Baby Boomers, Know Thy Self

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Many Boomers have saved their hard-earned money for years with plans of being able to retire. Some have faced job loss and various circumstances that have led them to not be able to retire – or at least not when planned.

For those who do have plans to retire soon or already are retired, having a plan to maintain their lifestyle without running out of money is the goal. We have found that many hopeful retirees may have a plan for how to have fun but may lack a plan to dole out their savings during retirement.

An income strategy can prove to be tremendously helpful, however, there is an essential aspect of a plan that can make or break it; sticking to the plan.

Many folks enjoy investing, but many more are forced to be investors out of necessity. The reality is that our money may not last the rest of our lives if we stop growing it once we retire. Could you handle a 15 to 30-year runway of no growth? How about if you were withdrawing assets? Most can’t, which is why many retirees need to have at least a portion of their assets invested to maintain lifestyle over the long haul in retirement.

An important task in the investing process is finding the appropriate level of risk to take.  The level of risk needs to be able to deliver plan success, but also needs to be one that you can live with (and not lose sleep over). Once that task is completed, the even harder job begins – sticking to your plan.

Sticking to your plan can prove to be easier said than done.  Many investors are still nursing some investment induced “Post Traumatic Stress Disorder” from the market gyrations of 2008-09, the dot com bust and the 3 years in a row the stock market was down from 2000-2002.

Through many discussions over the years we have found some investors were under diversified, which resulted in devastating losses equal to that of the market indices and sometimes even worse.  Understanding proper diversification and what protection it may provide, and what it cannot, is imperative. This can be an integral part of a successful retirement plan, because it helps give us the confidence to stay invested.

Even a well-diversified portfolio could probably go down if the stock market drops sharply, however, diversification may help mitigate risk depending on what’s inside. It is important to understand diversification and what to expect from your portfolio when facing volatility. It is also important to understand if volatility is affecting the ability of your long-term plans to be successful.   Fortunately, there are now financial planning programs that can help answer this question.

The confidence that an understanding of the markets and how/if it will affect your retirement plans may help you stick to your plan or make sensible changes to stay on track. It all starts with knowing thyself.

 The opinions expressed in this article are those of author and should not be construed as specific investment advice.  All information is believed to be from reliable sources, however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees. One cannot directly invest in an index. 
Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through Valmark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc. 

The Health Care Conundrum

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Retirement is supposed to be glorious, a time to cross off items on your bucket list. One problem however, is that rising health care costs are tipping the buckets over on many retirees.   

According to HealthView Services, health care expenses are projected to increase at a rate of 5.47% per year. This is more than double the 2% cost-of-living adjustment Social Security benefits provide in 2018. Those retirees that only budget for their Medicare premiums might be in for a rude awakening. Fidelity estimates the average 65-year old couple on Medicare will need $280,000 earmarked for healthcare. Add in items Medicare won’t cover such as dental work and long-term care, and Vanguard believes that number is closer to $500,000.  

Those figures assume you retire at 65, but what if you want to retire before you qualify for Medicare? In Mahoning and Trumbull county, Medical Mutual is your only option for major medical coverage. Anthem recently left our market. A 60-year old retiree can expect to pay between $700 and $800 dollars per month for coverage that has a $7,250 deductible. Add your spouse, and that’s $16,800 to $19,200 per year on premiums alone! According to Ohio Health Benefits, this is a 34% increase in pre-Medicare premiums from 2017.  

The fact of the matter is many people approaching or entering retirement underestimate how much they need to save/budget for health care expenses. The good news is that there are resources available to help. Online calculators, like the one offered by Fidelity, can help provide estimates. Most sophisticated financial planning software is capable of building in health care expenses and allows you to customize the inflation rate to match industry projections. Financial advisors and health insurance brokers can provide valuable input as well. 

Another option to consider for those building towards retirement is a Health Savings Account. HSA’s have become increasingly popular since they were first introduced in 2003. HSA contributions are tax-deductible, account growth is tax-free, and what you spend on qualified medical expenses is tax-free. It’s a triple tax benefit, however, you must be enrolled in a High Deductible Health Plan to contribute to an HSA. You may access your HSA for non-medical expenses but would have to pay income tax on those distributions. Non-medical withdrawals prior to age 65 also incur an additional 10% penalty. Families can contribute $6,900 per year in 2018 and an additional $1,000 per year if the family plan holder is 55 or older bringing the total contributions to $7,900. Although designed to help with annual health care costs, HSA balances can be carried over from one year to the next. This is unique because HSA’s do not have to be held in cash. They can be invested just like an IRA or 401(k). Over time, an invested HSA can become a substantial bucket of money.  

The moral of the story is that health care is an integral component of retirement. It’d be wise to consider your health and family history when building your financial plan. 

*https://www.cnbc.com/2017/10/06/health-care-is-an-even-bigger-part-of-retirement-planning.html  
**http://ohiohealthbenefits.net/  
The opinions expressed in this article are those of author and should not be construed as specific investment advice.  All information is believed to be from reliable sources, however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through Valmark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.