Even the best-laid plans fall flat if you’re hit by one of life’s curveballs. Be aware of these financial threats.
You’re at the highest risk of running out of money if you or your spouse winds up spending several years in long-term care, according to Jack VanDerhei of the Employee Benefit Research Institute. If you can, buy long-term care insurance. Even a skinny policy is better than nothing. If illness descends, redo your financial plan immediately.
You want to avoid having to sell too much of your investments just as stocks are falling, especially in the earliest years of your retirement, when declining markets can do the most damage. Try to keep enough cash in the bank or in a money market fund to ensure that you can pay your bills for at least one year, preferably two, without having to sell securities. Your stash doesn’t have to be large enough to pay all your bills, just those not covered by your guaranteed income. (Don’t include these savings as part of your nest egg when you calculate your annual spendable assets.)
For ways to save and more, get AARP’s monthly Money newsletter.
The loudest objections to steady spending usually come from young retirees who want to use their healthy years to have fun. Take trips! Buy a boat! No problem — as long as you’ve looked ahead and know when you’ll have to start cutting back. You don’t want to have to start bagging groceries at 75 because you lived too high in Paris.
If you retire before 65, the age for joining Medicare, don’t drop health insurance, even for a year. A major accident or illness will drain your savings mercilessly. Even with Medicare, health care can force a cutback. Twenty-nine percent of Medicare households spend 20 percent or more of their budget on health care, says the Kaiser Family Foundation.