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No matter how much we plan for retirement, no one can
foresee the future. How many anticipated the Great Recession
and its lingering after affects, for example? Regardless of
the assets we currently enjoy, there is no guarantee that
our financial situation will remain static during
retirement. All we can do is to mitigate known risks and
leave room for flexibility. Let’s illustrate this with an
actual example of a Boomer couple coming up on retirement.
Based on an Actual Case Study - Bill and
Jane Smith near Retirement
Bill and Jane Smith (not their real names) are Baby Boomers,
both 63 years old and looking forward to retirement
together. Jane is already a retired college professor who
receives a pension and has heart problems. Bill works as a
cashier at a nationwide book store chain, mostly to have
medical insurance. Both are now eligible for social security
benefits, but plan to wait until age sixty-six in order to
receive larger payouts.
Recently, Bill’s company has been cutting back as a
consequence of electronic books overtaking printed books in
sales. Branches are being closed, and the company may be
sold. Bill’s hours have consequently been cut, but he is
fighting to work the minimum number of hours necessary to
retain medical insurance. If he is laid off or his company
goes away, Bill hopes that he can land another job to
receive medical insurance until he and Jane are eligible for
Medicare at age 65.
Asset-wise, Bill and Jane own the condo where they reside in
California. It currently has $50,000 in equity, but that
figure is diminishing as the real estate market continues
its downward plunge. Bill’s 89-year old mother is not
expected to live much longer, and upon her death he will
receive half ownership in her home. Bill and his brother
plan to sell the house and split the profits, with each
expected to receive about $150,000. Bill and Jane also have
$150,000 in savings invested in mutual funds. So,
altogether, they expect to have a $300,000 nest egg for
retirement, plus $40,000 to $50,000 in home equity when they
retire in two years.
Advice for the Smiths
• If Bill is laid off from his current job, his chances of
finding another position that provides medical insurance
coverage are slim – no one wants to hire a 63-year-old
person in today’s job market. Hence, the Smiths will have to
either pay Cobra or other expensive health insurance
premiums for the next two years until they qualify for
Medicare. They will also have to survive on their savings
and Jane’s pension. Taking social security benefits earlier
than planned may become a necessity. The Smiths are advised
to set aside reserve funds for this possibility.
• Given the volatility of today’s economy, the Smiths’ are
also urged to immediately review their investments for
diversification and safety. As many older Boomers know, even
supposedly low-risk mutual fund investments can disappear
overnight! Moving some savings to gold or precious metals
may be indicated.
• The anticipated $150,000 inheritance from the sale of
Bill’s mother’s house could be used to pay off the remaining
mortgage on their condominium. However, this is probably not
be the wisest choice, as their condominium project has only
eighteen units and its value is closely tied to the amount
of reserve funds held by the home owners association, which
unfortunately is much less than desired. Thus, a large
assessment could be forthcoming just to maintain the
complex. And if other homeowners cannot afford the
assessment or stop paying monthly dues, the market value of
everyone’s condo will drop. Also, given the difficulty of
selling a condominium in California today, it may be better
to preserve liquidity by investing their inheritance in
diversified mutual funds, CDs and bonds rather than tying it
up in real estate.
• With Jane’s heart condition, they need to consider how
they would address the possibility of medical bills that
exceed Medicare coverage or a need for long-term nursing
care. Either of these situations could quickly gobble up
their savings. Since the cost of long-term care insurance is
typically prohibitive, consultation with a financial advisor
is suggested to determine how to best protect their
financial assets should they one day have to resort to
Medicaid coverage for Jane’s long-term care.
• Bill and Jane should also research home-based businesses
and launch one before their planned retirement date. This
can provide a means to both handle possible increased
insurance premiums and then later supplement their
retirement income after they qualify for Medicare.
Summary
What all this illustrates is that even older Boomers with
some savings and financial assets still face the risk of
seeing their retirement plans disrupted by events outside
their control. Whether due to job loss, health problems,
accidents, or forces of nature (earthquake, flood, tornado,
etc.), our lives can change overnight. The best retirement
planning advice, therefore, is to develop realistic plans
based on anticipated assets while maintaining the
flexibility to respond to unforeseen or evolving
circumstances.
About The Author
Al Kernek is a Internet marketing consultant, author
and Baby Boomer. Learn more about resources available to Baby Boomers seeking to retire on a
limited income at www.BabyBoomerLifeboat.com
and discuss Boomer issues at our blog,
Baby Boomer Muse.
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