Retirement Income Blog

Retirement is not just about the size of your nest egg.  There are several considerations for a comfortable senior citizen retirement experience in addition to a financial retirement plan.  These considerations extend to where you live, housing options and healthcare quality and choices.  Most importantly, what activities will you do in retirement to stay mentally and physically fit?  Here’s a short list of considerations to add to your retirement checklist.

Healthcare Needs for a Healthy Senior Citizen Retirement Experience

1.      Do you have insurance that will cover catastrophes?

2.      Do you live in proximity to medical specialists you may need to consult?

3.      Is your HMO or health plan available where you plan to have a second home or move?

4.      If you plan to travel outside of the US, does your health plan cover you?

5.      Do you have long term care insurance (don’t make the mistake of thinking that Medicare pays)

Senior Citizen Retirement and Moving Your Residence

1.      What are the tax rates in the new community—property taxes state income taxes, state sales tax and do they tax retirement income and social security income differently than other income?

2.      If you reach and age where you cannot drive, will the public transit take you to your favorite places?

3.      Is the climate satisfactory in all months?  How about allergy months (e.g. spring time)

4.      Is there an adequate selection of senior housing complexes, assisted living facilitie4s and nursing homes and what is the cost

5.      Is there an active population of retirees in the new area and people you can befriend

Senior Citizen Retirement income

1.      Does one spouse have a pension that ends upon death?  Your retirement consultant can show you how to possibly replace that income

2.      If both spouses are eligible for Social Security income, there may be ways to maximize the benefit—check with a retirement planner

Fortunately, a senior citizen retiring in 2008 and beyond gains the benefit of technology when phone, computers and medical technology allow you to get much of the retirement help you need no matter where you reside.

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Following are the most common financial errors in retirement planning. These are not necessarily in order of priority.

Placing too much in fixed income

The Trinity Study in 1998 showed, as many studies have since, that you need to have 50%+ of our portfolio invested in equities (or other growth assets). Failure to do so insures that your assets will not keep pace with an increasing cost of living. Closely related to this retirement planning problem is our next problem of short term investing.

Investing in short term securities

As people age, they allow their emotional insecurity to dictate their investment decisions. Most people would be better off having an investment manager to take the emotions out of their investing and guide them in their financial planning for retirement. Specifically, there is a tendency with age to worry about one’s mortality and develop a short term retirement strategy with investments. As many seniors have said, “I don’t buy green bananas anymore”. This myopic thinking results in the purchase of six-month CDs and excessive amounts in money market funds and other low yielding investments. Because these investments have low returns, there is an increased risk of needing to use up investment capital for financial sustenance.

Underestimating how long you will live

The odds of living to a ripe old age are high; higher than you think. For example, someone at age 75 has a 12% chance of living to age 95. Many people tend to be pessimistic about their life expectancy, don’t prepare a sufficient nest egg and consequently, have a flawed retirement strategy. This can be avoided by looking at an accurate life expectancy table and planning one’s retirement finances so that your money has a 90%+ chance of outlasting you.

Failure to cover the most significant financial risks

Health care (traditional health insurance) and long term care insurance (for when you are unable to care for yourself) are the two largest potential costs of older ages. You cannot be unprotected or you could face a fast bankruptcy. To omit planning for these contingencies is a huge error in retirement strategy.

Failing to get professional assistance if you’re not qualified

While some people are mathematically oriented, stay abreast of financial issues and investment matters, others do not. If you don’t, then please get financial help to plan and implement your retirement strategy. This help could be anything from visiting a financial planner for 2 hours annually to have them review your portfolio to delegating your entire portfolio for professional management (typical cost is 1% annually).

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This is not an article to tell you what investments to make. Rather, it explains retirement strategies on how to invest. Here are the concepts often mistaken:

1. Don’t put all of your assets into fixed income investments. Of all retirement strategies, this one is often violated due to bad advice from untrained financial “advisors.” In fact, data shows that at least 50% of your funds should always be kept in equities. Not only do the equities grow in value over time, so do their dividends.
2. It’s far more important to get your investment allocation correct than to focus on specific investment choices. For example, the percentages of your portfolio that you have in domestic stocks, domestic bonds, foreign stocks, foreign bonds, real estate securities, commodities, venture capital, emerging economies, etc. have a much bigger impact on how well your portfolio will do over time than whether you choose to own shares of Nestle of Cadbury.
3. There is no “set it and forget” it retirement strategy to investing. The world changes too much and you will need to make adjustments. However, those adjustments in your allocation should be infrequent—maybe every 3-5 years.
4. When you do adjust your allocation, your allocation should be adjusted by purchasing more of what is doing poorly and selling what is doing well (i.e. buy low and sell high). Of course, most investors get this backwards out of fear and have less than satisfactory investment results.# Don’t watch the Nightly Business Report or CNBC or read the Wall Street Journal. And especially don’t watch “Kramer.” The hype that the media creates around investing makes you feel that you should buy and sell every day. In fact, several research studies show that the more you trade, the worse your investments perform. Sound retirement strategies call for changes that depend on large secular movement in the financial markets. The famous trader, Jesse Livermore said, “the money’s made in the sittin’.” You will be better off going to Europe for 5 years, not reading the US business news or watching it on TV and returning after your hiatus to decide if any changes are needed.
5. Everyone involved with Wall Street will tell you that number 5 above is wrong and will offer you many investment ideas, financial retirement startegies and reasons to make changes in your portfolio (more of these ideas flow around Christmas time when additional commissions are needed for holiday presents).
6. Always working at least some hours, having a business, being a partner in a business are all great retirement startegies to generate supplemental retirement income . More importantly, they give you a feeling of control. When all of your income is passive (coming from social security, dividends, interest and other sources you cannot control), you feel more uneasy about your financial situation.
7. Don’t guess. If you don’t like using retirement calculators, then hire someone to do the math. A successful financial retirement is about projections, percentages, gains and losses and if you shy away from this (or don’t hire help), the math issues won’t go away.

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