You will want to replace your income; you will also want to stay socially engaged.
About 6% of Americans 65 and older have never married. That statistic comes from a 2018 Census Bureau report, which also found that 22% of Americans aged 65-74 live alone.1
If you think you will retire alone and unmarried, you will want to pay special attention to both your financial and social qualities of life. Whether you perceive a solo retirement as liberating or challenging, it helps to be aware of how your future might differ from your present.1
Be aware that your retirement income needs may change. They can be affected by unplanned events and changes in your outlook or goals. Perhaps, a new dream or ambition emerges; you decide you want to start a business, or maybe, see more of the world. You could also end up retiring sooner than you anticipated. Developments like these could alter the “big picture” of your retirement distributions.
You may need to reinvent your social circle. Once retired, you may lose touch with the people who were a big part of your day-to-day life – the people that your business or career connected you with, including your co-workers. If you happen to retire to another community, the connections between you and your best friends or relatives might also weaken, even with social media on your side.
Ask yourself what you can do to try and strengthen your existing relationships and friendships – not just through the Internet, but in real life. Also, keep yourself open to new experiences through which you can build new friendships. Returning to a past hobby or pursuing a new one could also connect you to a new community.
An estate strategy should be a priority. Even if you have no heirs, you still have an estate, and you should have a say in how you are treated as an elder. Consider having powers of attorney in place. These are the legal forms that let you appoint another individual to act on your behalf, in case you cannot make short- or long-term financial or health care decisions.
There are four kinds of power of attorney. A general power of attorney can be written to give another person legal authority to handle a range of financial affairs for you. A special power of attorney puts limits on that legal authority. A durable power of attorney is not revocable; it stays in effect if you become incapacitated or mentally incompetent. Lastly, a health care power of attorney (which is usually durable) authorizes another person to make medical treatment decisions for you.2
In addition to powers of attorney, a will, and possibly other legal forms, you will also want to think about extended care. Not everyone ends up needing extended care, but you should consider its potential cost.
All this being said, you may find a degree of freedom that your fellow retirees envy. If you remain reasonably healthy and active, you may marvel at how many opportunities you can pursue and how many adventures you can readily have. Retiring single can be a challenge, but it can also be an open door to a new intellectually and emotionally rewarding phase of life.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - census.gov/content/dam/Census/library/publications/2018/acs/ACS-38.pdf [10/18]
2 - notarize.com/blog/types-of-power-of-attorney [9/12/18]
Are you prepared for the possibility – and expense – of eldercare?
Do you have an extra $33,000 to $100,000 to spare this year? How about next year, and the year after that? Your answer to these questions is probably “no.”
What could possibly cost so much? Eldercare.
According to the AARP Public Policy Institute, a year of in-home care for a senior costs roughly $33,000. A year at an assisted living facility? About $45,000. A year in a nursing home? Approximately $100,000.1
Medicare has limitations. Generally speaking, it will pay for no more than 35 hours per week of home health care and only up to 100 days of nursing home care, following a hospitalization. It may pay for up to six months of hospice care. If you or someone you love happens to develop Alzheimer’s disease or another form of dementia, Medicare will not pay for any degree of room and board for them at an assisted living facility.2
Medicaid is another resource entirely. For seniors who are eligible, Medicaid can pick up assisted living facility or nursing home expenses, and even in-home eldercare, in some instances. Qualifying for Medicaid is the hard part. Normally, you only qualify for it when you have spent down your assets to the point where you can no longer pay for eldercare out of pocket or with insurance.2
An extended care strategy may factor into a thoughtful retirement strategy. After all, your retirement may be lengthy, and you may need such care. The Social Security Administration projects that a quarter of today’s 65-year-olds will live past age 90, with a tenth making it to age 100.1
Insurance companies have modified extended care policies over the years. Some have chosen to bundle extended care features into other policies, which can make the product more accessible. An insurance professional familiar with industry trends may be able to provide you more information about policies and policy choices.
Waiting for federal or state lawmakers to pass a new program to help with the costs of eldercare is not much of a strategy. It is up to you, the individual, to determine how to face this potential financial challenge.2
If you lead a healthy and active life, you may need such care only at the very end. Assuming you do require it at some point, you may consider living in an area where you can join a continuing-care-at-home program (there are currently more than 30 of these, essentially operating as remote care programs of assisted living communities) or a “village network” that offers you some in-home help (not skilled nursing care, however).1
Those rare and nice options aside, retirement saving also needs to be about saving for potential extended care expenses. If insurance addressing extended care is not easy to obtain, then a Health Savings Account (HSA) might be an option. These accounts have emerged as another solution to extended care needs. An HSA is not a form of insurance, but it does provide a tax-advantaged savings account to which you (and potentially, your employer) can make contributions. You can use these funds to pay for most medical expenses, including prescription drugs, dental care, and vision care. You can look into this choice right away, to take advantage of savings over time.3
Once you reach age 65, you are required to stop making contributions to an HSA. Remember, if you withdraw money from your HSA for a nonmedical reason, that money becomes taxable income, and you face an additional 20% penalty. After age 65, you can take money out without the 20% penalty, but it still becomes taxable income.3
An HSA works a bit like your workplace retirement account. Your employer can make contributions alongside you. However, the money that you contribute comes from your pretax income and can be invested for you over time, so it may grow as your contributions accumulate.3
There are also some HSA rules and limitations to consider. You are limited to a $3,500 contribution for 2019, if you are single; $7,000, if you have a spouse or family. Those limits jump by a $1,000 “catch-up” limit for each person in the household over age 55. Your employer can contribute, but the ceiling is cumulative between your contributions and theirs. For example, say you are lucky enough to have your employer put a hypothetical $1,000 into your account in 2019; you may only contribute as much as the rest of your limit, minus that $1,000. If you go over that limit, you will incur a 6% tax penalty, so it is smart to watch how much you contribute.3
Alternately, you could do without an HSA and simply earmark a portion of your retirement savings for possible extended care costs.
One thing is for certain: any retiree or retirement saver needs to keep the possibility of extended care expenses in mind. Today is not too soon to explore the financial options to try and meet this challenge.
1 - marketwatch.com/story/long-term-care-insurance-has-a-shaky-future-here-are-new-ways-to-tackle-the-high-cost-of-aging-2019-05-22 [8/4/19]
2 - health.usnews.com/health-care/patient-advice/articles/dementia-care-in-assisted-living-homes [8/21/19]
3 - investors.com/etfs-and-funds/personal-finance/hsa-contribution-limits-hsa-rules/ [3/13/19]
A good professional provides important guidance and insight through the years.
What kind of role can a financial professional play for an investor? The answer: a very important one. While the value of such a relationship is hard to quantify, the intangible benefits may be significant and long-lasting.
There are certain investors who turn to a financial professional with one goal in mind: the “alpha” objective of beating the market, quarter after quarter. Even Wall Street money managers fail at that task – and they fail routinely.
At some point, these investors realize that their financial professional has no control over what happens in the market. They come to understand the real value of the relationship, which is about strategy, coaching, and understanding.
A good financial professional can help an investor interpret today’s financial climate, determine objectives, and assess progress toward those goals. Alone, an investor may be challenged to do any of this effectively. Moreover, an uncoached investor may make self-defeating decisions. Today’s steady stream of instant information can prompt emotional behavior and blunders.
No investor is infallible. Investors can feel that way during a great market year, when every decision seems to work out well. Overconfidence can set in, and the reality that the market has occasional bad years can be forgotten.
This is when irrational exuberance creeps in. A sudden Wall Street shock may lead an investor to sell low today, buy high tomorrow, and attempt to time the market.
Market timing may be a factor in the following divergence: according to investment research firm DALBAR, U.S. stocks gained 10% a year on average from 1988-2018, yet the average equity investor’s portfolio returned just 4.1% annually in that period.1
A good financial professional helps an investor commit to staying on track. Through subtle or overt coaching, the investor learns to take short-term ups and downs in stride and focus on the long term. A strategy is put in place, based on a defined investment policy and target asset allocations with an eye on major financial goals. The client’s best interest is paramount.
As the investor-professional relationship unfolds, the investor begins to notice the intangible ways the professional provides value. Insight and knowledge inform investment selection and portfolio construction. The professional explains the subtleties of investment classes and how potential risk often relates to potential reward.
Perhaps most importantly, the professional helps the client get past the “noise” and “buzz” of the financial markets to see what is really important to his or her financial life.
The investor gains a new level of understanding, a context for all the investing and saving. The effort to build wealth and retire well is not merely focused on “success,” but also on significance.
This is the value a financial professional brings to the table. You cannot quantify it in dollar terms, but you can certainly appreciate it over time.
1 - cnbc.com/2019/07/31/youre-making-big-financial-mistakes-and-its-your-brains-fault.html [7/31/2019]
Some things to consider.
During your accumulation years, you may have categorized your risk as “conservative,” “moderate,” or “aggressive,” and that guided how your portfolio was built. Maybe you concerned yourself with finding the “best-performing funds,” even though you knew past performance does not guarantee future results.
What occurs with many retirees is a change in mindset – it’s less about finding the “best-performing fund” and more about consistent performance. It may be less about a risk continuum – that stretches from conservative to aggressive – and more about balancing the objectives of maximizing your income and sustaining it for a lifetime.
You may even find yourself willing to forgo return potential for steady income.
A change in your mindset may drive changes in how you shape your portfolio and the investments you choose to fill it.
Let’s examine how this might look at an individual level.
Still Believe. During your working years, you understood the short-term volatility of the stock market, but accepted it for its growth potential over longer time periods. You’re now in retirement and still believe in that concept. In fact, you know stocks remain important to your financial strategy over a 30-year or more retirement period.
But you’ve also come to understand that withdrawals from your investment portfolio have the potential to accelerate the depletion of your assets when investment values are declining. How you define your risk tolerance may not have changed, but you understand the new risks introduced by retirement. Consequently, it’s not so much about managing your exposure to stocks but considering new strategies that adapt to this new landscape. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. This is a hypothetical example used for illustrative purposes only.
Shift the Risk. For instance, it may mean that you hold more cash than you ever did when you were earning a paycheck. It also may mean that you consider investments that shift the risk of market uncertainty to another party, such as an insurance company. Many retirees choose annuities for just that reason.
The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).1
The march of time affords us ever-changing perspectives on life, and that is never truer than during retirement.
1 - forbes.com/sites/forbesfinancecouncil/2019/05/09/understanding-financial-risk-why-you-shouldnt-just-focus-on-the-probability-of-success [5/7/19]