By Melissa Erickson
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The biggest threats to your financial security in retirement include health-care costs, outliving your savings, the death of a spouse and subsequent loss of Social Security or pension income, and inflation, said Thomas Walsh, certified financial planner with Palisades Hudson Financial Group, a Fort Lauderdale, Florida-based planning firm and investment manager.
Being well-prepared means anticipating these threats and addressing them early, Walsh said.
Save for health expenses
Between dentistry, vision correction, hearing aids and prescription drug coverage, health-care costs quickly add up. A recent estimate by Fidelity Investments found that a couple retiring today could need about $280,000 to cover health and medical expenses through retirement, not including long-term care costs.
An unexpected major medical issue will cut into savings at a much faster pace than expected, Walsh said. Many clients unintentionally lowball estimated medical costs in retirement because they’re in perfect health at 55, but health can change quickly, Walsh said.
One way to plan for medical expenses is to open a health savings account, which allows a person to receive a tax deduction for contributions but does not require income tax on withdrawals for qualified medical expenses, Walsh said.
To qualify, you must have a high-deductible health plan and not be enrolled in Medicare. The minimum annual deductible is $1,300 for self-only coverage and $2,600 for family coverage, Walsh said.
These savings plans are often part of an employer’s health care package, but any qualifying individual can open a health savings account. Some banks and insurers offer them.
If you can’t open an health savings account, tax-advantaged retirement plans like IRAs, Roth IRAs and 401(k)s are generally the next best places to turn for saving for health-care costs, Walsh said.
From two incomes to one
The premature loss of a spouse can damage the other’s financial future through the loss of Social Security or pension income, Walsh said. The solution is planning, communication and perhaps life insurance, which can be can be used to make up for the loss of a spouse’s pension, Walsh said.
Both spouses should understand how income is generated and what will happen when one spouse dies. If one spouse is more financially savvy, communication with the other is crucial. Maintain a list of all checking, savings, investment and credit card accounts, as well as an estimate of each account balance, Walsh said.
There are ways to boost your Social Security benefit. Check out ssa.gov’s tools to help access how benefits can change due to the death of a spouse, Walsh said.
A diversified investment portfolio can protect against inflation, said Walsh, who advised investing a portion of your portfolio in stock mutual funds and exchange-traded funds. The right percentage varies with each individual’s risk tolerance, Walsh said.
Once retired, most people ease up on equities but Walsh advised not abandoning them altogether.
“Being too conservative with your investments during retirement is a mistake. If you have all of your savings in low-yielding investments like bonds or CDs, it will be difficult to keep up with inflation,” he said in a statement.
Watch for these retirement threats
By Melissa Erickson