Halloween is almost here and having a good fright is fun for many people. However, there is nothing fun about what scares many retirees. Rather than worrying about what might be lurking under the bed or in the shadows of the closet, seniors may be tossing and turning all night for a different reason.
“Over 82 percent of baby boomers have some type of financial fear,” says Brian Nelson Ford, a financial well-being executive at SunTrust Bank. Here’s a look at what SunTrust and other financial experts say retirees fear most, and how you can stop these from keeping you up at night.
[See: 10 Ways to Get Ready for Retirement After Age 50.]
The Fear: Medical expenses
The Fix: Proper insurance and an emergency fund
This is the fear that keeps most baby boomers awake, according to the SunTrust survey. The bank found 21.7 percent of the 890 boomers it surveyed said their biggest financial fear was a medical emergency and its resulting costs. A 2016 survey conducted by the American Institute of CPAs discovered virtually the same thing. When the institute asked CPA financial planners what their newly retired clients’ biggest fear was, 24 percent said it was a serious illness, dementia or diminished capacity.
To banish this fear, retirees need to be fully insured, and that goes beyond simply having Medicare. Some medical emergencies, such as a stroke, can result in the need for ongoing long-term care, which is not covered by Medicare. However, retirees are typically at an age when the price of a separate long-term care insurance policy is cost-prohibitive.
Jeff Fosselman, senior wealth advisor at Relative Value Partners in Northbrook, Illinois, says converting an existing life insurance policy to one that includes long-term care coverage may be an option. “I’m working with several clients right now on these combo policies,” he says.
What’s more, retirees should have an emergency fund to pay for unexpected medical bills. “We call it a confidence account,” Ford says. “That’s not just to be cool or catchy. Research says people are confident when they have money.”
[See: 9 Retirement Planning Deadlines You Shouldn’t Overlook.]
The Fear: Recession
The Fix: A diversified portfolio and multiple streams of income
A recession or unforeseen economic event registered as the top financial fear for 21 percent of the boomers surveyed by SunTrust. It’s a fear that strikes even those who have been diligent in saving for retirement, Ford says. “A recession scares them because they’ve done the right thing, but something they can’t control could derail them.”
Patrick Meyer, director of wealth management client services at Unified Trust Company, says a recession right at the start of retirement is the most dangerous scenario for seniors. Called sequence risk, pulling money from retirement funds during a down market could mean a person’s nest egg never fully recovers from a recession, even if the economy does.
“One of the things you can do to guard against sequence risk is to have two years’ worth of money in low-volatility accounts,” Meyer says. Those could be something like money market accounts or traditional savings accounts. Then, money can be pulled from there while retirees ride out the recession and wait for the balances in their other retirement funds to rebound.
Having a well-diversified portfolio that earns money through multiple income sources is another way to combat this fear. “A lot of people think they’re diversified if they have stocks and bonds,” Ford says. But adding in real estate or other revenue sources can provide additional protection in the event of a market downturn.
[See: 10 Places to Retire on a Social Security Budget.]
The Fear: Running out of money
The Fix: Proper forecasting and conservative spending
Lifespans are increasing thanks to modern medicine, but that poses a challenge for retirees. When Meyer is asked about his retired clients’ biggest fears, “The one that really comes to mind is the fear of outliving their money,” he says. “Some fear that more than death.”
It’s a fear that can be difficult to quell since there is no way to know exactly how long someone will live. To be safe, financial advisors say it is wise to plan for a long life and budget money conservatively. “When I model things, I look to at least age 90 now,” Fosselman says.
Even with good forecasting, seniors have to be prepared for medical expenses and the occasional economic downturn. Plus, they may need to learn to say no. According to the American Institute of CPAs survey, 11 percent of those within the first 10 years of retirement say what they fear most is having to help children or grandchildren financially.
Growing up usually means you no longer worry about spooks, goblins and ghouls, but that doesn’t mean you’re not scared. Fortunately, financial planners say it’s possible to avoid the financial nightmares that may be keeping you up at night.
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3 Things That Spook Retirees (and How to Stop Them from Scaring You) originally appeared on usnews.com
