In the world of financial planning, seniors have long been associated with CDs, money market accounts and treasury bonds—the stodgiest and most conservative of investments. Protect the hard-earned wealth at all costs and, if you’ve planned well, your assets will last—or so conventional wisdom goes. Yet the truth of the matter is that sometimes protection isn’t always enough.
In 1970 the average American life expectancy was about 72. Because of medicine, diet and exercise, we’re living longer now. As of 2005, the average U.S. life expectancy was 78.
For those approaching or beginning retirement, increased life expectancy means a retirement lasting 15 to 20 years (or more), far longer than previous generations. With the past year’s devastating bear market slashing the value of many people’s investments and the government’s massive public spending sparking fears of inflation, seniors are left facing some hard realities. They have less money, will most likely be able to buy less with their money (due to inflation) and their savings will need to last longer.
But all hope is not lost. The market’s performance and the government’s response have created some unique opportunities for seniors. If you’re worried about having enough for retirement, here are some things you should consider doing:
• Delay your retirement: just because you’re eligible for Social Security benefits at 62 doesn’t mean you should take them. Early enrollment not only reduces your own benefits but your spouse’s too. If you delay, the monthly payouts are greater, plus you benefit from added years of work income.
• Take a break from required minimum distributions: this option definitely isn’t for everyone, but it can help many people. The Worker, Retiree, and Employer Recovery Act of 2008 allows individuals drawing down on most retirement accounts to suspend minimum distributions. This can enable greater retirement savings and the replenishment of assets in those accounts
• Diversify your portfolio: with the stock market drop, now may be a good time to look at adjusting your portfolio without incurring tax liabilities for the sale of existing stocks. The goals you set at 40 have probably changed. Your portfolio should change too. And if you want inflation protection, consider increasing your holdings of hard-hit market sectors like energy, commodities, real estate and emerging markets. These sectors have historically been hedges against inflation.
Before changing anything, consult a certified professional financial advisor. Remember, these are your goals, and this is your unique situation; a qualified professional can help you make the best decisions.
Alan Brachfeld, CFP, CPA/FPS, is CEO of Manhattan-based KBK Wealth Management and an investment adviser representative with Commonwealth Financial Network.
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