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Should Retirement Planning Be Scary?

Are all financial writers actually horror writers who don’t know it? Why does every conversation about retirement and investments and mutual funds and Wall Street, almost everything concerning money seemed tinged with fear, some unknown fright that is just around the corner, or ten years from now, or twenty? Is scaring you to do the right thing for yourself any different than when your mom warned you about running with sticks?

We all point out the consequences, lay out the scenarios and for the most part try and shine some sort of light on the shadows. But by our own admission, we can’t make you do anything. So you do what people often do when faced with these sorts of choices: find someone who agrees with you or do nothing. So most of us try to scare you.

We try to scare you into understanding that not investing enough money now will mean you will have to work longer or retire poor. We trot out statistics and white papers backing up our arguments. We show you graphs and charts and numbers projected out into the future based on the evidence from the past. We compound and cajole, cheer and discuss downsides and ups, fees and performance and mostly wonder why people don’t get it.

We all suggest that retirement is a whole life experience that when started young can offer untold yet thoroughly calculated wealth. Yet most us wait and begin late and struggle with the game of catch-up.

We warn about the negative impacts of debt. We talk taxes and suggest moves to offset or even bet against their future consequences. We evaluate insurance costs. We tell you to get healthy. We tell you to plan, plan, plan.

Yet the scariest of all the retirement conversations revolves around your future health. You can do everything right and this can fell you in the worst way, siphoning off hard-earned cash faster than you can imagine. So a lot of us have begun looking at protecting those assets against the frightening possibility that we will need long-term care.

Mary Mullin is a vice president and wealth management adviser for Merrill Lynch in Boston who does a column for the Daily News Tribune. Her latest effort took a (scary) look at the options that could face you in retirement.

By suggesting that you have about a one in four chance of dodging the need for some medical care in retirement, she sets the stage for the ways to protect your assets.

The first option finds Ms. Mullins waffling over whether you might need this type of product. You might but you might not. Buy young but pay more over the course of the policy, assess your risk and tolerance, and then weigh in the concerns of a surviving spouse.

As she explains variable annuities, she does successfully warn potential buyers that the best use for this type of product may be for those who are able to segregate a specific dollar amount just for the possibility that it might be needed. The estimated costs of healthcare in retirement runs anywhere from $200,000 per person on up. Most of us are not able to do that and fund a retirement.

By the time you reach retirement, you should have long since done without a life-insurance policy. The protections that term life provide us as we build our lives will have outlived its usefulness and costs (and although your agent will try to offer a permanent form of this policy, the money is better spent on your retirement accounts)—at least that is the thinking. Ms. Mullins does dangle the long-term care rider benefit, which in insurance parlance means higher premiums and as she aptly points out: “the policy can provide your heirs with a guaranteed death benefit” and then wisely suggests that this is “subject to the claims-paying ability of the insurance company.” A nice way of forcing to ask yourself the scary question: “will my insurer still be in business when I need them?”

The last of the four possibilities she warns against is hoping your assets will be enough to cover the possibility. Guilt plays a role in this decision which scares you into considering your heirs and any plans, such as a charity for instance which could receive whatever you don’t use. medical bills associated with long-term care will not be cheap, we have been warned, so do you try and do it yourself?

If you have been dutifully scared, we have done our job and you can opt for the DIY method of managing long-term costs. Incredibly wealthy people will use financial advisers along the way. The rules that apply to how costs are paid for change with the amount of assets you do or don’t have. For most of us Medicare will cover most of our costs with supplemental coverage coming from our assets.

She is right though: “Even the most prepared investors with a sizable nest egg can be impacted by these rising costs.” Boo again! 

Paul Petillo is the managing mditor of and a regular contributor to MomsMakingaMillion Radio

To read the article referenced above, click here.