Are you aware that 80% of mountain-climbing accidents happen on the way down, not the way up? Reaching the peak is a thrill for climbers, but the second half of that journey, getting down safely, presents the greatest risk and requires the most planning.
If you have saved and invested well and reached the peak, retirement, your descent from the financial mountain is the treacherous part. We are not alone in facing these dangers, 3.5 million of us are turning 65 every year. Here are 5 risks we face:
1. Inflation It is critical to maintain purchasing power. At current levels, prices of many things will double in 20 years. Some things will double in less time, like medical care for instance. LTC costs have been doubling in 15 years, but with legislative hikes in minimum wage, and less workers willing to do this work, we will see costs rise faster in the future.
2. Longevity According to the Census Bureau, the over-80 population is increasing 5 times faster than the overall population. In just 16 years from now the populations of 32 states will resemble what Florida is like now. Many of us will need some help with day to day activities when it becomes difficult to manage on our own.
3. Health/LTC costs As healthcare gets more expensive, and more of it is needed as we age, it will become a huge problem. A shortage of doctors will exacerbate the problem. The US Health and Human Services Department states that 70% of us will need some LTC, and most people are not prepared to pay for it.
4. Market risk If we keep our money in a “safe” place and earn less than 1%, we risk falling behind and losing money to inflation. If we keep invested in the market and a recession occurs just as we need funds we also lose. I leave advice on these problems to the financial planners.
5. Sequence of returns When gains or losses occur can seriously impact your chance to outlive your money. A significant asset loss soon after retirement may never be recovered, and with no more work income to replace lost funds, impact us much more negatively than a loss in later years. Withdrawing money from a (suddenly) depleted account can hurt us much more than future gains can possibly correct.
If we do nothing more than watch our funds and hope for the best, ignoring the first three risks, a health or LTC need can wipe us out quickly. Fortunately we have Medicare to help with the health care costs. However, we have only Medicaid, a welfare program that is available only once we are completely impoverished, to help those without the ability to handle the $50,000 to $100,000 a year cost of LTC. If you are healthy enough to consider LTC insurance, you would be well advised to do so while it is still available to you. For more information visit www.TheLongTermCareGuy.com