Do you need a retirement checkup?

The challenge is adjusting should numbers come up short, especially since going back to work at age 80 isn't an option for most people.

By MSN Money Partner May 26, 2011 2:32PM

This post comes from Tom Lauricella at partner site The Wall Street Journal.

 

Will the financial plan for the first 15 years of retirement be the right one for the next 15 years?

 

Just about everyone should give their finances an annual checkup, especially during retirement when it's harder to correct course. But taking a big step back around the likely midpoint of retirement can be a good time to review your longer-term history of saving and spending -- and think about whether any big changes might be required.

 

The biggest surprise might be realizing you're probably going to live a lot longer than you had planned. The sooner adjustments can be made, the better, especially if it's going to require making any big moves, such as selling a house or getting a reverse mortgage.

 

Henry K. "Bud" Hebeler, who runs the AnalyzeNow.com website that specializes in retirement planning, has been retired now for 22 years. Even though he spends more time thinking about retirement finances than most people, the 77-year-old still took time recently to assess his plans. "I thought I'd better check and see how things look," he says.

"I know a number of people who have felt that they had (their strategy) wrong," says Hebeler. "They were overspending, and the main reason is that they're living a lot longer than they thought they were."

 

Essentially, the longer you live, the longer you're likely to live. Back in 1990, the average American male turning 65 could expect to live to age 80, and the average female to 85, according to the Social Security Administration. Now, having turned 80, that average male is likely to live to be 88 and the average female to age 90.

 

Of course, those are just averages. They don't factor in health, lifestyle and family histories, which could result in still longer life expectancy. Hebeler likes the life expectancy calculator at livingto100.com, which allows the user to enter personal variables.

 

From there, it's a matter of reviewing your savings, spending habits and investment returns. The focus: seeing if you're keeping up with inflation and your -- hopefully -- longer life expectancy. Post continues after video.

Where to get help

Even if you're a do-it-yourselfer, this may be a good time to sit down with a financial planner. But plenty of online resources can help. Vanguard Group, for example, offers an easy-to-use calculator to see how long your savings might last. Visit retirementplans.vanguard.com and search for "nest egg calculator."

 

Of course, the challenge is adjusting should numbers come up short, especially since going back to work at age 80 isn't an option for most people. One question is whether your investments are too conservative for a retirement that could stretch an additional 15 or 20 years.

"As frightening as it sounds ... you may have to become more aggressive," says Kathleen Piaggesi, a financial planner in Scarsdale, N.Y.

 

This doesn't mean loading up on risky investments. It could mean simply adding Treasury inflation-protected securities (or TIPS) to your investment mix, which will help counter rising inflation. But even at age 80, you likely need some stocks in your nest egg.

 

"We generally don't recommend having less than 20%" in stocks, says Rande Spiegelman, a vice president for financial planning at Charles Schwab. "You want to have some growth component," such as high quality, dividend-paying stocks.

 

Piaggesi says the reality for some retirees is that their savings simply won't last. That could mean downsizing to a smaller home. For some it may be appropriate to get a reverse mortgage, which allows homeowners to convert some of the equity in their home into cash.

 

A portion of the money raised from a home sale or a reverse mortgage could then be put into an immediate fixed annuity, which would provide a guaranteed payout for life. This step can help ensure there will be enough money to cover basic expenses and allow greater flexibility with the rest of an investment strategy.

 

Hebeler suggests taking a detailed look at spending habits as well. Yes, you might have set up a budget before retirement and refined the numbers somewhat after leaving the office. But a decade or more into retirement, most individuals are "going to have a much better idea of how much they really can afford to be spending," he says.

 

One cost retirees shouldn't overlook: money leaking out of savings through mutual fund fees. Simply moving to low-cost index funds could easily put nearly a percentage point of earnings back into a portfolio.

Piaggesi also urges retirees to bring their children into the loop on any discussions, especially since they may ultimately have to shoulder the costs later on. For example, retirees who are struggling to keep up with premiums for long-term-care insurance may want to ask their children to pay the premiums. "In the long run, it may be more economical for your children to pay the premiums" than to allow the coverage to lapse, she says.

 

For all the benefits of living to an old age, it also means not delaying a hard look at your finances. "The longer you wait, the more limited your options are going to be," says Schwab's Spiegelman.

 

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