Ric Edelman: Hi! I am Ric Edelman, thinking about retiring, congratulations! Just make sure you think before you act. In this video, we are talking about how you are going to spend your time. Often people are so focused on saving for retirement that when they finally reach retirement, they have no idea what to do with themselves.
Retirement can be divided into two phases; the first six to 12 months, when it's new, and the rest of your life. That first year can be pretty exciting. You don't have to commute to the office, you have got tons of free time to catch up on projects around the house, maybe play a few rounds of golf but soon, the house has tidied up and you are bored with golf. What now?
Well, when you were working, you had a plan for your career, so make a plan now for retirement; travel, volunteer, time with the grand kids, a part time job, take classes, perhaps move somewhere else, determine how much money you will spend monthly, that includes basic expenses, mortgages, utilities, insurance, groceries, clothes.
You also need to include the cost of your new hobbies. And then there are periodic expenditures, gifts, vacations, taxes and an occasional new car and emergencies. And finally there is healthcare, so add all this up and you will be ready to enjoy your retirement. Many people assume medicare will take care of all of their medical expenses in retirement, wrong. Medicare covers just two-thirds of healthcare costs, according to the employee benefit research institute. Private insurance and other government programs pick up some of the costs but the rest is up to you, and then there is the cost of long term care to avoid huge expenses there, consider buying long term care and insurance. Buy it now.
70% of people aged 65 or older will need long term care according to AARP. A private room in a nursing home, medicare won't pay for it, neither will your health insurance. A long term care policy is a better idea. If you don't have an income or a large amount of assets, you won't be able to get a mortgage in retirement. This comes as a surprise to many retirees who discover that they can't get alone whether they are forced to pay higher rates for it. That's why it's a good idea to refinance your mortgage before you retire.
For many retirees their home is their largest asset and many take pride in having that home fully paid off but that can be a big mistake. Let's say you own a $400,000 house free and clear, but suddenly you have an expensive medical emergency or you need long term care, and you need cash to pay for it, if your money is tied up in the walls of your house, you can't use it. You'd have to sell the house to raise that cash. But if you had refinanced before you retired, you could have pulled money out and put it somewhere safe so that it was available to you when you needed it.
You know how much money you spend on a monthly basis. Now figure out where that money will come from, social security, a pension, your investments, it's not as simple as it looks. If you are getting a pension, will you collect a lump-sum or a monthly payment, single life or joint and survivor benefits, indexed to inflation, all this will affect how much money you receive and whether you will have enough?
When you add all your income together, will it cover all of your expenses and don't just think about today's expenses, think about expenses 20 years from now, after 20 years of inflation. This means you might need to revise your investment strategy, the way you have handled your investments over the past 30 years, might not be the way you should handle them for the next 30 years. The past 30 years while preparing for retirement you were focused on asset accumulation but when you are in retirement, you need to focus on income, a big part of income is keeping pace with inflation and the increasing cost of living and that means you might need to adjust your investments, asset allocation.
You also need to make sure that a portion of your assets are flexible and liquid so that you can meet needs that you don't anticipate. Don't have a will, get one. You also need a living will and a durable power of attorney, as well as an executer. A will, will explain who gets your property and it means an executer to make sure that it all happens. If you die without a valid will or a living trust, then State Law dictates who gets your assets. A living will tells family members and healthcare providers how you wish to be cared for, should you become severely ill.
A Durable Power of Attorney lets you select someone to make your financial decisions on your behalf if you are incapacitated. I know these aren't pleasant topics, but they are dangerous to ignore. You can avoid a lot of heartache for your family if you get in a state plan.
So is your estate in order?