Adapting Your Financial Plan
OCEAN CITY -- Whether embarking on a new career, earning an advanced degree or pursuing a combination of for-profit, nonprofit and leisure interests, Americans increasingly view retirement as a gateway to a second act. It's understandable: The average 65-year-old today can expect to live well into his or her 80s, so the time to pursue new careers could be extended by decades.
While having more time to pursue a second act is good news, it also means that you need to plan financially for your new path, taking into account that many unanticipated events will likely come along the way.
As you map a course and devise a strategic financial plan to get you there, there are four questions you should consider asking yourself (and your advisors). Last week, we looked at one question regarding Social Security, and this week we will look at two others.
How could my investing strategy change? You may also want to consider allocating more of your portfolio to investments that can provide guaranteed income, such as annuities, Hunter says. "Your income may not be as steady as it was during your working years, so you want to help replace that stability," he says. With a variable annuity, for example, you can invest an initial premium and in return receive a guaranteed income for life, regardless of how the underlying investments perform. Annuities also typically offer death-benefit protection, so your beneficiaries receive the current value of the annuity or premiums paid (less any withdrawals) in the event of your death. Many annuities also offer "enhanced" death-benefit options, which are available for an additional cost.
How could my expenses change? Just as your income will change in retirement, so will your cost of living. You may not spend as much on commuting or dry cleaning, for instance, but your prescription drug costs may go up, says Hunter, who notes that health care expenses are rising faster than the overall rate of inflation. "The change in expenses can be dramatic, so it's important to be aware of it," he says. Your medical coverage may change significantly as well, so you'll need to replace those benefits, particularly if you're not yet eligible for Medicare.(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)