Retired? Here Are 3 Things You Need to Get Right.

So much financial planning is focused on getting people to retirement. Planning and investing during those golden years is even more critical because missteps can be disastrous. 

Spending down money in retirement is trickier than accumulating it while working. Retirees don’t know how investment portfolios will perform during retirement, how long they will be drawing money from them, or what sort of health they will be in.

Increased longevity means today’s 70-year-old man will live an average of 14.6 years, and a 70-year-old woman another 16.8 years, according to the Social Security Administration. Those are just averages. Some 34% of these men and some 45% of these women will live into their 90s, and people need to prepare for that possibility. 

Financial advisors say retirees should have three main priorities: getting portfolio allocations right; having affordable healthcare even if their health declines; and making arrangements to get help should the day ever come when they can’t manage their own affairs. 

Here are some tips for success in each of these areas:

Keep Part of Your Portfolio in Stocks

Despite the perils of bear markets to retirement portfolios, becoming overly conservative has its own dangers, advisors warn. Build the nest egg with high-quality, dividend-paying stocks, preferably those with rising dividends. In a time of soaring prices—like right now—dividend-paying equities can act as an inflation hedge, says Stephen Dunbar, managing partner, Business Strategies Group, a division of EquitableAdvisors. Dunbar suggests putting as much as 60% of the portfolio in equities, with the idea this money won’t be touched for at least eight to 10 years.

Other advisors take a more conservative approach with retirees. Mike Kazakewich, director of planning at Coastal Bridge Advisors, allocates just 35% to 40% of the portfolio to equities for his clients. He currently recommends investing a bit more than half the portfolio in domestic large-cap stocks, equally split between growth and value, and putting the remaining money into international stocks.

Jennifer Bellis, private wealth advisor at US Bank Private Wealth Management, is even more conservative. She advocates an equity portion that’s closer to 20% to 30% of the retiree’s portfolio, with an emphasis on dividend-paying stocks. She also puts her clients in real estate investment trusts and preferred stocks because of their income streams.

In a rising-rate environment, Bellis recommends a fixed-income overweight to complement equities. Fixed-income securities “might lose some value in the immediate term, but if you’re holding them to maturity, they will provide a nice income stream,” she says.

Jay Winthrop, principal of Douglass Winthrop Advisors, says investors who prioritize capital preservation over performance can buy high-quality, medium-term bonds, such as U.S. Treasury notes or investment-grade bonds. “You’re locking at a 3.7% to low 4%, risk-free rate for 10 years. For many people in retirement, fixed income now has a place that it didn’t for 15 years,” he says.

Because the Fed will continue to tighten rates, advisors recommend individual bonds to bond funds. Bond-fund owners will take losses when rates rise, but those who own individual securities can hold them until they mature.

The advisors also advocate holding a year’s worth of expenses in cash to avoid having to sell off holdings in a down market. With some online banks paying close to 3% in interest, it pays to shop around, Bellis says.

Healthcare Options

Having the right healthcare combination matters. For 2022, premiums for Medicare Part B and Medicare Prescription drug coverage can be as low as $170.10 a month for married couples who had modified adjusted gross income under $182,000 and as high as $578.30 based for those whose income topped $750,000. 

Retirees shouldn’t rely solely on Medicare, which picks up only roughly 80% of most costs. Seniors in good health or who can’t afford additional premiums for supplemental coverage may choose a Medicare Advantage plan, many of which have no premiums. But for those who have health problems or need treatment from specialized doctors or hospitals, they may be better off staying on traditional Medicare and buying a supplemental policy to cover costs that Medicare doesn’t. Members of the military should also look into what medical benefits they are entitled to have.

Every retiree dreads the thought of ending up in a nursing home, and the cost of long-term care policies has risen sharply. In retirement these policies are even more expensive. Before buying one, check carefully how much coverage you’ll receive and how incapacitated you have to be before it kicks in. 

In recent years, hybrid long-term care policies, which are life insurance policies with riders, have become popular—if a policy owner dies without needing care, the policy can turn into a death benefit that goes to his or her heirs, Dunbar says. He says these hybrid policies are also more flexible than traditional long-term care policies when it comes to who can provide your care.

For retirees who want to self-pay, Dunbar says they can earmark part of their portfolio to cover costs should the need arise. The average total cost for long-term care is about $300,000. 

When to Get Professional Advice

Even if retirees are successfully managing their portfolio, it may be worthwhile to have a financial advisor review the portfolio, says Tim Steffen, director of tax planning at Baird Wealth Management.

An advisor can check that the portfolio is in suitable investments or that retirees are spending down their portfolio at a sustainable rate. “It sets your mind at ease,” Steffen says. “Maybe you don’t have to do any crazy changes, like you might have been thinking you had to just because you’ve seen what’s happened in the market.”

Retirees are likely to have some sort of physical or mental decline at some point in their life, so now is the time to explore delegating future financial planning tasks, especially for successful DIY investors, Bellis says. Doing it now allows DIY investors to get comfortable with those they have selected to take over when necessary. 

Retirees who have a trusted relative or friend can prepare a power of attorney agreement or healthcare proxy so that the designated person can make decisions for the retiree when he or she is no longer able. Retirees may also need to make arrangements for someone to manage their portfolio.

“If you becoming incapacitated, and you don’t have a financial power of attorney in place, no one can act on your behalf and pay for your healthcare needs or your liabilities,” she says.

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