5 Shocking Blind Spots That Can Derail Your Retirement Plans

Co-produced with PendragonY

Introduction

We get a lot of terrible advice over the years.

Have you ever been told to wear metal during a thunderstorm?

Have you ever been told that leaving a window open at night will make are you sick in the morning?

How about that doozy, that your retirement expenses will only be 70% of your pre-retirement expenses?

Many people approaching retirement are aware of this! This advice is based on the idea that you won’t be driving to work every day, you won’t need to spend money on clothes for work, and you’ll eat more lunches at home. the House. Adding insult to injury, some are also being told that you won’t be saving for retirement anymore. This is terrible advice! Don’t believe it!

Sure, retirees will spend less than they did on some activities, but that doesn’t mean they’ll spend less overall. Remember, you no longer have a place to spend 8 or more hours a day, 5 days a week. This will leave you free to travel or engage in other activities – which will cost money.

Even if you budget properly for the new activities you take on in retirement, there are certain costs that can derail your retirement plans if you don’t factor them in as well. Let’s look at 5 of them, each one is often overlooked and can derail a retreat if a plan fails to address them.

1. Insurance

Everyone remembers to budget for health insurance, but often other types of insurance get overlooked. Insurance costs for homeowners are skyrocketing across the country due to floods, tornadoes and hurricanes, wildfires and other natural disasters. Rising replacement costs also have an impact on insurance rates. Auto insurance rates also increase with the increase in car prices. Renters insurance premiums are increasing for many of the same reasons. Don’t forget the insurance costs for that vacation home you may have bought now that you have more time for vacation. Retirement planning must meet all of these needs.

It’s a really bad idea to skimp on insurance, especially when you’re living on a fixed income in retirement. It is important to minimize unforeseen disbursements.

2. Death

It’s a fact of life that we all die at some point, and retired people are more likely to experience the loss of a loved one than younger people. Worse, this death can lead to significant changes in income. Unfortunately, when a spouse dies, household income goes down (minus death benefits).

Even if a spouse over the age of ten has the right to collect on your social security, the household will now only receive one check, not two. And spouses must be sure to choose the “joint living option” for pensions “vs. the single living option” or the pension will not continue for the surviving spouse.

And don’t forget to make a plan for what happens to both members of a couple. My grandfather fully expected to die before my grandmother, but the cancer ended up taking him first, and all the insurance he had to cover his death was of no use to him since he didn’t didn’t have any on her.

Thus, a good retirement plan for a couple will take into account the changes in income that will occur after the death of only one.

3. Long-term care

Something in the range of 70% of retirees will eventually need some type of long-term care, according to the US Department of Health and Human Services. And such care can be quite expensive depending on the level required. Care in an assisted living facility (near the bottom of the various levels of care) averages around $4,500 per month, while a private room in a nursing home (the high end of the level of care) can cost up to ‘at $9,000. A popular option for those who want to stay at home is an in-home health aide, but don’t expect big savings as they average over $5,000 a month!

These costs make long-term care one of the most difficult areas for retirees to plan for. If you have few assets, you can go on Medicaid, but finding a bed in a good facility can be difficult. For those with significant savings or long-term care insurance, the options are better. However, many middle-class people are stuck between these two positions and will struggle to afford the care they need.

When planning for these costs, retirees should consider several options, including: traditional long-term care policies, hybrid life insurance/long-term care policies, and life insurance with a care rider. chronicles. Life insurance plans with a chronic care rider seem the most flexible, but it’s worth investigating what’s available in your area.

Another possible solution is to use deferred income annuities to cover the cost of long-term care. These can be structured to provide a retirement salary that can be deferred until the insured enters a care facility.

4. Health insurance is not free

For some, this could be a big shock, but health insurance and health care costs. Employer-provided health care is usually heavily subsidized (I remember only paying 20% ​​of the cost). When you retire, this subsidy often disappears, which can lead to large increases in medical costs, even when you qualify for Medicare.

At age 65, you will pay standard Medicare premiums for Part A (hospitalization). You may also have to pay premiums for Part B and a Medigap or Medicare Advantage plan. During a typical retirement, this could be hundreds of thousands of dollars!

For many investors, the cost of medical insurance could exceed their retirement account balance. Failure to plan for these expenses could easily derail a retirement plan.

5.Inflation

Everyone is affected now that inflation has returned with such vengeance, and pensioners are particularly affected. What could have been a good income with low inflation, with higher inflation, seems not to be enough after about 10 years of retirement.

One way to offset rising inflation is to look for investments that are doing well and rewarding their shareholders in inflationary environments. With their earnings driven by inflation, these investments should be able to increase their dividends to help offset inflation.

Retirees will need to rethink their budgets and plans to account for rising inflation. It is best to make these calculations assuming that inflation will persist longer than most people realize at this point. Better to have too much income than not enough.

The income solution

To counter the above headwinds, retirees can mitigate these risks with a smart investment strategy we call the income method. It can help a retiree by producing a stable cash flow to cover expenses that will grow to compensate for inflation. The Income Method strategy focuses on companies and funds that pay regular distributions, which provide stable cash flow. We evaluate each investment to ensure that it generates enough cash to pay the current distribution. By choosing these solid high-dividend investments, we achieve healthy income and financial security.

Income is very powerful because it creates a cushion for any unforeseen expenses and allows reinvestment to increase the current dividend stream. With most of the increased income coming from buying new shares, any increase in dividends per share of an individual investment only increases the flexibility available to the investor.

Conclusion

Retirement can be a fun and exciting time with a little planning, but part of that planning is a realistic assessment of your expenses. You need to have plans to deal with unexpected costs. We’ve discussed 5 such expenses that many investors might not be aware of or might only see small issues with. A little planning prevents these costs from derailing your retirement.

Take some time today and plan for your success. It is often said that to fail to plan is to plan for failure. I happen to completely agree with that. I like to plan for the unexpected, so when it suddenly happens, you’ll be prepared.

Investing to generate income can help you absorb the additional costs of potential problems, while allowing you to live with greater flexibility!