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Rising to the Challenge — The winding road of retirement can be fraught with financial hazards. Here are four of the most common roadblocks—and four of the most effective solutions.
 By Suzy Frisch
Challenge #1: The Overly Conservative Conundrum
Now that you’ve reached retirement, you may have the instinct to get conservative with your savings. Becoming overly risk averse, however, is one of the most common mistakes retirees can make.
Inflation averaged 3.4 percent last year—the highest it’s been since 2000. Passbook savings accounts and CDs can’t keep up, meaning over time, you could lose money (in real dollars) left in these vehicles. Those with a portfolio over-allocated to bonds are making a similar mistake. Over time, bonds provide an average return of about 5 percent—until you factor in taxes and inflation, potentially leaving you with a 1 percent return. “Bonds can be attractive because of their low risk,” notes Clark Krueger, a senior financial consultant with Thrivent Financial for Lutherans in Peoria, Arizona. “But when most of your portfolio is only seeing a 1 percent return, it’s time to consider making some changes.”
Solution #1: Achieve the Right Risk Ratio
How much you should invest in stock funds depends on each individual’s unique circumstances, but any allocation less than 25 percent in equities is probably too low, says Patrick Egan, manager of asset management marketing at Thrivent Financial. Over-allocating to stock means you might be forced to tap into equity funds for living expenses during a bear market. On the other hand, under-allocating to stock runs the risk that inflation could eat away at your nest egg.
“A good chunk of retirees’ savings should still be designated for long-term growth, and by that I mean stocks. Upwards of 50 percent of their money could still be in stocks,” Egan says. “The risk with bonds and cash is that they don’t keep up with inflation. Inflation is your biggest enemy when you’re on a fixed income.”
Challenge #2: The Loyalty Trap
When it comes to equities, it’s not uncommon for retirees to have assets tied up in a former employer’s stock. This can be a risky—and costly—error, as the former employees of several major corporations discovered in 2004. “People want to believe the place they spent their career is immune to trouble,” Krueger says. “But that’s just not the case anymore. You just never know, and you don’t want to stake your future financial security on loyalty alone.”
Solution #2: Get Diversified
Jon Roth, a Thrivent Financial consultant in Exton, Pennsylvania, recommends that retirees invest in a mix of stock and bond funds, as well as a diverse menu of those funds. Place some investments in large companies, small businesses, international firms and real estate, as well as short- and long-term bond funds. That way, natural performance fluctuations among asset classes balance out one another. Don’t go it alone; a professional can help ensure you achieve the correct mix.
Challenge #3: The Short-term Thinking Rut
Many people assume that their income needs will remain stable throughout their retirement, but “it doesn’t work that way,” says Krueger. “Your needs for your income are constantly changing.”
Without a distribution plan to provide a stable source of income each month, you could end up suffering from dollar price erosion, a fancy way of saying “buying high and selling low.” Say you need money to pay a medical bill when the market is down. Selling a stock or stock fund at this time means you could lose on your investment and surrender future potential returns. “That’s the exact opposite of what you want to do,” Krueger says.
Solution #3: Plan for the Long-term
Creating a distribution plan can be a complicated process, one that is best to undertake with a financial professional. He or she will evaluate your income needs for the near and long term. Then you’ll find investments that create income over long periods.
One option might be to “ladder” bonds, which means buying bonds of varying maturities, then using the principal for income as they mature. This can provide a steady stream of income with low risk, explains Krueger.
Another option is an annuity, which is a contract with an insurance company. Based on the amount you invest and the strength of the company, it can provide payments for a chosen period of time—even for the rest of your life. When you die, your heirs may receive at least the amount you originally invested, depending on the type of annuity.
Challenge #4: The Critical Coverage Quagmire
Did you know that Medicare only covers a tiny percentage of the cost of nursing-home care? On average, a private room in a nursing home runs $69,400 a year in some states, according to a Genworth Financial study. You need to be prepared, especially since the government requires people to “spend down” their assets before they qualify for assistance with nursing-home care. Needless to say, this can be a potentially devastating financial scenario.
Solution #4: Adequately Insure Yourself
Most retirees should have long-term care insurance. “It is likely to be the most important piece of coverage you have in retirement,” says Krueger. “Without long-term care insurance, all of your assets may be at risk.”
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 financial-planning vehicle now. Talk to your Thrivent Financial representative about the options available.
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.
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