Plan for the Probable; Prepare for the Possible

Written by Chris Draughon

I want to see you achieve your financial goals so I spend my time making the complicated things simple. As the Director of Financial Planning I help our clients identify their most important financial goals and develop paths to get them there on time with room to spare.

June 15, 2015


Plan for the Probable; Prepare for the Possible-media-1

Almost nothing in life is certain or guaranteed; many times things don’t go quite according to plan. A healthy dose of bad luck can cause even the most carefully constructed retirement plan to go awry. It’s smart to review your retirement plan regularly to be sure that you are on the right track toward reaching your financial goals. It will also serve you well to prepare for the times when things do not go according to plan.

Are You Ready for Retirement?

According to an April 2015 Gallup poll, the number one financial worry of Americans today is that they will outlive their money during retirement. Even high-income earners with substantial retirement savings have concerns about running out of money during retirement. Your dreams of owning a beachfront house or taking a cruise around the world could be disrupted if you run through your savings more quickly than you planned. A serious illness could drain your retirement savings or a big drop in the stock market could cut your net worth in half. How will you handle life’s unpredictable moments?

Possible #1: Outliving Your Life Expectancy

No one knows how long they may live so it is always better to overestimate rather than underestimate how much money you will need during your retirement. According to the Social Security Administration, a couple age 65 has a 47 percent chance that at least one of them will live to age 90. If you beat the odds and live 10 years beyond your life expectancy, the extra money you put into your retirement savings can be the cushion you need to maintain your lifestyle. Ideally, you’ll want to generate enough income to pay your regular expenses. In order to not outlive your money, you should reduce your withdrawal rate to make your principal last well beyond your life expectancy.

Possible #2: Loss of Purchasing Power

Putting all your money in a “safe” low-interest bearing account can work against you when considering the effects of inflation. Inflation reduces your purchasing power, because a dollar in the future is worth less than a dollar today. At a modest inflation rate of 3 percent per year, the cost of living will double in 23 years. To protect against a weakening dollar, a portion of your retirement savings must be in investments that have growth potential and earn an average return in excess of the inflation rate.

Possible #3: A Prolonged Decline in the Stock Market

You should be prepared for the possibility of a serious decline or prolonged below-average returns in the stock market by being diversified and having an appropriate risk-adjusted portfolio. To protect your wealth, your portfolio should be allocated among a variety of diversified assets and complementary strategies to reduce severe fluctuations without giving up the potential for returns.

Possible #4: A Major Medical Problem

As you get older, you can expect to have more health issues than when you were younger. Medicare does not cover all hospital bills, doctors, or prescription drugs that you may need. To guard against costly out-of-pocket medical expenses, you can invest in supplemental health insurance that helps pay for costs that Medicare does not cover. Considering taking steps today to improve your long-term health prospects by eating healthy and exercising regularly.

Possible #5: The Need for Long-term Care

Most of us will eventually need assistance with basic daily activities and some people may wind up in expensive nursing homes. For women, the likelihood of needing some form of long-term care stands around 70 percent. To guard against this very possible expense,  budget it into your retirement plan. Your financial advisor can help you decide whether it is better for you to self-insure or to buy a long-term care insurance policy.

Possible #6: The Desire to Leave a Legacy

If your desire is to leave a legacy to your heirs, cut back on spending but don’t live like a pauper. You can designate a portion of your assets to create a lasting legacy. Life insurance can also help you provide a legacy.

Possible #7: An Early Death

An early death can have profound emotional and financial effects on those left behind. Understand the impact that the premature death of you or your spouse will have on the surviving spouse. Most likely, income and expenses will change. Retirement benefits from social security and pensions will certainly be reduced. Will your surviving spouse be able to maintain their standard of living on this reduced income? Don’t forget about final expenses. Prepare for the unexpected by having an adequate amount of cash in reserve and consider purchasing life insurance to cover lost income.

At First Coast Wealth Advisors, we work with you to first identify your retirement goals and then to create a plan to achieve those goals. Let us help you build a secure future – give us a call today for your financial check-up.