Even the best retirement planning can be upended by bad luck. Here are four disasters you could face in retirement, and four strategies for circumventing them.
Your spouse dies before you do. When a spouse dies, one of the two Social Security checks the couple receives will disappear. The surviving spouse will continue to get the larger of the two checks, but that still may leave a big hole in the budget. Knowing in advance how you'll fill that gap provides peace of mind when it happens. "It's important to understand in advance how a premature death would affect the finances of the surviving spouse. Social Security benefit planning, acquiring life insurance, and setting up annuities are all potential solutions to mitigate this type of financial surprise," says Anthony Criscuolo, a Certified Financial Planner professional with Palisades Hudson Financial Group.
Medical expenses accelerate. The older you get, health care costs get more expensive. For many people, the cost and limitations of Medicare are a big retirement surprise. Traditional long-term care is increasingly expensive -- prohibitive for many people. But there are some new alternatives that are less costly. One of the most popular is life insurance with a long-term care rider. You buy the life insurance with a lump sum from your savings -- at least $50,000. When you die, a multiple of this goes directly to your heirs, unless you need the money to pay for long-term care. Then the full benefit -- and often more -- becomes available while you're still living to pay your health care costs.
Inflation goes through the roof. Putting all your money in "safe," low-return investments like bonds could be a big mistake. Anybody old enough to be retiring now is old enough to recall periods of significant inflation. To think it couldn't happen again is naive. Keep some of your money in stocks and other equity investments whose value will rise faster than prices if inflation takes hold. "Retirement is not a single point in time; it's a process that can last 20 years or more," Criscuolo reminds us.
The stock market tanks. We all know that happens because we're still recovering from the meltdown that began five years ago. To avoid being washed away in the next downturn, lock in enough guaranteed income to cover basic costs. One good strategy is to delay taking Social Security as long as you can so you get the maximum amount available to you. Buying a single premium annuity with some of your savings is another hedge.
Whatever you do, don't just hope. Hope isn't a good retirement strategy.