Retirement Planning Continues Into Retirement

Don’t underestimate healthcare costs; adhere to these ‘tips & lessons.’

By Wendy Murphy On Jan 6, 2020

Conscientious New Jerseyans have spent most of their working years preparing for the day they retire. However, despite all this planning, many retirees find themselves facing new economic challenges that threaten their golden years.

How can you make the most of your retirement? Here are several lessons you should consider:

Don’t underestimate healthcare costs. Many adults nearing retirement age are concerned about healthcare costs, but are unsure how to budget for them, according to a 2018 survey by the Nationwide Retirement Institute. This isn’t unexpected given that the average healthy 65-year-old couple retiring this year can expect to pay $363,946 in today’s dollars on medical expenses in retirement, excluding long-term care.

Aside from ensuring that their retirement accounts take these costs into account, there are additional options available for retirees including long-term care insurance, or, as these policies are becoming increasingly rare, life insurance with a long-term rider.

Maximize social security benefits and mind required distributions. While eligible workers can begin applying for benefits at age 62, they’ll receive up to 30% less than they would if they waited until what the Social Security Administration deems “full retirement age.” Unless the money is really needed, it’s worth considering the benefits of waiting to apply. If possible, putting off applying until age 70 could increase your benefits by around 32%.

In addition, once reaching age 70½, individuals must take annual distributions from retirement funds, traditional IRAs, and other qualified exemption plans. Along with understanding how to time these distributions as they are taxed, failure to withdraw subjects these funds to an excise tax equal to 50% of the withdrawal that was not taken.

A more conservative approach to investments and budgeting should be considered. When starting a retirement account, many young people take a more aggressive approach knowing that they’ll have time to ride out volatility. As they retire and begin taking withdrawals, they may need to incorporate more stable assets to reduce volatility in their portfolios. Just ask anyone who retired in 2008 about the importance of capital preservation.

Additionally, retirees may need to adjust their budgets to accommodate their new income levels. While their savings may seem like a substantial amount, the savings may need to last for 30 years or longer, and a sudden medical emergency could easily eat up a significant amount unless preparations have been made.

The key to a successful retirement is to recognize that retirement planning should start when someone is young and does not stop once work ends.

About the Author

Wendy Murphy is a Financial Advisor and Certified Financial Planner™ with the Global Wealth Management Division of Morgan Stanley.

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