Retirement Plans Require Adjustments

It’s really shocking to see baby boomers that have lived their entire life without a budget. So it’s sometimes difficult to convince them to start now in retirement. But income in retirement isn’t the same as income during your working years. The average reduction in income is 20 to 30% less in retirement. But this generation of boomers hasn’t retired their mortgages, complicating the reduction in income. And adding to these woes is the neglect of an eldercare provision in their later years by means of a long-term care policy for assisted home living or nursing home care.

You have to have a plan. It’s not optional. And if you have a plan you can’t ‘set it and forget it’. The first step in retirement is to set up an emergency fund. Almost all retirees know to go to the emergency room for urgent care. But where do you go for emergency money in retirement?

You’re probably familiar with the value of having savings that could cover six months or so of expenses in an emergency. But the role of an emergency fund takes on a different dimension in retirement.

When you tapped your emergency fund while you were working, you expected to be well enough to return to your job or have minimal delay in finding a new one. But when much of your retirement income depends on investment returns, as it does if it comes from a 401(k) or similar account and personal investments, a repeat of the 2008 free fall in the financial markets could mean a significant shortfall.

To provide the protection you need, a retirement emergency fund should hold two years worth of living expenses, and perhaps more, in a combination of liquid accounts that are essentially free of market risk, such as certificates of deposit (CDs) and Treasury bills and short-term notes.

Setting up an emergency fund for insurance deductibles, as well as for home and auto repair, is a great first step in designing your retirement plan.

Contributions from the book Managing Retirement Income in this press release are used with permission from Light Bulb Press.