“Our parents ran out of money.” The parents did not fit the profile of a couple that would run out of money. It was surprising.
They were typical of the best of the old Southern gentry. He went to Washington & Lee, served his country in World War II, and got his MBA from Wharton. She was homecoming queen at Ole Miss; they met and married soon after he began his business career. Together, they raised three children—two of them even attended Stanford. Several years ago the couple celebrated their golden wedding anniversary. Their profile is accurate even though the facts have been changed a little to protect identities.
This week we examine some of the reasons retirees run out of money. Though surprising, this couple’s story is not unique.
How to Manage Retirement Withdrawals. One reason people run out of money is that they do not maintain sustainable consumption throughout retirement. Drawing from a number of sources, the author counsels retirees to stay flexible and adjust withdrawals as your needs and market conditions inevitably change. If your nest egg’s value plummets due to shocks or a market setback, you may have to scale back to avoid depleting your savings permanently. (subscription required)
Does Staying Healthy Reduce your Lifetime Health Costs? Another reason people run out of money is that they live to advanced old age and ultimately face high healthcare costs. It seems counter-intuitive, but retirees in good health face higher lifetime healthcare costs than those in poor health. A typical healthy couple at age 65 can expect to spend $260,000 with a 5-percent risk of exceeding $570,000. A typical unhealthy couple can expect to spend $220,000 with a 5-percent risk of exceeding $465,000. Those in good health live longer, eventually become less healthy, and often need nursing home care. The upshot—those in relatively good health should pay those Medigap premiums and consider long-term health care insurance, or make sure they have enough assets to be comfortably self-insured.
When Should Retirees Downsize Homes? If you’re Going to Do It, Sooner is Better than Later. Emotionally, it is hard to let go of a home filled with memories. Downsizing can have a big impact on a retiree’s financial security. “The financial benefits may not seem huge at first, but over time they may make a meaningful difference in extending the life of a nest egg…downsizing can have a big impact on a retiree’s financial plan. Even with a mortgage that has been paid off, housing often accounts for 30% of retirement expenses….people often fail to appreciate how the aging process makes it harder to move…as retirees age, illness or death can suddenly thrust a move upon them, creating stress for the whole family. Once you’re over 80, more things can happen when you don’t have 100% control.”
And in case you missed it, click here to read last week’s blog post which offers some key insights to college graduates entering the next phase of life.
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J. Mark Nickell & Co.
Disclosure – The articles mentioned in This Week with J. Mark Nickell & Co. are for information and educational purposes only. They represent a sample of the numerous articles that the firm reads each week to stay current on financial and economic topics. The articles are linked to websites separate from the J. Mark Nickell & Co. website. The opinions expressed in these articles are the opinions of the author and not J. Mark Nickell & Co. This is not an offer to buy or sell any security. J. Mark Nickell & Co. is under no obligation to update any of the information in these articles. We cannot attest to the accuracy of the data in the articles.