Retirement Planning by the Decade pt 2
Your adolescence through your 40s is the time to lay the foundation for a solid financial future. Retirement planning gets more urgent once you reach 50. This decade in particular poses a number of both challenges and opportunities for professionals who are looking ahead, but retirement planning doesn’t end when you turn 60.
If you’ve made savvy retirement planning decisions already, your 50s are the time to stay the course. In decades past, you focused on saving money and establishing accounts that would serve you well later on. Now the focus should be on protecting that investment and avoiding costly mistakes. (And, if you haven’t done so already, this is the time to get really clear about how much money you’ll need to retire.)
One of the biggest challenges faced by 50-somethings is finding the right risk balance for investment portfolios. High-risk investments may yield high returns – but if you lose a chunk of your earnings from a bad risk, you may not have enough working years left to make it back. That fear understandably drives a lot of people to shift to more conservative portfolios when they reach their 50s. It’s easy to go overboard and go too conservative, too early.
If you had kids in your 20s and 30s, your 50s might find you adjusting to an empty nest. Downsizing to a smaller home might free up more of your money and time. On the other hand, retirement planning can also be derailed by a costly mid-life crisis. Buying a new sports car or a vacation house may be really tempting at this point in your life, but it might be something you regret come retirement time. Overextending yourself to financially help your adult children is another pitfall that 50-something parents should avoid. Although dipping into your savings to help a child pay off credit-card debt or buy a home is a lovely act of generosity, it could hurt your own retirement plans.
Finally, retirement planning in your 50s might include the purchase of long-term-care insurance. Should you develop a chronic medical condition or disability, this insurance will help you afford care that your regular health insurance won’t cover.
For most Americans, this is the decade when retirement planning stops being future-focused and starts becoming about the present. It’s critical that your financial plan is in place before you retire and start spending down your savings.
Most workers plan to retire in their 60s. Deciding exactly when to retire is a common dilemma for people in this decade of life. Every extra year that you work gives you an extra year of savings and lets you delay dipping into your savings by another year. Money isn’t the only factor to consider in determining retirement timing, though. Some financially-secure workers retire early with a plan to kick back… only to find that filling their days with hobbies isn’t, well, fulfilling. These early retirees sometimes end up going back to work, either in a part-time capacity in their old field or on some passion project.
Your 60s is also the time to start collecting Social Security benefits. Timing this is a highly personal decision because there are a lot of factors to weigh, including your marital status and whether your spouse is collecting benefits too.
Another objective for your 60s is preparing for Medicare eligibility, which starts at 65. A lot of state-specific options come into play. Here in Massachusetts, residents have more than a dozen Medicare supplement plans to choose from. Remember that many residents will eventually need long-term-care coverage from MassHealth, the Commonwealth’s name for the program that includes Medicaid. It’s never too early to study the eligibility rules because they might affect your financial decisions in the coming years. MassHealth has a five-year lookback period, so the program requires applicants to submit 60 months of financial statements. Giving away too many assets during this five-year period may make you ineligible for long-term-care coverage.
Finally, 60-somethings should reconsider their insurance expenses as they move into the next phase of life. Don’t spend money on monthly premiums for coverage you no longer need.
Your great-grandparents might not have lived long enough to see retirement. But when you reach 70, you might have another three-plus decades of life ahead of you. That’s why we still recommend you avoid being too conservative with your investments at this point in your life. Your future is unpredictable. The objective for now is still to maximize returns.
Using accounts correctly is another retirement planning issue for retirees in their 70s. Once you start receiving retirement benefits, you might have access to several separate accounts. It’s easy to get confused about how each one can and should be used. It’s important to take money from the right accounts and withdraw required distributions each year.
Eighties and Beyond
When you blow out the candles on your 80th birthday cake, you shouldn’t be thinking about whether you can afford to live to 81. At this point in your life, the retirement plans you made earlier should be supporting all your needs, whether you age in place or require assisted living.
As you look ahead to your 80s and beyond, one way to determine the merits of your financial plan is to consider the advice of Dr. Joseph F. Coughlin, the founder of MIT’s AgeLab. In his book The Longevity Economy, he poses three questions for people thinking about retirement planning to answer:
- Who will change your light bulbs?
- How will you get an ice cream cone?
- Who will you have lunch with?
If you’ve done a thorough job of retirement planning in your earlier years, answering those questions should be easy. You might not be able to change your own light bulbs or drive yourself to the ice-cream parlor at 95, but with the resources afforded by good retirement planning, you’ll have access to all the care and support you need.