When looking at retirement there are several errors one can make. This short list will help to avoid some of the most common retirement planing errors.
Not Putting A Retirement Plan In Writing
Until someone has a written plan, a person hasn't really done the thinking needed for their retirement. A written plan must cover every aspect of retirement, from a thoughtful investment strategy to a realistic retirement budget. And both spouses should be part of creating this written plan. Too often the husband takes on the job with minimal input from his spouse. A professional financial adviser should also be involved in developing this plan.
When developing a retirement plan, keep in mind exposure to risk. Too many Americans are not appropriately diversified for risk in their investments. Exposure to stocks versus bonds will vary based on various elements, including whether a company pension plan is involved or not. But the fact is that too many people nearing retirement are exposed to equities more than they should be.
Not Doing "Dignity Planning" This refers to the need to create a power of attorney and write a living will or healthcare proxy. This will help determine how much independence and decision-making authority a person will have in their later years. It covers financial and medical decisions that might need to be made while someone is disabled.
It also helps the spouse of a disabled person considerably. For example, if a spouse was disabled, their partner would need a court order just to cash in jointly owned investments as simple as savings bonds to pay for healthcare in the absence of a durable power of attorney. And in order to make medical decisions on behalf of a disabled spouse the other spouse would need court permission in the absence of a living will or healthcare proxy.
Ruling Out Long-Term Care Insurance
While it's probably most cost effective to buy long-term care insurance before turning 60, don't rule it out after that. Long-term care insurance can save many thousands of dollars if even only one partner needs it. If both partners are still alive in their 60s, the chances are that one of them will live into their 80s. At that point there is a roughly 50-50 chance that they will need long-term care insurance. If both spouses survive into their 80s, suddenly the odds that at least one will need long-term care increase dramatically.
While long-term care insurance may seem expensive to someone in their 60s, consider that a year's worth of care in a nursing home or assisted living facility may cost $50,000 or more.
Failing To Understand Estate Planning
Too many people decide to opt for do-it-yourself estate planning. Without professional advice, many people decide that the goal of estate planning is simply to avoid a trip to probate court. In this case, assets are generally put into joint ownership and everything passes to the surviving spouse.
But it's possible to be more creative than this. For now, Congress has eliminated estate tax until 2010. That means it's possible to allocate estate assets to other family members more favorably until then. Why leave everything to a surviving spouse if the eventual intention is to disperse assets more broadly among family members? If someone can provide for their surviving spouse and give to their children or grandchildren, the time to do it is now.
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