How to keep your retirement plans on track despite the volatility

How to keep your retirement plans on track despite the volatility

On Monday morning my friend texted me: “Holy cow!  Don’t jump!”  He was referring, of course, to the 1000+ point drop in the Dow.  Thankfully, after more than 20 years in this business, I’ve gotten used to wild swings, so I wasn’t on the ledge (although in 2008 I was glad I work in a one story building).  That said, volatility in the market can produce much fear and anxiety, especially if you’re at or near retirement.  There is a 100% chance that market volatility will continue, so here are 5 things I’ve learned after two decades of bulls and bears that can help you keep your retirement plans on track.

Markets have recovered from every single downturn in history.   Every. Single.  One.  The Panics of 1893, 1896, 1901 and 1907 (Seriously, calm down already!).  The Crash of 1929.  The recession of 1937-1938.  The Flash Crash of 1962.  Black Monday in 1987.  The crash after Iraq invaded Kuwait.  The 1997 crash caused by the Asian currency crisis.  The Dot-com bubble in 2000.  The crash after the September 11 attacks. The selloff in 2002.  The financial crisis of 2007-2009.  The Flash Crash in 2010.  The markets are higher now than after every panic, bubble, crash and crisis in history, but be careful because…

You are not the market.  Your personal experience with market volatility will largely be impacted by the actions you take before and during a crisis.  Were you poorly diversified?  Was your asset allocation totally inappropriate?  Were you taking too much risk?  Did you sell in a panic?  Did you wait to get back in until the markets had already recovered?  Did you stop making 401(k) contributions when things went south?  Investment returns are not investor returns.  Each year Dalbar does a study to see how well the average investor does compared to the markets.  In short, the average investor only captures a fraction of the market return, largely because of poor behavior, so…

Sometimes it’s good to have help (especially if you’re near retirement). There are some people with the time, temperament, knowledge and discipline to handle their investments on their own.  Others could benefit from a little help.  This is especially true the closer you get to retirement because the issues you’ll be confronted with are different.  Before retirement the major issue is saving.  Most of us are at least familiar with the concept of saving (regardless of whether or not we’re doing it).  We’re less familiar with the many moving parts that make up the typical retirement plan: calculating how much is enough, settling on an appropriate asset allocation, risk management, cash flow management, pension payouts, periodic rebalancing, retirement plan distributions, estate planning, Medicare, Social Security and the tax consequences of certain distribution strategies.  You don’t want to mess those things up because…

Your runway is shorter now than it was during the last crisis. On average, stocks experience a 10% selloff about once every year and 20% pullback every 3.5 years.  The average time of recovery for the former is about 4 months.  For the latter it takes about 22 months.  So while my earlier point is absolutely true—markets have always recovered—you may not have enough time to wait it out.  The closer you are to retirement, the closer you are to withdrawing money from your accounts.  And if you’re taking distributions while the markets are down, your money won’t last as long.  So use the current crisis as a not-so-friendly reminder to…

Focus on what you can control. John Wooden once said: “The more concerned we become over the things we can’t control, the less we will do with the things we can control.”  It’s easy to focus on headlines, markets and political uncertainty, but we can’t really do anything about them so it’s an exercise in frustration.  We can control things like saving, debt reduction, asset allocation, and risk management, however.  Focusing on those actually produces results.  Unfortunately, the bull market of the last six years has lulled many into a false sense of security.  Use the current volatility to make sure that your portfolio is appropriate and your plans are on track.

~ Joe

Does Medicare cover you when you travel?

Does Medicare cover you when you travel?

Quick Note: Sorry things have been quiet around the site for a few weeks. I was on vacation with family and friends and prior to that I was scrambling to get things wrapped up at the office. I’m home and caught up, so it’s back to regularly scheduled programming. Thanks for your patience.

Being on the road made me think of a question that clients often ask me:

“Does Medicare cover me when I travel?”

The answer, of course, depends. And it would be bad enough to get sick or injured on vacation without also finding out that Medicare won’t cover the expenses, so let’s take a look at whether your Medicare will travel with you.

What type of Medicare do you have?

Coverage varies depending on whether you have original Medicare or Medicare Advantage. Original Medicare is just Parts A and B (hospital and outpatient services) supplemented with a Medigap policy. Medicare Advantage is when you have Parts A and B and then also purchase Part C, which is coverage provided by Medicare approved third-party health insurance companies. Each of these types of Medicare works differently depending on where you travel.

Where are you going?

Original Medicare is extremely flexible within the U.S. (which includes all 50 states as well as Washington D.C., Puerto Rico, U.S. Virgin Islands, Guam, American Somoa and the Northern Mariana Islands.). There are no networks or preferred providers with original Medicare, so you can get care at pretty much any facility that accepts Medicare.

Medicare Advantage is a bit less flexible. Coverage is most comprehensive if you get care within the network of the private health insurance company that is providing you Medicare Part C. Generally speaking, the closer you are to home, the better your coverage will be. Having said that, if you’re having a medical emergency you can use your Part C pretty much anywhere in the U.S. and it will be covered. Call your insurance company if you’re unsure if a particular provider is “in network” or “out of network.”

Except in very limited circumstances, neither type of Medicare (original or Advantage) will provide coverage while you’re traveling outside the U.S. They may cover certain services while you’re on a cruise ship or while you’re traveling across Canada on your way to Alaska, but that’s about it. Some Medigap policies cover emergency medical services while traveling abroad, but there are limits to the coverage. They generally pay for 80% of covered services after meeting a $250 deductible with a lifetime maximum of $50,000. Bottom line—if you’re planning a trip abroad, it’s best to buy a separate travel insurance policy with generous health coverage. It’s also a good idea to get a policy that includes evacuation insurance. As you might imagine, it would be very expensive to pluck you from the bottom of the Grand Canyon or from the rain forest in Costa Rica if you are sick or injured. Those costs can run into the tens of thousands of dollars and neither Medicare nor Medigap covers the cost of a medical evacuation.

So before you hit the road, do a little research to make sure you’re covered and your trip will be a lot more enjoyable. Bon Voyage!

~ Joe

Photo Credit: Nick Kelly