Whether your retirement is months, years or decades away, you probably have a long list of retirement worries. Will Social Security survive? Will the stock market crash? Should you pay off your mortgage? Should you pay for your children’s college costs? Will your children ever launch?
Worrying isn’t always bad. After all, it can help you focus on improving your retirement prospects. But are you worried about the right things? Bankrate looks at seven retirement issues that you might be stewing about that don’t matter … at least not as much as these other, much more troubling issues.
7 real retirement worries to focus on
Some people worry about all the wrong things when they're planning for retirement.
Worrying can be a good thing since it might inspire change. But are you worried about the right things? For instance, some people worry that Social Security won't be around when they retire. That program is a popular one and won't go away any time soon. What they should be worried about instead is picking the right time to begin drawing Social Security.
If you begin taking benefits at age 62, you'll miss out on getting the bigger payout that you'd get if you wait until full retirement age, which is 66 or 67, depending on your year of birth.
Likewise, some people worry that the stock market will crash. But if they invest too conservatively, their portfolio won't grow enough to keep up with inflation. When allocating your assets, you need to achieve a balance among investments that can cushion the blows of the market with those that can provide some growth in your portfolio.
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Will Social Security be around?
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What you’re worried about: Social Security won’t be around to pay any of your retirement.
What you should be concerned about instead: Pick the right age for you and your spouse to begin drawing Social Security.
“I don’t think you should be worried about Social Security going away,” says Kevin Bourke, Certified Financial Planner professional at Bourke Wealth Management in Santa Barbara, Calif.
Instead, you need to think about the best age for you and your spouse to begin collecting Social Security. You don’t necessarily want to begin drawing Social Security at the youngest age you’re eligible to do so, Bourke cautions.
“People take it early and they take a reduced amount,” he says. Often, the husband begins taking Social Security as soon as he’s eligible, which seems like a good idea. “The problem is, 25 or 30 years later he’s going to be dead, (and) the wife is going to be 90 and getting much less compared to what she would be getting had he waited until the full retirement age.”
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How can I afford my children’s college?
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What you’re worried about: You want to help your kids by paying for college, co-signing loans or bailing them out in general.
What you should be concerned about instead: Fund your retirement.
“How will you retire if you drain your cash to fund Junior’s archaeology degree at an expensive private school?” asks Jayne Di Vincenzo, president of Lions Bridge Financial in Newport News, Va. “If you have to pick, make sure you’re OK for retirement first. People in their 30s sometimes pick their kids’ education instead of themselves, thinking, ‘I’ll make up for this later.'”
The longer you wait, the tougher it is to catch up. Remember, your kids have years to work — you don’t, Bourke says. “I see people put themselves in financial jeopardy because they want so badly to help their children financially that they end up harming themselves.”
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How big of a legacy can I leave?
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What you’re worried about: You want to leave a sufficient estate to your kids.
What you should be concerned about instead: Name the correct beneficiaries on your retirement and life insurance accounts.
Beneficiary designations are often wrong, Bourke says. “I had a new client who owns an annuity. I asked her who the beneficiary is and she said, ‘My four children, one quarter each.’ I said, ‘Let’s call the annuity company to be sure.’ It turns out three-fourths were going to one daughter and the other quarter was going to a niece.”
How does this happen? “The paperwork gets filled out wrong,” Bourke says. “Somebody drops the ball. People ignore their beneficiaries and disinherit their own children.”
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Should I get out of the market?
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What you’re worried about: The winner of the last or next election might affect your retirement accounts.
What you should be concerned about instead: Invest regularly by dollar-cost averaging regardless of external events over which you have no control. As you get older, you can dial down risk by balancing your investments.
“I had several clients pull out of the stock market because of who won the presidential election,” Di Vincenzo says. “Those clients have hurt themselves because the markets have had a good run. You need to avoid emotional investments.”
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Should I pay off the mortgage?
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What you’re worried about: You want to pay off the mortgage before you retire.
What you should be concerned about instead: Do you have enough money to pay for property taxes, maintenance and general retirement expenses for the next 25 to 30 years?
“In a low mortgage interest environment, it doesn’t make sense to pay off your mortgage,” Di Vincenzo says. “When you can earn 4 (percent), 5 (percent) or 6 percent in a corporate bond fund and you’re paying only 2.75 percent on your home mortgage and you get a tax deduction — the math doesn’t add up.
“I have seen people pull out a lump sum to pay off their mortgage. It hurts people who are on the borderline of having enough resources to get through retirement. I hate to see people end up with a reverse mortgage.”
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Will the stock market tank?
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What you’re worried about: The stock market will crash, and you’ll lose all your savings.
What you should be concerned about instead: Your money will shrink instead of grow, indexed to inflation, because you’ve invested too conservatively.
“Inflation is superlow right now, but it’s not likely to stay that low,” says Certified Financial Planner professional Cathy Curtis of Curtis Financial Planning. “But you may be getting only 0.2 percent interest on your bank account. That’s not a good strategy unless you’re very wealthy. A lot of people are afraid of the market and they’re missing out on market rallies.”
Allocating your assets in a mix of aggressive and conservative investments will help contain volatility and will enable your investments to grow.
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How can I afford long-term care insurance?
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What you’re worried about: Long-term care insurance is too expensive, or you’ll never use it.
What you should be concerned about instead: Will you need long-term care?
“It’s something people should think about in their 50s — either buying some kind of long-term care insurance or self-insuring to make sure they keep not only their quality of life but get the kind of care they need,” Curtis says.
“A lot of people don’t believe that will happen to them,” she adds. “They’ve been healthy their whole lives.”
New products include hybrid life insurance and long-term care insurance in one policy with lump-sum coverage, usable in monthly increments, Di Vincenzo says. If you don’t use the policy, your heirs would get a life insurance payout, she says.