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The Cost of Inaction —Is a fear of cost keeping you away from tuning up your retirement plan or getting an insurance needs analysis? Consider this: Procrastination comes with its own price tag. Prepare for sticker shock.
By Dobby Gibson
"Do not put off until tomorrow what can be put off till day-after-tomorrow just as well,” Mark Twain famously wrote. With that kind of thinking, this American literary icon would have a hard time retiring comfortably and securely today.
For retirees caught between the twin forces of fixed incomes and rising life expectancies thanks to more advanced medical care, procrastination is the enemy. If you want to stretch your nest egg—and if you want to secure your nest egg—time is of the essence.
Cost is an important consideration whether you’re shopping for a lawn mower or long-term care insurance. But if you have been allowing a fear of price tags to paralyze your financial decision-making, here’s the cruel irony: Each year you delay comes with its own hefty cost.
Don’t believe it? Let’s do the math.
Insurance: Why You Can’t Wait
No one on a fixed income likes the thought of having his or her household budget constricted by another bill, especially when it’s in the form of something as unglamorous as an insurance premium payment. But now that you’re retired, by going under-covered you risk even more dramatic costs by putting your retirement savings, grandchildren’s college education savings, even your home at risk.
In addition to ensuring that your life insurance coverage is adequate, this means taking a hard look at long-term care insurance, particularly before health factors make it more expensive.
That said, “the true cost of delay is not determined by premiums,” advises Todd Yeiter, director of insurance product marketing for Thrivent Financial for Lutherans. “The greatest cost is not having the coverage when you need it. The consequences of something happening are so severe to your financial portfolio, and your family, that you must address it. It’s better to own insurance that you may not need, than need insurance that you don’t own because of a death, accident or illness.”
Again, while the true cost of delaying long-term care coverage is the risk your existing investments and standard of living are already assuming, for every 10 years you delay a purchase of long-term care coverage, you can expect your premium cost to approximately double.
 “It’s not a matter of if you will need long-term care, it’s where and how you will receive care, and the effect it will have on the rest of your family,” Yeiter says. Thrivent Financial consultant Joseph Miscia Jr. adds, “If you have worked so hard in the past 40 years to build an estate to pass along, why risk depleting it all to pay for nursing home care over a few short years? It’s not fun to think about, but you owe it to yourself to do so.”
Stretching Savings: Why You Can’t Wait
“Most people severely underestimate how much money is required for their retirement years,” explains Ann Koplin, director of investment product marketing for Thrivent Financial. “Yet many people are more afraid of outliving their assets than they are of dying.”
Sound suspiciously familiar? If so, don’t worry. In most cases, retirees can successfully stretch their nest eggs by adjusting to a more sustainable withdrawal rate from their existing portfolio, and then reallocating more aggressively to equities and away from more risk-averse asset classes.
Most investors get too conservative too soon with their portfolios in retirement. As shown in the chart to the right, the longer you estimate retirement will last, the more you need to allocate to equities in your portfolio. Consider these benchmark “alerts”: If your annual withdrawal rate is more than 5 percent or your allocation to equities is under 20 percent, you should call your Thrivent Financial representative to make sure your portfolio is structured for the long haul.
What You Can Do About It
“It’s critical that retirees go through a proper review with a financial representative,” says Koplin. Sound simple? It is. In just a brief meeting with your Thrivent Financial representative, you can go a long way toward making up for lost time.
Dobby Gibson is an editor of Thrivent magazine.
The Cost of Delaying Long-Term Care Insurance*
For every 10 years you delay long-term care coverage, premiums tend to double.
Product specs: $4,500 per month Genworth Life Insurance Company long-term care insurance policy (Minnesota), with 100 percent home care coverage, 90-day elimination period, 5 percent compound inflation protection, lifetime benefit coverage and spousal discount.
The Cost of Getting Too Conservative
Historically, a longer payout period favors a portfolio with a heavier stock allocation.
Based on Dow Jones
Industrial Average data 1871-2000. Assumes a $1,000 initial portfolio, 0.20 percent annual investment expenses and optimized, inflation-adjusted withdrawal rates based on the Producer Price Index.
Source: Retire Early magazine 2000 independent study
*These comparisons are not adjusted for inflation, require proof of insurability and are subject to change. These hypothetical examples are for illustrative purposes only. Comparisons are based on Genworth Life Insurance Co. Long Term Care Insurance policy form 82154.
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