|
Rising to the Challenge — Your retirement is around the corner, but the road to ample retirement savings is fraught with hazards. Here are three of the most common roadblocks—and the most effective solutions.
 By Suzy Frisch
Challenge #1: The ‘Ignorance Is Bliss’ Approach
Is your retirement plan on autopilot? Continual portfolio reassessment and refining is a step many people in their 50s and early 60s neglect. It’s imperative to take a long view so any adjustments can be made immediately. You still have time to meet your goals, but you won’t know what to do until you’ve looked at what you’ve already done.
Solution #1: Take a Cold, Hard Look
The best—not to mention easiest and most gratifying—way to assess your current financial situation is to sit down with a financial professional. Together you will assess what you have accomplished so far compared with your retirement goals. Think about what expenses you’ll have: Are you still paying off a mortgage? When will the kids finally be done with college? What about charitable giving? Then take a hard look at your assets. See if your hopes and dreams match up with reality.
When evaluating your retirement assets, ensure your portfolio has an adequate equities allocation. In general, Americans invest an average of 35 to 50 percent in equities, which is too conservative—even for people who are already retired. People in their 50s and 60s still should retain a healthy equities allocation, says Patrick Egan, manager of asset management marketing at Thrivent Financial.
It’s important to strike a balance between being aggressive enough to make your money last through your retirement and being too risky. You might find yourself in trouble if the market turns bearish right before you want to retire.
“If you do take a lot of risk and the market goes against you, you don’t have the luxury of time to make it up,” says Rick Edinger, a chartered financial consultant who manages the Thrivent Financial retirement consulting desk. “A 20-year-old has 40 to 50 years to make up a loss. If the market goes against someone who is 59, they have maybe six years.”
Challenge #2: The Slim Savings Conundrum
According to the 2005 Retirement Confidence Survey of the Employee Benefit Research Institute, 55 percent of Americans believe they have not saved enough for their golden years. For many, students loans, down payments, raising children and college savings really take a toll. “Perhaps more than any generation before, people on the cusp of retirement today are being pulled in a greater number of big-ticket financial directions,” observes Jon Roth, a financial consultant with Thrivent Financial for Lutherans in Exton, Pennsylvania. That lack of saving is reflected in the nation’s savings rate—negative 0.5 percent, the lowest it’s been since the Great Depression, according to the U.S. Department of Commerce.
“This is the spending generation, not the saving generation,” says Egan. “It’s a concern that the nation’s savings rate is so low. Frankly, many will have to work longer. But what happens if you become disabled or if health issues prevent you from working full time? It’s a critical time to think about what your retirement might look like.”
Solution #2: Amp Up Your Savings
If you don’t have enough saved to meet your projected needs, don’t worry.
You have options, Edinger says, including working longer, saving more of your paycheck, taking more investment risk with your existing portfolio or scaling back your plans for retirement. A financial professional will have even more ideas, including taking advantage of catch-up opportunities through your 401(k) and/or IRA.
For example, people who are 50 and older can contribute an additional $1,000 beyond the annual $4,000 limit to their Roth or traditional IRA. They also can contribute an additional $5,000 above the $15,000 annual limit to a 401(k). These provisions can help people who have fallen behind gain a lot of ground.
Challenge #3: The Short-term Thinking Problem
Are you sure the retirement funds you’re saving can go the distance? Men and women who reach 65 can expect, on average, to live to 82 and 85 respectively, according to the federal Centers for Disease Control. That means it’s essential to make sure you don’t outlive your retirement savings. “You have to think about your longevity risk,” says Egan. “Do you have the risk of living too long rather than dying too soon?”
Solution #3: Adopt a Long-term Approach
About five to 10 years before you retire, you should evaluate annuities, income laddering and variable universal life insurance, says Clark Krueger, a senior financial consultant with Thrivent Financial in Peoria, Arizona. These mechanisms all work differently, but at their core they can provide a steady stream of income for life.
Lining up long-term care insurance is one of the most critical steps to a solid retirement plan. Types of policies vary, but in essence long-term care pays for personal assistance at home, in assisted-living facilities and in a nursing home. No one wants to overload friends or family with this type of care, so it’s best to secure this important financial-planning vehicle now, when it’s more cost-effective.
Krueger compares buying long-term care insurance now instead of waiting until after retirement to the difference between getting a 15- and 30-year mortgage.
“It allows you to have a lower premium for coverage that is likely to be the most important piece of coverage you have in retirement,” he says. “Without long-term care insurance, all of your assets may be at risk.”
That’s because Medicare covers only a fraction of the cost of home care. The average cost of a private room in a nursing home is $69,400 a year or $190 per day, according to a Genworth Financial study. The government requires people to “spend down” their assets before they qualify for assistance with nursing-home care.
Long-term care insurance ensures that you don’t have to drain your hard-earned retirement account to pay for assistance for you or your spouse. That way, those retirement savings you spent so many years building can really go toward making your golden years as comfortable as you had hoped.
Suzy Frisch is a former editor at Twin Cities Business Monthly.
Read more:
 The Best Financial Call You Can Make
You can move into the retirement savings fast lane by simply calling your Thrivent Financial representative. He or she will help you take a candid look at your financial picture today, help you set savings goals and help you achieve those goals. To find out the name of your Thrivent Financial representative, visit www.thrivent.com/locate or call 800-847-4836.
|