Consider a health savings account. More employers are offering high-deductible health insurance plans coupled with health savings accounts. If you have an HSA in 2013, you (or you and your employer combined) can contribute $3,250 for one person or $6,450 for a family, and an additional $1,000 if you’re 55 or older. These accounts are not for everyone, but if you’re in good health and don’t need all the money for medical expenses, HSA funds may help you reach your retirement goals, says Virginia-based financial planner Tracey Baker, coauthor of Navigating Your Health Benefits for Dummies. The money in your HSA can be rolled over from year to year and can be withdrawn in retirement with no penalty (you’ll pay ordinary income tax).
Don’t let divorce wreck your finances. The number of divorces among people 50 and over doubled from 1990 to 2010. If your marriage ends and you’re on your spouse’s health insurance policy, you can continue coverage through COBRA for up to three years after divorcing, says New Jersey divorce attorney Marlene Browne. Also, be aware that any spousal support you get could be reduced if your ex loses his job. So you may want to negotiate for a bigger portion of retirement funds or other assets in your property settlement rather than rely on your ex’s future income.
Consider life insurance. If anyone depends on you financially, you need this kind of coverage. A healthy 50-year-old woman who buys a 20-year level-term policy with a fixed annual premium might pay about $1,400 a year for a $500,000 policy. Visit the Life and Health Insurance Foundation for Education (lifehappens.org) for more information.
Dial down on risk. But don’t retreat too far. For now, consider stock exposure of 60 percent to 80 percent, with the rest in bonds and cash, Fahlund says.
Beware of looming health care costs. Premiums for an individual health care policy can run $1,500 to $2,000 a month, Browne says, assuming you can get coverage. The health care exchanges mandated by the Affordable Care Act (aka Obamacare), which are about to go live, may eventually make it easier to find a plan, but for now you should explore your options with an
insurance broker and factor in the extra costs before you give notice at your job. (Find broker referrals at nahu.org/consumer/findagent.cfm.)
Get a second (investment) opinion. A study by the Retirement Income Industry Association found that during a 10-year period, families with investable assets of at least $100,000 who always received advice before making major financial decisions had an average net worth after inflation of over $75,000 more than that of families who didn’t get help. Invest $500 to $1,000 in a session with a fee-only planner to make sure you’re on track.
If you are in your 60s:
Switch gears from growing your wealth to protecting what you’ve accumulated.
Start playing it safer. You still need the inflation-beating returns of stocks to avoid running out of money in old age, but now you have less time to recover from downturns. Rebalance your portfolio so stocks constitute 50 to 65 percent of it, Fahlund says.
Curb your withdrawals. Retirees used to be advised not to withdraw more than 4 percent of their portfolio’s value in the first year; thereafter, they could increase the withdrawal amount by the inflation rate. However, financial planners are now questioning the 4 percent withdrawal rate, because extended or repeated downturns at the beginning of retirement can cause people to run out of money. Some planners are telling clients to start withdrawals at the 3 percent level; others suggest freezing or even lowering withdrawal amounts in bad market years. Another option, according to researchers at Morningstar Inc.: Use tables I to III in IRS Publication 590 (irs.gov/pub/irs-pdf/p590.pdf) to determine your remaining life expectancy and divide that number into your nest egg to calculate your maximum annual withdrawal amount.