Financial Planning for Seniors
While many Americans have spent years planning for their retirements, a great many of them have made a basic discovery once they reach that plateau. Namely, that there are some issues that simple math and time will not necessarily resolve. If you are near retirement or have retired, here are several common mistakes that occur in the arena of financial planning for seniors that you can plan now to avoid.
• Underestimating your life expectancy – a generation ago, it was probably safe to assume that men would live to approximately age 70, and women to perhaps 75. But advances in medical science have pushed those ages up at least fifteen to twenty years. Realistic financial planning for seniors should probably assume that at least one spouse will live to age 90 or beyond. To make sure your money lasts, you may need to annuitize your assets to create a sufficient income. Consult the annuity calculator for estimates.
• Thinking that you’ll be able to retire when you want. In financial planning for retirement, manyworkers plan on working into their 70s-until illness, disability or mere fatigue forces them to reconsider. If you plan on working past the normal retirement age, do not count on the extra money earned to pay for essential expenses. Sound financial planning for senior years would have you save a sufficient nest egg by age 65 in case health reasons prohibit you from working longer.
• Neglecting to adequately factor in health care costs – failure to do this can be disastrous, especially if long-term care treatment is needed. And don’t count on the government to pick up the bill for you, either. Make certain that your health coverage is adequate and that you have a plan to cover other elder care needs. This is the #1 error in financial planning for seniors as its estimated that half of the bankruptcy in the US is caused by health failures and the accompanying costs.
• Settling for low returns- don’t let your fear of risking principal leave you with a guarantee of running out of money prematurely. Sensible asset allocation will substantially lower the risks of investing-including the chance that your money will not grow enough to meet your needs. But if you insist on keeping money in threemonth CDs and T-bills as many seniors do, your earnings will be so low that you increase the likelihood of running out of money. Sound financial planning for seniors means that your investment horizon should match your actuarial life expectancy.
• Not taking retirement distributions within the allowable time frame – avoiding costly withdrawal penalties whenever possible is just common sense. Do everything you can to avoid paying both the 10% early withdrawal penalty before age 59 ½ and the 50% excise tax for failure to begin taking mandatory minimum distributions by April 1 after attaining 70 ½.
• Failure to monitor or control your distribution rate – your financial advisor should be able to run some basic calculations based on the size and allocation of your portfolio that show a safe rate of withdrawal. A general rule of thumb is somewhere between 3 and 5 percent per year, depending on your portfolio’s allocation between equity and fixed income investments. We have seen some financial planning disasters when people spend beyond this level
• Refusing to get a fresh perspective – no matter how effective your advisor or plan is, getting a second opinion on it will never hurt. Different advisors have different areas of expertise, such as taxes or mutual funds. Therefore, having a different set of eyes review your situation may provide insights that you would otherwise miss.
Sound financial planning for seniors results form avoiding major mistakes and sticking to the big picture guidelines as explained above.
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Tags: financial planning for retirement, financial planning for seniors
October 15th, 2008 at 6:13 pm
This was an informative blog. I found a few items that I will keep in mind also.
October 22nd, 2008 at 7:25 pm
There is a new retirement advisor call center available that offers financial planning for free, over the phone, to help boomers create a plan that will support their retirement. Their website is http://www.securepathbytransamerica.com and you can get their phone number there.
October 29th, 2008 at 2:18 pm
Its important that people understand where they are headed. A lot of times we don’t think of the future because we fear it. Thanks for the read.
November 26th, 2008 at 9:40 am
Brilliant blog, informed me well for some pretty important decisions i have to make in the not too distant future
November 28th, 2008 at 10:50 am
I found your post very informative. This topic has always been a headache for my parents, anyway, thanks for sharing this information with us.
February 10th, 2009 at 8:41 am
Great blog especially for the younger generation to take note and prepare for their futures, as alot of retired people today are finding that their pensions just does not meet their needs and are struggling.
June 3rd, 2009 at 8:35 am
I see alot of seniors say they never thought they would live as long as they have now. they are in good health and could live another 10 to 15 years. Most people never thought about how fast medical cost would rise and that means they have less money to live off every year.
Best etf funds lists last blog post..Bond etf.
June 16th, 2009 at 9:10 pm
I see alot of people who do not realize how fast thier money will go down if they take over 5%. I think most should try to find some income producing products and try to live off that income and not touch stocks unless they need to.