No Money, Honey: How Not to Go Broke in Retirement

No Money, Honey: How Not to Go Broke in Retirement

In a karaoke bar in Siem Reap, Cambodia last year, I met an interesting and most instructive expatriate.

Wes, a gregarious octogenarian, was as spry and on-key as a man twenty years his junior, like me. Between his renditions of Elvis’s ‘Hound Dog’ and the Big Bopper’s ‘Chantilly Lace’, he told me his tale.

Wes worked in the shipbuilding industry, managing important projects for the US Navy, the petroleum industry and major shipping lines – long budgets, short room for error. He thrived on the pressure, and at age 59, decided to retire on a healthy portfolio to a Mexican resort – just the kind of outcome we wish for our clients.

Living easy on the shining white Pacific-coast sands, surrounded by like-living neighbors and enjoying top-flight golf four times a week, Wes made a costly decision – those are his words. He became involved with a local woman. “She wasn’t a golddigger or anything, it’s just that suddenly, instead of paying for myself, I’m picking up the tab for two. Whereas before I was tapping into interest, now I’m eating into principal – that’ll gets you into big, bad trouble,” he said.

It ended amicably enough, but the damage was real. Wes had to leave his resort lifestyle, friends and pleasant social life for Siem Reap – he’d visited, attracted by the glories of Angkor Wat and a welcoming attitude to foreigners, particularly polite retirees. Wes had a pretty soft landing, but the lifestyle he’d enjoyed was gone – Siem Reap is a relaxed little town, but beyond the archaeological marvels, there’s little to do – good thing Wes enjoys his karaoke.

Wes had planned well for retirement, but made a mistake or two in circumstances where a recovery was hard, perhaps impossible to accomplish. We warn clients to prepare early, but don’t say enough about risky post-retirement decisions that can undermine a lifetime of planning. We aren’t counselors of the heart, after all, and there’s a line even trusted advisors can’t cross with clients. Still, we’ll let Wes’s case argue the point.

Plenty can go wrong, with roots rising deep from our working years. We’ve long counseled on preparing to meet long-term healthcare costs. In 1900, 75% of Americans died before reaching the age of 65. Today, 70% of us should live past that milestone. The trend is welcome, but there’s a problem: half of seniors will need long-term healthcare, but very few are prepared to meet the associated costs. Nursing home care exceeds $100,000 per year, and that’s just the national average – costs in your area may be significantly higher. Assisted living totals around half that amount, still a significant outlay.

Long-term healthcare insurance is hardly optional: even wealthy clients, who may be used to elevated levels of comfort, must be well prepared. Many options are available, including dedicated LT care policies and hybrid life insurance that pays for healthcare if needed. Annuities can be structured to meet LT care costs, too.

Longevity is the key issue in planning for retirement. We consult with a mildly cynical doctor who says that dying early isn’t a problem – it’s living beyond our means that we should fear. Social Security estimates that 25% of seniors who make it to age 65 will live past 90. That’s a lot of retirement to fund.

Online resources can help calculate your life expectancy. We recommend that clients start with their doctor, who already knows their family history, health record and personality – the latter is vital in healthcare, just as in financial planning. Doctors usually have better predictive tools and can recommend changes in activity and diet to better a person’s odds in their senior years. Genetics don’t determine all.

Meanwhile, on the business side, a healthy annuity should serve clients well, particularly if they limit annual withdrawals to levels that preserve the plan over a long horizon. Retirement planners are waiting anxiously to help.

For people of a certain age, inflation is a fearsome word. Anyone aware during the 1970s will remember stagflation – low economic growth, rapid price rises. We haven’t seen anything like it in many years, but for cautious analysts, this in itself is concerning. Over the next 30-50 years, could we see dramatic inflation? History counsels extreme caution.

Inflation must be factored into retirement planning. Clients may have to save more than they wish, but ignoring inflation could lead to serious pain in retirement. Delaying access to Social Security benefits until age 70 is also recommended. This will boost the eventual monthly check, with any cost-of-living increases applied to this higher amount, enhancing the inflation protection.

Wes learned a few other things in retirement. He liked to go out more than when he was working, which makes sense: he was awfully busy building those aircraft carriers. Labors complete, Wes wanted to hit the links, dress sharp and enjoy luxurious dinners, not to mention travel with his new friends. His cost of living rose, but he was careful and covered his markers, at least until a fateful date.

However you feel about all that, Wes’s case suggests we should ponder our vision of retirement life quite carefully. Many find they spend less on ordinary living, largely because their needs change – the latest smartphone loses its appeal – but new horizons open up and we may want to spread our wings. Think it all through, and plan accordingly.

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