Thursday, December 29, 2022

Financial Security and Happiness in Later Life: Reflections from Recent Webinars

Being the author of a book about transitions in later life, I am always looking for new information about this topic. I recently attended a number of webinars about retirement planning.

Below are 10 of my top take-aways:


Knowledge is Power- While new state financial education mandates are getting lots of media attention (and rightly so), financial education works for everyone! This includes topics of interest to older adults in later life such as required minimum distributions (RMDs), taxes on Social Security benefits, and Medicare premiums. Recent research provides clear evidence of the positive effects of financial education on financial behaviors.


Limited Investment Alternatives- Stocks have not been doing well during most of 2022 but neither are bonds, cryptocurrencies, or cash equivalent assts (money market funds and CDs) that are losing purchasing power to inflation. The best thing that older investors- in fact, all investors- can do right now is to maintain a diversified investment portfolio and “tough it out” and not panic and sell securities at a loss.


Recovering Losses is Difficult- In one webinar, an example was given of stock originally purchased for $100 a share and sold in a panic at $66.66 a share, a 33% loss. In order to get back to $100 a share, an investor would have to have a 50% gain because $33.33 is 50% of $66.66. Also, the sequence of investment returns matters. The 4 L’s of retirement income optimization are Longevity, Lifestyle, Legacy, and Liquidity.


Decumulation is Different- One webinar presenter noted that “investing for distribution in retirement is different from investing for accumulation” and used the analogy of climbing a mountain (investing for retirement) and “making it safely down the mountain” (not running out of money during your lifetime). Key risks in retirement include longevity, health care expenses, taxes, and inflation.


Reverse Mortgages Uses- In addition to providing a lump sum or regular income payments in later life, reverse mortgages have other uses. For example, they can serve as a “delay bridge” so people don’t have to withdraw  assets during market downturns. Borrowers age 62+ can also use reverse mortgage proceeds to pay premiums for a long-term care insurance policy so they don’t lapse it (due to increasing premiums) before it is needed.


The Great Resignation- Millions of Americans quit jobs in 2021-2022 and remote work went “from the margins” to mainstream in many industries. Key reasons for older adults to leave jobs included increased asset prices (many of which have plummeted since 2021) and health/safety reasons. Ageism can make it difficult for older adults to earn their previous salary if they decide to return to the labor force. Many have to settle for less.


It’s What You Keep- Retirees with tax-deferred savings in traditional IRAs and 401(k)/403(b) and similar employer savings plans cannot forget about taxes due on this money. It is not all theirs to keep. Sometimes, mandatory RMD withdrawals can even push them (or their heirs) into a higher tax bracket. An option that some people consider is donating these assets. When a charity is a beneficiary of retirement accounts upon someone’s death, no taxes are due and the full amount of the account balance can benefit recipient non-profit charities.


Diminished Capacity is a Concern- One webinar speaker suggested having a “trust circle” of trusted family and friends when you have a major financial question or decision. Many financial services firms also request the names of trusted third parties for older clients. Shockingly, 1 in 6 people age 60+ have experienced some type of financial abuse (i.e., withholding, stealing, or restricting the use of money or financial information).


Inflation Impact- Older adults are uniquely impacted by inflation because they are often living on a fixed income and are unable to earn more money to mitigate the impact of inflation. Some people are buying inflation-adjusted TIPS (Treasury Inflation-Protected Securities) and Series I bonds for inflation relief. The spread between TIPS and regular Treasury securities is the market’s best estimate of future inflation. Retirees worried about inflation can bump up the assumptions used in their financial planning projections and analyses.


Your Future Self- Many people avoid planning for later years of retirement and focus on beautiful imagery (travel, beaches, etc.). A speaker advised putting your fears and plans on paper and put “structures in place” to address them. Start by making a list of five things you do now that you want to continue doing. For example, if you really enjoy working, maybe you shouldn’t retire at all in the traditional sense. Play pickleball or golf on the side. Also, discuss your preferences with others. Without dialogue, nobody knows what you are thinking.

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.



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