The legendary American philosopher/poet/preacher, Ralph Waldo Emerson, once said, “What lies behind us and what lies before us are tiny matters compared with what lies within us.” And as we begin to look forward to our retirement years, all of us should consider what’s most important to us and watch out for a few financial hazards that could ruin our plans. No matter your age now and no matter how much you’ve accumulated for your “golden years,” with awareness and planning, you can avoid these financial pitfalls and enjoy a much happier retirement.
Throughout the many years I’ve been in the financial services business, one of the first things I have always done with new clients is sit down, listen to them, and find out, I guess, what’s keeping them up late at night – using a medical analogy – I try to find out “where it hurts!” What’s bothering them when it comes to thinking about their retirement years? Then I try to see if there’s a “prescription” that we can offer that will help them sleep better at night and get that monkey off their back.”
Now, before I discuss the Five Financial Hazards we all should avoid when planning for retirement, I always mention two concepts: a circle of concern and a circle of influence. The circle of concern includes those events going on in the world around us that we really can’t do too much about. For example, maybe it’s a tornado or some other catastrophic world event. The other concept, the center of influence, includes the things that we can control or that we can protect ourselves from. My point is simply this: whether the events in your life are within or without your control, you have to look deep inside yourself to begin to understand and employ the strategies available to you to get through them all. A simple example might be making sure that you have home owner’s insurance so that if a tree falls on your house, it will be taken care of, or if a tornado or a hurricane sweeps through, you know that you can get back in your home or rebuild. So, with apologies to David Letterman, here are my Top 5 Financial Hazards all of us should watch out for!
The first financial hazard is death, many times, premature death. Most of us have some degree of fear of dying too soon, though some of us also fear living too long. The “living too long” concept is not usually a concern when you’re very young, because most young people have an innate sense of immortality – that they will live forever; however, those of us with families to care for – people who depend on us financially – do worry about making sure they can continue to live in the manner they’ve become accustomed to. We want to make sure that our death doesn’t become a financial burden to them. We know that it’s already going to add a tremendous amount of emotional stress to our loved ones that they’re going to have to address, particularly if our passing is sooner than they ever imagined. So, dying is one of my Top 5 Financial Hazards.
Next is sickness, and I’m not referring to the average, run-of-the-mill occasional illnesses – colds, the flu, or perhaps an injury trying to compete in a sport you should have given up years ago! No, I’m speaking about a major illness, one that knocks you out of the game for an extended period or even permanently.
During our working years, we take care of most of our medical needs through group insurance or individual major medical plans, disability income insurance, and critical illness riders. But what about the unexpected cost of health care that is not covered in retirement by your Medicare or Medicare Supplement policy? What about home health care or nursing home care needs due to a chronic illness? These are a few of the “hazards” that you can avoid with products that I refer to as “double- or triple-duty dollars.”
For example, you can own life insurance and annuity contracts with an accelerated death benefit that allows you to use the money in your policy (in most cases, tax-free) while you are living to help offset the cost of non-covered health expenses. Here’s a startling fact: It’s estimated that people in retirement will spend about a quarter of a million dollars on health care costs. Now that’s definitely a hazard!
Financial emergencies is another area of concern for all of us. These are the things that seem to pop up out of nowhere. Maybe it’s a need for a new furnace, a new roof, a new car, or perhaps a casualty loss not covered by your auto insurance policy. Do you have access to enough liquid funds to handle such emergencies? Think about it for a moment.
When does that old furnace usually give up the ghost? During the late spring or summer when you don’t need to heat your home? Of course not! It’s on that below-zero day in early January – about the same time your credit card bills come in with all those holiday shopping purchases – that your furnace decides to “retire.” Have you investigated the cost of replacing a furnace recently? It’s not what it was ten or twenty years ago, I guarantee you. It’s usually several thousands of dollars more. Financial Emergencies are clearly a hazard for all of us, so planning ahead is critical.
Retirement Income and Maintenance Planning, combined, are two sides of a hazard most folks don’t think about on a daily basis, but they are important. Though most people understand the need for Retirement Planning, Retirement Maintenance is also very important. The reason? Some retirement plans don’t always work out as initially prepared. Sometimes, for example, inflation gets in the way or expenses just increase. That is why it’s important to review your retirement income plan on an annual basis with your Safe Money professional. It just makes sense, doesn’t it? We have our heating and cooling systems maintained every year; we do oil changes in our car and have our tires rotated on a regular basis. You should give retirement income planning the same kind of attention.
Furthermore, you should assess your risk tolerance on a regular basis. Most people feel that the exposure to risk should be reduced as they age and their income begins to decrease. If you don’t assess your risk tolerance regularly, how will you know? You can lower your risk of loss to your retirement nest egg even when world events cause havoc in the financial markets. So, put Retirement Income Planning and Retirement Income Maintenance high on your list of “things to review” each year.
Finally, Taxation and Wealth Transfer complete our short list of Five Financial Hazards. Simply stated, “It’s not just what you receive on a gross basis (before taxes) but what you get to keep after our “Uncle” takes a piece. As you probably know, you can implement retirement income plans that allow you to legally avoid some state and federal taxes. Again, your Safe Money Agent, sometimes working with your accountant, will provide you with lots of information from which you may devise an excellent plan.
We must also take a look at our wealth transfer goals and plans. Many people are fortunate enough to have a financial legacy that they wish to pass down to their children, grandchildren, charities, or other institutions. Though not everyone is passing down millions, their legacy is still very important, nonetheless. Do you have your wealth transfer funds in the best and most tax-advantaged vehicles? Or, have you created a tax time bomb for your recipients? It is awful when, following the loss of a loved one, his or her heirs learn that they now have to pay an inordinate amount of taxes on their inheritance. However, you have many effective alternatives to explore, legal ways to reduce or eliminate these taxes.
So, maybe it’s time to meet with a Safe Money Places professional and identify the things that keep you up at night (those “hazards”) to find a “prescription” for a tranquil, satisfying retirement. Remember, “better safe than sorry!”
This article was written by:
Raymond J. Ohlson , CLU, CRC, LACP
President and CEO of SMP International LLC
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