10 questions to ask your spouse before you retire.

10 questions to ask your spouse before you retire.

Your retirement planning should not be done in a vacuum.  If you are married, you should definitely include your spouse in the process.  You would be surprised at the number of couples who are blindsided by differences over retirement dreams, plans, and expectations.  It is no wonder that the rate of divorce among couples fifty-five and older is greater than the general population.  Below are ten questions to ask your spouse to make sure you are on the same page and to bring your plans into better focus.

1)    Where do you want to live? One of the most basic questions you will need to answer is where you want to live.  Do you want to stay put or move to another house, state, or country?  As you ponder this question, think about the types of things you plan on doing during retirement, your financial circumstances, state tax rates, climate, available medical facilities, and desired proximity to family and friends.  Moving is a big decision with lots of moving parts.  The more you have discussed your options the better off you’ll be.

2)    What do you want to do? Think about what your ideal day in retirement will look like.  List out your top three priorities and ask your spouse to do the same.  If your top priority is lounging at the beach and your spouse’s is snow skiing, you’ve got some work to do.  Ideally, if you have some time to go before retirement, you should spend your vacation time doing some of the things that each of you are dreaming about.  Have fun, but use those trips to plan, discuss, test, evaluate, and yes, maybe even compromise.

3)    Who do you want to do it with? Too often we take family and friends for granted.  If you’ve lived in the same town for thirty years and all your kids and grandkids are within driving distance, pulling up stakes and moving to Tahiti can be a bit of a shock.  It takes time to settle into a new place and cultivate meaningful friendships.  Consider your answer to question one above.  If you plan on moving, have you already begun to visit that place and get plugged into the community?  Do you know other people who are planning on making the same move?  How often will family be able to visit?  Thinking through this issue and handling the move properly can help avoid any potential loneliness or regret.

4)    How much will it cost? As you can probably tell by now, your answer to any one of these questions is heavily dependent on your answers to the others.  This is certainly true with question four.  Too often people make the mistake of retiring based on their birthday instead of their bank account.  Think through your answers to the above questions and begin crafting a retirement budget.  How much money you will need in retirement is a function of what you plan on doing and where you plan on doing it.  Make sure that the plans you are making with your spouse are compatible with your financial resources.  If not, what does that mean?  Do you need to change your plans?  Work longer?  Have a phased retirement?

5)    Where will the money come from? Your retirement income will likely come from several different sources, such as personal savings, Social Security, and possibly a pension.  How you tap those accounts and when you claim benefits like Social Security can greatly impact how long your money lasts and what benefits your spouse may be entitled to if you die.  It’s usually a good idea to meet with a professional adviser to make sure your distribution plan is sustainable and you are maximizing other income and benefits.

6)    Assuming the money is there, when do you want to retire? Some people can’t wait to leave their working years behind.  Others derive a lot of meaning and satisfaction from work and plan on continuing at it as long as they are physically and mentally able.  If you tend more towards the former and your spouse the latter (or vice versa), you can see how conflict could arise.  This is especially true if the job in question and the ultimate retirement destination are time zones apart.

7)    How healthy are you? It will come as no surprise that health care and long-term care are major expenses and considerations during retirement.  Talk with your spouse about how healthy and physically fit each of you are and how that will impact where you can live or what you can do.  Discuss family history and life expectancy and how that might impact not only retirement plans, but also decisions like life insurance and Social Security benefits.  This isn’t necessarily a fun topic to discuss, but it is important.

8)    What concerns or fears do you have about retirement? Retirement is a major transition, and many of us aren’t wired to handle change well.  Are there worries about money, moving, leaving a meaningful job, being further away from family, or other transitional issues?  Discussing each of your fears and concerns and taking steps to alleviate them can go a long way toward easing the move into retirement.

9)    Is there anything you absolutely want to do before you die? The regrets of our youth are typically based on things we’ve done while regrets later in life revolve around things we’ve failed to do.  Is there anything that either you or your spouse wants to do, see, or accomplish before you die?  Make a list and be as intentional as possible, so you can both spend your remaining years in pursuits that bring meaning and satisfaction.

10) Are your answers to the above questions compatible? How did you do?  Did both you and your spouse have similar answers to the above questions or were there major differences?  If it’s the latter, what can you do to reconcile your planning?  The sooner you iron out differences the sooner you will be able to put your plan in place and move into one of the most meaningful and rewarding periods of life.

For a handy PDF of this document, visit the Toolkit page.
Traveling?  Should you buy travel insurance?

Traveling? Should you buy travel insurance?

Note: I originally published this article in the AARP Bulletin.

Carla McDowell has always loved to travel.  She’s toured the Soviet Union, Germany, the Netherlands, Switzerland, South Korea, Costa Rica, England and Alaska.  And like a growing number of Americans, she always purchases travel insurance.  “No one wants to get sick and cancel a trip,” says McDowell, 64, of Omaha, Nebraska, “but insurance gives me peace of mind that I won’t lose a lot of money if something unexpected happens.”

Travel insurance has been around for decades, but the industry has grown rapidly since the terrorist attacks of 2001, reaching sales of more than $1 billion.  Before 9/11, only about 10 percent of Americans taking cruises, tours or international trips bought travel insurance.  Today that number is around 30 percent, according to the U.S. Travel Insurance Association (USTIA).

About 80 percent of those policies are “per trip” policies that cover the three most common sources of trouble: canceled or postponed trips, medical emergencies, and lost or damaged baggage.

Should you buy travel insurance to protect your travel investment?  Here are several points to consider before you decide.

What’s covered? Terrorism?  How about hurricanes?  The answer, of course, is maybe.  Some policies may exclude terrorism or “acts of God” altogether; others offer broader coverage.  For hurricanes, your policy may apply only if you purchased it before the storm was named and then only if your destination is under a mandatory evacuation order.

Bottom line: Read the fine print carefully before you buy, and make sure that the risks you want to cover are, in fact, covered.

Cost. A travel insurance policy can add anywhere from 4 to 8 percent to the cost of your trip, depending on your age and how much coverage you want.  Websites such as www.insuremytrip.com can help you compare policies and prices.  For McDowell, cancellation coverage for her $3,600 Alaskan cruise cost her an extra $280.  “It was worth it,” she says.  “Without the insurance, getting sick would have meant deciding between staying home and losing the money or going and being miserable.”

Is it worth it? Travel insurance often makes sense on very expensive trips or on trips that require large, non-refundable deposits or advance payments for hotel stays or special-event tickets.  Cruises can fall into this category because most of the cost is paid upfront and canceling even 30 days in advance could mean no refund.

But there are also instances where insurance does not make sense—for example, if your trip doesn’t include high prepaid expenses or if your prepaids, such as airline tickets are changeable for a small fee.  If you rarely get sick, cancellation coverage may not be worth the added expense.  Most trips go off smoothly or with minor hassles that tend to affect your mood more than your pocketbook.

Credit card coverage. Some credit card companies provide certain travel assistance when you pay for your trip expenses using their card.  While helpful, these extras are typically not as comprehensive as travel insurance.

For example, Mike Cimino of Southern Pines, N.C., was traveling in the Canary Islands when he fell and broke his kneecap.  His credit card company connected him with medical personnel in the area, facilitated consultation with his doctors back in the United States, and arranged for him to be flown home on a stretcher after his surgery.  While this logistical help was welcome, the medical bills were his to pay.

If your credit card company already provides certain coverage, you may be able to save some money by buying a policy to fill in the gaps.

Sources. If you book your trip through a travel agent or cruise line, you likely will have the option to add travel insurance at the time you purchase.  In some cases, insurance may be included in your package.  For example, Elderhostel includes certain kinds of coverage, including emergency medical evacuations, in each trip at no additional cost.  You can also buy policies from a number of companies such as Access America or Travel Guard.

Medical Care. Medicare will not cover health care expenses outside the United States.  Likewise, some private health plans limit coverage for those traveling outside the plan’s network.  Travel insurance can bridge this gap but you should check with your plan provider to make sure you’re not paying twice for the same thing.  Also, some travel policies may exclude pre-existing medical conditions unless you obtain a waiver or purchase the policy far in advance.  If you have recently had a heart attack or have diabetes, for example, check with the provider to make sure you’re covered.

Medical evacuation. Travel insurance can pay for evacuation to your home or to the nearest suitable medical facility, important if you become injured in out-of-the-way places.  Such evacuations can run into the tens of thousands of dollars, according to Clif Carothers, president of U.S. Air Ambulance.

“We once evacuated a couple whose vehicle had overturned while they were traveling in Africa,“ he says.  “We arranged to have a bush pilot fly them from where the accident occurred to an airstrip where our jet could land.  They were in pretty bad shape, so we then flew them to Frankfurt, Germany, for care and, eventually, back to their home.  The total cost of the evacuation was about $115,000.  To make matters worse, they had no travel insurance, so it was all out of pocket.

The odds. According to a recent survey, 17 percent of people who buy travel insurance actually wind up filing a claim.  That’s fairly high compared with other types of insurance, considering that one of the fundamental tenets of insurance is that most people won’t use it—if they did, policies would be unaffordable.  For some, however, travel insurance can turn out to be a wise investment.

Al and Jodie Goldberg were traveling to Australia from Washington, D.C., via Charlotte and Los Angeles.  Because it was a trip with many connecting flights, they opted to pay $269 for insurance.  Their policy covered trip cancellation up to $9,000 (the amount of their prepaids), medical expenses up to $10,000 per person and medical transportation up to $20,000 per person; it also had an assortment of coverages for delays or lost baggage.

The trip got off to a shaky start.  The couple became stranded in Charlotte when their flight to Los Angeles was canceled due to heavy smoke from California forest fires.  Their travel insurance paid for a hotel in Charlotte, meals during their delay and cab fare to and from the airport.  It also reimbursed them for a prepaid hotel room in Sydney they were unable to use because of their late arrival.  They eventually got another flight, but one of their bags didn’t make it, and the insurance paid to replace Jodie’s formal dress for their night out at the opera.

“I think Murphy’s Law was written with international travel in mind.” Says Al.  “The travel insurance helped us to smooth out the rough spots and still have a great trip.”



How do you define retirement?

How do you define retirement?

Ask a thousand different people what retirement is to them and you will get a thousand different answers.  Many associate retirement with a particular age (sixty-five) or work status (not working).  Many define it with certain activities (travel).  In reality, all those things can be used to describe certain individual’s retirements, but they don’t define retirement.

Retirement is about control

I define retirement with one word: control.  Think about it.  When people talk about retirement, what do they usually say?  “When I retire, I’m going to…”  Retirement is a transition from doing what you have to do to doing what you want to do.  Age and work status really have nothing to do with it.  There are plenty of people who make it big early in life and decide to quit working.  Likewise, there are people in their seventies and eighties who are still mentally sharp and derive a great deal of meaning and pleasure from their jobs.  In this scenario, the person working is just as retired as the person not working.  Work is optional.  It is a personal preference.  It has little or nothing to do with an arbitrary date set by a government social insurance program.

Retirement, therefore, is all about control.  Don’t think of life as a timeline where youth equals zero to twenty, working years equal twenty to sixty-five, and retirement equals sixty-five plus.  Instead, think of life as a pie chart that is divided into time you control and time controlled by others.  The goal is to gradually shrink the piece of the pie that is controlled by others.  The smaller that becomes, the closer you are to retirement.

Annual retirement review checklist

Annual retirement review checklist

Retirement has a lot of moving parts and when you consider that it could last for thirty years or more, it should come as no surprise that it will have several distinct phases.  Sixty-five will look different from seventy-five, which will look different than eighty-five.  The world, your health, your finances, your responsibilities, and your priorities, will be dynamic and ever changing.  Because of that, it’s important to review your planning and circumstances each year and make whatever course corrections are necessary to keep you on track.  Below is a list of questions to ask yourself each year to help determine if any changes or adjustments are in order.

1)    Is my withdrawal rate sustainable? The answer to that question depends on many things, including investment performance, inflation, how long you live, and, not surprisingly, luck.  Running out of money is not a pleasant option, so you should periodically evaluate your distribution strategy to see if it is sustainable.  A good rule of thumb is to keep withdrawals at 4 percent or less of your overall portfolio.  Everyone’s circumstances are different, however, so meet with your adviser to make sure your income lasts.

2)    Is my income still sufficient and keeping pace with inflation? Inflation is constantly eroding the purchasing power of your money.  That means you will likely need to pay yourself more and more with each passing year simply to buy the very same goods and services.  Consider a day in the hospital.  In 1980 it cost $340.  That same day in 2010 cost $5,310.  To offset the impacts of inflation, most people need to continue to grow their portfolio, even after retiring.  That means you can’t shun risk altogether.  You’ll likely need a well-diversified portfolio of stocks and bonds in order to keep pace.  That leads us to number three.

3)    Is my asset allocation appropriate? Simply put, asset allocation is the process of spreading your investments among stocks, bonds, cash, real estate, commodities, and foreign securities.  Research shows that asset allocation is extremely important.  Not only does it help to minimize risk, but studies show that it is responsible for nearly 90 percent of your overall return.  As markets fluctuate you will likely need to rebalance your portfolio to get your allocation back to your intended target.  In the same way, if your goals and objectives change, you should adjust your allocation to match.

4)    Is the amount of risk I’m taking still appropriate? Too often people discover their tolerance for risk only after they have exceeded it.  This can be a painful lesson any time, but it is devastating to someone in retirement.  This is easy to see when you consider the arithmetic of loss.  Any investment loss you experience requires a considerably larger gain just to get back to even.  For example, if your portfolio loses 50 percent, you would need a 100 percent return just to get back to where you started.  Most people in retirement don’t have the luxury of waiting around for 100 percent returns.  Better to avoid the loss in the first place.

5)    Has the value of my assets changed significantly? Once you retire, you need to turn your assets into an income stream.  The bigger the asset, the bigger the potential income stream.  Big swings in net worth, like a large inheritance or a significant market loss, affect the amount of income your portfolio can generate.  You don’t want to run out of money by taking too much or live miserly by taking too little.  Any time the value of your assets changes significantly, reevaluate your withdrawal rate and your asset allocation to make sure they are still appropriate.

6)    Are my beneficiary designations up to date? You might not realize that your beneficiary designations (like those on your IRA, 401(k), and life insurance policies) override your will.  If your will leaves your life insurance to your kids, but you never updated the beneficiary designation on the insurance policy after your divorce, your ex is getting the money.  As you can see, it’s important to periodically check your beneficiary designations to make sure that they reflect your current intentions.

7)    Have any of my sources of income been impacted? Personal savings is only one source of income during retirement.  You will likely also receive Social Security and possibly a pension.  If your spouse dies, that might cause the pension to go away or be reduced. Worse, if the company you worked for goes bankrupt, your pension might get taken over by the Pension Benefit Guarantee Corporation and be significantly reduced.  Social Security is on an unsustainable path and your benefits there might be altered as well.  Any changes to these other sources of income will put more of the burden on your personal savings, so monitor them closely.

8)    Has mine or my spouse’s health changed significantly? At some point, the desire to live close to the beach might give way to the desire to live close to a good medical facility.  As you age, investigate assisted living areas and medical facilities in your area.  You might eventually need to sell your home to move into a facility or even move to another state if you want to be closer to friends or family that will be involved in your care.  Do as much of this planning as possible while you are still healthy so you can easily transition into the next phase.

9)    Is my estate plan up to date? Your estate plan should not be a static document.  As your life changes, your planning must change with it.  Getting married or divorced would likely significantly change how you want to distribute your property.  Likewise if there is a death in the family.  Each year you should review your documents, including your will, trust, and powers of attorney to make sure that they still reflect your wishes and still have the correct people taking charge if you were to die or become incapacitated.  Also, if you move to another state when you retire, meet with your attorney to make sure that your documents will be valid in your new state of residence.  Make revisions as necessary.

10) Have my insurance needs changed? Not surprisingly, your insurance needs will change over time.  It’s a good idea to periodically review your policies and make changes as necessary.   Is Medicare adequate or do you need additional coverage to fill certain health care gaps?  Do you anticipate that you or your spouse will need assistance with basic daily activities?  If so, you might want to consider a long-term care policy.  Does your pension go away when you die?  Will your death burden your heirs with a large estate tax bill?  If so, changes to your life insurance may be in order.

For a handy PDF of this document, visit the Resources page.


Can you count on Social Security and Medicare?

Can you count on Social Security and Medicare?

Every year, the Social Security Board of Trustees reports to Congress on the fiscal health of the Social Security program.  Not surprisingly, high unemployment and a wave of retiring baby boomers have put a heavy strain on the program.  Benefits being paid already exceed tax revenues collected and in their 2011 report, the board estimated that the program will only be able to pay promised benefits through 2036 (one year earlier than previously estimated).  At that point the Social Security trust fund will be exhausted and revenue from workers will only be able to pay about 75 percent of promised benefits.

As grim as that sounds, the problems with Medicare are worse.   Thanks to higher health care costs and lower payroll taxes, the Medicare Board of Trustees now expects the Medicare trust fund to run dry in 2024 (five years earlier than previously thought).  The difference between promised benefits and estimated funds available is roughly $37 trillion.


What does this mean for you?

In all likelihood, your taxes will be going up and your benefits will be going down.  Those close to (or in) retirement, will see fewer changes than those with a decade or more to go, but in my opinion, no one will be immune.  The problems are just too big.  If you’re in your sixties you will probably receive most of what was promised to you.  If you’re in your forties, you won’t be so lucky.  Plan accordingly.