The old saying about having too much month at the end of the money is applicable, with a bit of adjustment, for people approaching retirement: fear of too much life left at the end of the money.
An American Institute of Certified Public Accountants (AICPA) survey of 631 financial planners revealed that 30 percent of their clients tabbed running out of money during retirement as their top concern; 28 percent cited lifestyle maintenance as their chief issue; 18 percent were most concerned about the ever-increasing cost of healthcare.
The AICPA’s Personal Financial Planning Trends Survey also shows greater optimism about retirement among financial planners’ clients than five years ago. However, as the data show, these feelings are fluid: today’s upbeat feelings can rise higher or fall faster than a up or down streak on Wall Street.
For example, in 2016, 41 percent of survey respondents said running out of money in retirement was their clients’ No. 1 issue, 11 points higher than in 2018. Worry about continuing their present lifestyle was in 2016 only a point higher at 29 percent; healthcare cost worries as leading concern was 18 percent in 2016 compared to 11 percent in 2016.
Nevertheless, health care costs were overwhelmingly the reason 30 percent of clients thought they’d run short of money: 77 percent of them selected health care costs as why they feared running short of retirement cash.
Based on the survey, the AICPA’s Personal Financial Planning Committee made five recommendations for good retirement planning:
1. Don’t wait, explore long term care coverage early. Coldly put, the long-term care company is willing to bet you won’t get debilitatingly sick. You’re betting you will, which is why you’re paying that company in advance in case you’re right. This can be a good hedge, depending on the plan, against the rising healthcare costs.
2. Don’t look at your portfolio too often. That is, unless you want to drive yourself crazy. If you have an advisor in whom you have confidence, that’s one thing. If you’re trying to play the market, your financial prognosis is questionable. It doesn’t mean you won’t be right sometimes; it also means the probability of being wrong is exponentially greater.
3. Ramp up savings by taking advantage of catch-up contributions once age 50. In 2019, anyone over 50 can make an additional $6,000 contribution to a 401(k) plan, and an additional $1,000 to an IRA. Every dollar matters.
4. Have a tax-efficient drawdown strategy. There are tax strategies galore, depending on your income, needs, investments, bracket, and other factors. There are two ways to think of taxes, as necessary to provide government services we all need, and as a quicksand pit that will pull you beneath the financial water and never leave a ripple. Strategy matters.
5. Pay off or pay down debt before retirement. The less debt you have, the more savings options are available to you. Actually, No. 5 could easily be No. 1. Debt at the right time for the right reasons is a useful tool for financial growth or other needs; but, as you near retirement, debt becomes an impediment to other things you want or need.
Debt strategies vary. For example, you decide to buy a Florida condominium to rent out to let others pay your mortgage. You pocket any profits and plan to sell at a big gain as you mosey into the retirement sunset. But there’s no guarantee any of that will work. None at all.
Regardless of income, retirement comfort comes down to several things: planning and discipline. Without both, even the wealthy will probably struggle. Without wealth it’s a much bigger challenge.
Engage a competent strategic accountant or financial planner. Find a strategy. It’s your best chance of having the money you’ll need throughout your life.
This article was originally published in the Knoxville News Sentinel.Share