I periodically participate as a guest on podcasts to answer questions about personal finance topics. Below are five questions that I answered recently on a podcast about retirement planning:
Your book, Flipping a Switch, covers 35 key financial and lifestyle transitions in later life. What are some of the most overlooked transitions that impact financial security?
Many people underestimate the impact of income taxes in later life. Some may even have a higher income in retirement than when they were working due to multiple streams of income (e.g., Social Security, pensions, investments, and required minimum distributions (RMDs) from tax-deferred accounts). Another thing that is often overlooked is making specific plans for long-term care.
How can people ensure they have enough income to support a desired lifestyle in retirement?
Personalized calculations are best, with or without the assistance of a financial advisor. For “do-it-yourselfers,” I recommend using at least three different online calculators because their data inputs and assumptions vary. Some retirement calculators will tell users the amount of money they need to save to fund their desired lifestyle. Others, called Monte Carlo calculators, will project a probability of “success” (not outliving one’s assets) and how much more savings is needed to avoid this.
What are some common financial mistakes retirees make, and how can they be avoided?
Spending errors are a common mistake. Some people spend too much or too little of their accumulated savings, resulting in a large surplus upon their death or running out of money. Other errors are lack of estate planning, lack of long-term care planning, and lack of communication about legal documents and the location of financial records, including access to digital assets.
What are the biggest financial shifts impacting retirees today?
One big shift, compared to previous generations, is “do it yourself” retirement planning. Baby boomers were “guinea pigs” for both IRAs and 401(k)s and needed to make three key decisions: whether to contribute, how much money to contribute, and how to contribute (i.e., asset allocation decisions about the percentage of contributions to different types of investments). Subsequent generations have had to do the same. Another big shift is decumulation from retirement plans.
What are the biggest financial challenges for baby boomers in retirement?
One big challenge is not outliving assets. Not surprisingly, running out of money is the top fear of older adults. Another challenge is the potential for costly long-term care expenses. Nobody knows how much care they will need but they need a plan “just in case.” A third challenge, for retirees who have been super savers, is the impact of taxes and determining ways to mitigate this expense.
This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.