When you retire things can change—a lot. After a lifetime of going to work and saving and investing, you now have more time and are not saving and investing anymore—you’re just spending. Those are big changes for most people and may not be easy.
At first retirement can be this glorious relief from a job that you stuck around in for too long. Its now time for deferred vacations, put off home projects, or precious time with family or grandchildren. Then the reality of retirement sinks in: “What do I want to do with my time?”, “What will my day look like?” And, if you have a spouse or life partner, “If I’m around all of the time, how do I keep from driving my partner crazy?”
Such changes require new strategies and new habits.
The best approach means planning before you retire. Here are 6 things to consider to protect your retirement:
1. Choose the right housing – One of the often overlooked decisions involves understanding how your housing needs will change in retirement. When I retire, I’d like to buy a nice lake house in the north country where I’ll spend the rest of my days dipping my toe in the warm water every morning. (Of course, this week in my hometown of Laconia, NH the lakes are mostly covered in ice and the high temperature yesterday was 5 degrees Fahrenheit.) But when I am 80 or 90 years old, I’m not sure I’ll want to be shoveling snow, mowing the lawn or other home maintenance tasks. I think I’ll want those things taken care of for me. I’m also not sure that I will want to be in a remote location, away from good healthcare and convenient services.
2. Expect additional health care expenses – One of he most underestimated costs in retirement is unexpected health care expenses. As we age our bodies tend to need more help and access to good healthcare can be crucial. Living nearby hospitals, doctors, specialists, and quality assisted-living and skilled nursing facilities can make your life easier, should you need those services. That doesn’t mean you have to live next to a hospital, but some communities offer more services than others.
Forever income – One of the top financial questions pre-retirees ask us is: “How can I build a guaranteed income stream that will take care of me and my spouse/partner for the rest of our lives?” For our grandparents this was easy: save enough in the bank, put the principal into certificates of deposit and live off the interest. With interest rates still near historic lows this is no longer possible. And now that inflation has hit a 40-year high, retirees need to find ways to protect against its eroding effects on your purchasing power.
3. Maximize the annuity that everyone likes - Of course, no one likes annuities: you have to hand your money over to an insurance company, they can be complicated, and you can rarely get out of them. But the annuity everyone likes is Social Security. You’ve already paid into it over your working lifetime and at retirement, you get a set monthly income benefit. To maximize your benefit, consider deferring claiming benefits until age 70. Your payout will be about 8% higher for every year you wait beyond your normal retirement age and it will last for the rest of your life. Unfortunately, Social Security is not enough for most people.
4. Add a boring annuity - That’s why fixed annuities can often play an important role for part of your income needs. In contrast to other annuities, they are simple—you invest a specific amount in exchange for a set monthly payment. That payment can be set for a minimum number of years or for as long as you live. It’s a way of guaranteeing that your mandatory bills get paid—such as property taxes, utilities, heat, electricity, food, etc.—for the rest of your life. I have found that fixed annuities tend to get passed over because many retirees find them boring compared to investing in stocks and permanently handing over a big amount to an insurance company never seems to feel right to them. Nevertheless, fixed annuities can play an important role in supplementing income from Social Security.
5. Change your investments – The last few years have been really exciting as we have watched the stock prices of many big tech companies explode to ever higher levels. Recent examples include electric car makers Tesla and Rivian as well as the top 5 tech firms, Alphabet, Amazon, Apple and Microsoft.1 This is all very exciting but may not be the best strategy for a retiree. We know that investing in CDs won’t be enough and high flying growth stocks may be too risky, so what’s the right balance?
6. Focus on steady growth and income – Many retirees are looking for more stability in their investment portfolios because they need growth but they also need more stability. Stocks that are attractive based on their valuations (value stocks), stocks with average to above-average dividends, and stocks with lower price volatility all can be good candidates for a retiree’s long term investment portfolio. Coupled with bonds, cash and some alternative or specialty investments, this new, diversified portfolio should provide more income than during your working years.
‘Looking for additional ideas to protect your retirement? Give us a call. We have worked with many clients that are making the shift to retirement living (it is an exciting transition!). We can help you make smart choices. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson
1Mention of these companies is for informational purposes only; it is not an investment recommendation.
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Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.