accumulated during retirement plus the future earnings on these savings will be spent over their planned retirement period. The concept of spending some, if not all, of the retirement savings to fund a retirement will be the norm, not the exception. For these retirees, a legacy amount will be available only if they do not use all their financial resources due to an unusually strong investment market or if spending amounts are actually less than planned. Retiring baby boomers, who can expect to spend 30 to 40 years in retirement, will likely need a framework for converting their savings into a sustainable monthly income stream. Investors who are on the road of retirement all share some common fears including spending too much, principal loss from market volatility, loss of purchasing power due to inflation, and the biggest fear of all, running out of money.
SOURCE: Thornburg Investment Management
Long-term care expenses not addressed
Have you thought of how you would handle unexpected medical expenses? Can your retirement portfolio sustain expensive annual medical expenses that may range from $40,000 to $100,000?
Long-term care (LTC) insurance policies have evolved over time to be far more flexible than they were in the early days, when they were known as nursing home policies. Today, most policies allow the insured to receive care in the setting of their choice, whether this is at home, in an assisted living facility, adult day care center, or nursing home.
Industry standards have developed as well. Most policies offer benefits when a person can no longer perform two out of six “activities of daily living” (such as bathing, dressing, toileting or eating), or when they need substantial assistance due to a cognitive impairment. New benefits have come on the scene, such as additional cash allowances on top of basic coverage, which pay for extras like home modifications and home safety checks. Payments can also be made to a family member who serves as the primary caretaker. Benefits like this make it easier for people to receive assistance at home.
Beneficiaries on assets unnamed or incorrect
Beneficiaries named on your assets are often overlooked, especially in today's world where blended families are common. Beneficiary designations on a retirement account, annuity contract, or life insurance policy supersede the intentions found in a will.
We have had personal experience in this area involving a life insurance policy. A visit was made to a client on his deathbed and the subject of his beneficiaries came up. When checked, his ex-wife was still named as sole beneficiary for his life insurance policy, with his current wife receiving nothing. He passed away four days after the beneficiary was changed, with the knowledge that his wishes would be carried out accordingly.
Even if you do not have a blended family, it is a good idea to review your beneficiaries periodically to be sure that this evolves with each life stage.
Life insurance coverages have not been updated
You may have bought a life insurance policy that met your needs at that time. Life insurance needs to be reviewed periodically and changed to reflect the changes in your life. The following questions should be answered:
- Is the death benefit too much or too little for current needs?
- Is there a possibility that the policy will lapse before maturity?
- Is the policy appropriate for your situation? Should you have a term policy or a permanent policy?
- Is the policy performing to expectations?
- Has your health improved? Have you quit smoking?
- Can projected cash values cover future policy expenses without additional premiums?
- Should the policy be transferred to an irrevocable life insurance trust to reduce estate taxes?
Failure to create an estate plan
Many people believe that an estate plan is only for the very wealthy. The truth is that everyone needs an estate plan to ensure that their assets, no matter how great or small, are distributed according to their wishes at death.
Do you have a will, durable power of attorney, living will, and health care power of attorney? Would a trust be appropriate for your family situation? For example, a trust would be appropriate to take care of a special needs child/adult or a family member who is immature in handling financial matters.