Saturday, April 17, 2021

Preparing for common retirement surprises



Ask The CFP® Pract itioner
Darcie Guerin

Let our advance worrying become advance thinking and planning.”
Winston Churchill

Question: I am approaching retirement. Beyond the obvious evaluation of my expenses and income sources, what should I consider?

Answer: Congratulations on your upcoming retirement and bravo for analyzing your cash flow. You’ve addressed the first step in this significant transition by making sure that long-term investments are on track to meet your target income needs.

Planning for and anticipating the unexpected is wise. Unless you’re a fan of unwelcome surprises, it is sensible to identify financial vulnerability. The significance and likelihood of some of these events could derail your retirement plan. These are the top five financial revelations people often face during retirement.

1. Healthcare costs: It’s estimated that a couple spends between $400,000 to well over $1 million during retirement on healthcare. Medicare usually covers only about 60 percent of medical costs, the rest is covered by supplemental insurance like part B and D, which have deductibles, and co-pays on top of premiums, or you pay out of pocket. Medicare costs are often underestimated. Managing your income and setting aside a portion of your retirement holdings specifically for healthcare costs can help you avoid this all too common shock.

2. Long-term care (LTC) expenses: The U.S. Department of Health and Human Services estimates that 70% of people over age 65 will need some type of long-term care. Medicare doesn’t cover it, and LTC can be very expensive. Of course, your personal health history will affect the potential need for LTC, so explore you options with your financial advisor, and stick with the higher-rated providers.

3. Increased Spending: This one may seem counterintuitive, but in retirement, you will no longer have access to the company car, computer, and travel budget. Those things will now have to come out of your wallet. Many people increase discretionary spending in retirement and it is common to pursue activities you didn’t have time for while working, most of which will have costs associated with them. In addition, inflation will certainly make day-to-day expenses higher throughout retirement. Prepare for the additional spending you will face by identifying and budgeting for those things you want and need.

4. Taxes on nest-egg withdrawals: When you withdraw money from a traditional IRA, 401(k), or other pre-tax investment, taxes will be due, usually at your top ordinary-income tax rate. So when you’re projecting how much you have saved for retirement, don’t forget Uncle Sam’s portion (for instance, at the 35 percent top tax rate, your $100,000 IRA is really only $65,000). In addition, keep in mind that at age 70 1/2 , you will be required to take minimum distributions, which are also taxable.

5. Loss of income for a surviving spouse: Loss of a spouse often means the end of his or her Social Security benefits as well as the possible loss of pension income if joint-and-survivor provisions were not elected. A life insurance policy can help alleviate the impact of this occurring.

Finally, it is always a good time for estate planning. One of the most emotionally challenging aspects of financial planning is preparing for the inevitable, and the unthinkable. As difficult as it is to ponder your own mortality, and that of your spouse and other loved ones, having a well-designed estate plan to act on your behalf can bring about the peace of mind you deserve. And perhaps more importantly, it can ensure that your loved ones are provided for during a most emotionally difficult time.

You’ve been accumulating for your entire life, and without sufficient planning, you risk losing control over how assets will be handled and distributed. While there are several documents with which you should be familiar prior to beginning your estate plan, these five should be part of just about every estate plan:

1. Last Will and Testament

2. Living Will or healthcare directive for end-of-life decisions

3. Durable Power of Attorney for medical decisions

4. Durable Power of Attorney for financial affairs

5. A revocable living trust

If you don’t have an estate plan, consult with a qualified attorney and keep your financial advisor apprised of your wishes. If you do have an active plan and it has been some time since you reviewed your list of beneficiaries, contact your professional advisors, and make sure your estate plan is up to date.

Thoughtful and realistic planning for what will go right, and for what may go wrong, increases the likelihood of having a smooth and successful retirement journey. Talk to your financial advisor to discuss your personal options. Stay focused and invest accordingly.

Opinions expressed herein are those of the author and subject to change at any time. Information obtained from outside sources is believed to be reliable. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame design) in the U.S.”


Darcie Guerin, CFP®, is Associate Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email


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