A client recently asked us for a list of common retirement concerns that might keep him up at night. In actuality, he was looking for reassurance that these were things we thought he didn’t need to worry about.
We’ve compiled the following list of our thoughts regarding retirement concerns we hear from clients.
Portfolio concerns
Concern: It is scary to move from accumulation to withdrawal mode.
Reassurance: We often tell clients that retiring can feel a bit like walking off a cliff. But with thorough retirement planning, we make sure there are solid steps below.
We find that as people experience monthly transfers into their checking account from their portfolio, much like a paycheck, they become more confident. This confidence doesn’t happen overnight, though. We have found that it can take up to two years for most people to feel fully comfortable.
Concern: Stock market downturns worry me more in retirement than when I had other income. Maybe I should cash in my portfolio
Reassurance: We factor stock market downturns into the plans we create with our clients. We’ve seen people gain confidence when their plan works well during the first significant downturn after they retire.
We believe the biggest risk in retirement is not downturns but inflation. With high inflation, the cost of goods can increase more than the interest rate anyone can earn on cash reserves. So, unless you’re Warren Buffett, who has plenty of money without investment earnings, keeping a thoughtful portfolio strategy is generally smart. The average person needs to have their money invested in tools that will help keep pace with inflation.
Expenses concerns
Concern: I wonder if I should take a lump sum to pay off my mortgage and eliminate that expense in retirement.
Reassurance: At one time, when mortgage rates were high, this was a valid strategy. Getting rid of interest payments in the 8-12% range was often a guaranteed return. Today, however, many long-term mortgages have rates of less than 3%. Factoring in the fact that mortgage interest may be tax deductible can make the after-tax interest rate even lower.
By maintaining mortgages, retirees have the potential to boost their overall return by using the bank’s money while earning a higher return on their investments. That being said, we always want our clients to feel comfortable. If being debt-free is a high value for them, peace of mind can trump the potential financial benefits.
Concern: I’m considering a large expense that we hadn’t planned for. Can I handle that?
Reassurance: Once people get away from the daily commitments of working life, new ideas often arise, like an extended trip abroad or a major home remodel. These new possibilities are exciting, but will they upset a carefully crafted plan? They don’t have to. Our plans are meant to be flexible, and it is fun to “work the numbers” with people to help them achieve their new goals.
Concern: I’m worried a serious illness will cost me a fortune.
Reassurance: Health care costs are a common concern in retirement. Costs can include Medicare, prescription drugs, in-home care, assisted living, etc. The answer to this worry is two-fold:
- First, we model in substantial increases to private health insurance, Medicare, supplemental insurance and out-of-pocket costs when we do retirement planning for our clients.
- Second, it can make sense to transfer some of the risk around health care costs to an insurance company, for example by purchasing long-term care insurance. (Laurel Wealth Planning consults on insurance but does not sell it or accept any commissions for recommendations.)
Moving to this new phase of life can be unsettling. We hope knowing how we handle these common retirement concerns will help set your mind at ease.
Mallory is a Wealth Manager and Shareholder. She listens deeply and helps simplify complex financial situations to help clients move into an easier, clearer future. She aims to give financial advice that is compassionate, wise, and easy to understand.
