Retirement is a time for relaxation and enjoyment, but what happens when life's unexpected events disrupt your plans?
In this episode, April Schoen guides you through crucial strategies to financially prepare for unexpected retirement events.
In this episode, you’ll discover:
The real-life impact of health-related surprises and how to plan for them.
Why diversifying income sources is essential for retirement stability.
How to leverage whole life insurance for financial flexibility.
Strategies to handle family and life changes without derailing your financial plans.
The importance of estate planning in securing your financial future.
Mentioned in this episode:
Transcript:
April Schoen: Hi everyone, and welcome to another episode of The Secure Retirement Method. My name is April Schoen, and I'm a financial advisor with over a decade of experience of helping clients not just get to retirement, but through retirement. And over the years, I've helped hundreds and hundreds of clients ensure that they reach their goals so that they can enjoy their retirement with confidence.
And I'm excited to walk you through an important topic today on how do we plan for those unexpected events in retirement? Retirement is supposed to be a time of financial security, of enjoyment, but these unexpected surprises that we know are going to come at us, right? Because life always loves to throw us some curveballs, can really impact our plans.
So today we're going to talk about some strategies about how you can be financially prepared for those. And why does this matter? Well, retirement is full of unknowns, and you may not realize how much an unexpected event can really impact your finances. Let me share with you a real life example.
My business partner lost his right leg a few years ago due to a blood clot, and this completely changed his financial situation. For one he was out of work that year for over four months. He immediately had to renovate his home because it now needed to be wheelchair accessible. He needed to buy a new vehicle that could accommodate his wheelchair. And now he has the reality that he's likely going to face these increased costs for care later in life.
And it happened like that. And this really highlights the importance of planning for the unexpected. So my question for you is, what would happen if a major life event occurred tomorrow. Would your retirement plan hold up? As we go through today, I want to talk about some of these common, unexpected retirement events and how we can prepare for them.
So the most common ones that we see, health related issues, financial market fluctuations, family and life changes, housing adjustments, unexpected expenses. And while we can't predict the future, we can prepare for it. So let's break down these common unexpected retirement life events and talk about some solutions about how you can prepare for them.
One of the biggest concerns, I feel like we all have, is having some sort of health related event. But especially when we get into retirement. Now, many people assume that Medicare is going to cover everything, but that's not accurate. There's a lot that Medicare does not cover, so let's talk about that for a second.
Medicare does not cover for extended care or custodial care. So extended care would be like covering for chronic conditions where you may need more assistance. I want you to think like stroke, memory care, mobility issues. Medicare doesn't pay for that. Or what about custodial care? This is when we need help with those daily living activities like bathing, dressing, eating. Medicare doesn't pay for that either. This could be care that we receive at home. This could be care that we receive in a facility. So we've got to make sure that we have a plan for those.
So the first thing you want to do is you want to make sure that you do have the right Medicare coverage. Because there are things that Medicare pays for, so you want to make sure you have the right Medicare plan so that you're not paying more out of pocket than you need to. So that's the first thing that we want to make sure that you do have the right Medicare plan. Another option of how you prepare to pay for these expenses is to use an HSA.
So an HSA is a health savings account. You may or may not be eligible for one. This is going to depend on what sort of health insurance plan you have while you're working. But essentially, you're able to plan for and save for future medical expenses on a tax advantage basis. So you can put money in the HSA today that's tax deferred. You don't pay any taxes on the money you put in today, it grows tax free.
And then if you use it for qualified medical expenses, it comes out tax free. It's really one of the only truly tax free assets that we have. So building money in an HSA while you're working is one solution for helping cover these health related or extended care costs. And then we also want to make sure that we're like reserving for this. That we're reserving assets for future care.
So when we think about that, it could be investment accounts, retirement accounts, cash reserves. Making sure that we've got multiple buckets we can tap into if we need it or if we want it. And one thing that is often overlooked is the idea of using whole life insurance in your plan. So I want you to consider how this could help you. Because it's going to help you provide this additional financial flexibility.
So first of all, the death benefit acts as a safety net. This is going to allow you to spend down your other assets. Think about those investment accounts, those retirement accounts. You can spend those down for care without worrying about one, you running out of money, or two, leaving a spouse without resources. And then also, in these types of policies, there's going to be cash value that's going to be accessible, that has tax advantaged resources available to you that you can use for anything.
You could use it to supplement your income in retirement, but you could also use it for medical expenses, care needs, or emergencies. And then, depending on availability, there are certain riders that you can have that can provide additional coverage to help offset the cost of care that's going to reduce the strain on your other assets.
So one of my clients several years ago was retired, and he needed some major dental work done. It's going to be about $10,000 in dental work. That's also something that Medicare doesn't cover, is dental, hearing and vision. And so we looked at all the different options for him, and he actually took money out of his life insurance policy to pay for the dental work. So that's one example of how you can use these other assets to pay for care.
One of the other risks that we face is having these financial market fluctuations. The stock market downturns can really impact our retirement income, if not planned for properly. There's something called sequence of return risk, and this risk occurs when the stock market is down and we're pulling money out of our portfolio. This can significantly reduce the longevity of our portfolio. How long is our money going to last?
Because if you withdraw money from your investments when the market is down, you've now locked in your losses, and this can cause you to deplete your assets faster than you expected. So one of the things that you want to do to offset these market fluctuations is to diversify your income sources. We don't want all of our income coming from market driven assets, right? We don't want all of our income coming from just investments and retirement accounts.
We want to have guaranteed streams of income. Think Social Security, pensions, annuities. These are income streams that are guaranteed for the rest of your life, and they're not dependent on the market. So important for your financial plan. You're also then going to have discretionary income. So can we diversify our discretionary income? Investments, retirement accounts, part time work, real estate.
How can we also diversify even our discretionary income? So outside of diversifying our income, we also want to maintain some reserves in stable assets. So the idea here is that we want to have a two, maybe three years of expenses set aside that is in something that's going to not be as volatile and be, you know, susceptible, susceptible, if I could say it right, easier, easy for me to say, and it's not going to be impacted by the market.
So what are some examples for that? Well, obviously you could use cash, you could use whole life insurance that has the cash value components. You could use bonds, other conservative investments. But you really just want to make sure that you've got some assets you can tap into if and when the market is down. So I had a client in 2022 and you may remember the S&P was down 20% in 2022.
And so a client needed a new roof. And you know, before 2022 when the market started to go down, he had planned to take money from his investment account to cover the roof. But here we are, the market's down, and so he really didn't want to tap into his investments at that time. So instead, he used some of his cash reserves to pay for the roof, and then when the market recovered, he then took the money out of his investment account to pay himself back.
So this is why we want to have those liquid buckets and assets on our balance sheet to tap into.
What about if we have, like, family and life changes? Think about those, like unexpected curve balls. Honestly, this is something that no one really wants to think about, but it's a reality. Most couples are going to face a time when they lose a spouse during retirement. And losing a spouse is not just an emotional challenge, but it's also a financial one.
So we have to plan for this. This is the reality that many of us are going to face. So a couple questions you want to ask. How will your income change if one of you passes away? You're going to see changes to your Social Security. Will you have changes to a pension payout? If you do have an annuity, is it a joint annuity or a single income annuity?
So really understanding how your income is going to change when one of you passes away, and then this way you could have a clear plan for how you're going to handle that. So you want to discuss these plans together. When we're doing our work for clients, we look at both situations. What if the husband passes away first, what's that income going to look like for the wife? And then what if the wife passes away first? What's that income gonna look like for the husband?
So you want to look at both options. The other thing that's happening more and more is this caregiving responsibilities. Many people find themselves caring for a spouse, an aging parent, a child. An adult child. And this can impact your retirement plans. This can mean that you've got to spend more money. That could be to help those people, help your parents, help a child.
It could be traveling, could be living arrangements. It could also mean that you've had to retire early. So I'm thinking about a client of mine a few years ago, she retired early to take care of her mother. She retired probably about two, two and a half years earlier than she was originally planning to, and that had some significant financial impacts on her.
So we really want to, and that may not be something we can totally forecast and foresee for the future, but we really want to make sure that we are thinking about those things and have some essential plans for it. And my next point here on having some estate planning. This may not necessarily always be like we think of it as, directly financial, but it will help in these situations when you may lose a spouse or a parent or something along those lines.
And this is a big thing that we're focused on this year with our clients, is making sure that they've got those estate planning documents executed. Beneficiaries are in place like everything is, is where it needs to be, because this is really going to help your family so that they don't have these unnecessary legal fees or having these other financial difficulties. And there's definitely more I can go into that.
But for the sake of time, I'm not going to go into too much detail there today. But just know, as part of this, you also want to make sure that you've got your estate planning documents taken care of, this is really going to help that financial stability, and it makes an already hard situation at least a little bit manageable. What about housing needs?
So, where will you live in retirement? Housing is often overlooked in retirement planning, but it plays a major role in your financial security and in your quality of life. Your home today may not be the best fit for you, best fit for your needs as you age. So think about accessibility, maintenance costs, proximity to family or medical care.
So there are a few things you want to think about. Do you plan to stay in your current home? Or will you need to move? If you're staying in your home suitable for aging in place? Or will it require modifications? If you're moving are you going to downsize? Are you going to relocate to be closer to family? Or are you going to move into a community that's designed for aging adults? So there's things that we want to think about on the housing front.
So let's walk through this on some different options here. The first one is, if you want to age in place, and this is, I hear a lot from clients. I want to stay in my home as long as I'm able to. So for us to do that, think about some renovations that might need to happen for you to age in place. You know, consider installing ramps, widening doorways, upgrading bathrooms for accessibility.
I've had clients in retirement that when they get to their required minimum distribution age, which today is age 73 when they have to start pulling money out of their retirement accounts, whether they need it or want it. That's the IRS regulations for your required minimum distributions. I've had clients use those to renovate their home. They didn't need it for their every day, monthly income.
So they said, okay, we're getting this lump sum from our retirement accounts, and so we're going to use it to renovate the house so we can age in place. You know, other clients will look to do some of these things, like before they retire. So they look to handle a lot of these major home expenses before retirement, while they're still working and they have more discretionary income.
So they think about replacing roofs, upgrading HVAC systems, and not necessarily with the house, but they also may think about buying a new vehicle. These are all these big expenses that we have in our lives. Some choose to relocate so they can be closer to children and grandchildren. You know, one of my clients a few years ago, as soon as they retire, they moved to Orlando to be near their grandson, so that was something that was really important to them.
And we have lots of conversations throughout the year with clients that are looking to move to these continuing care retirement communities. These are communities that provide different levels of care as your needs change. So it might be, hey, I'm in independent living today, and then I need assisted living, and then I need either nursing care or memory care. And I can stay in this one place, and they can take care of all my needs.
So thinking ahead about this, you know, long term stability is going to help you have a much smoother transition and prevent these like last minute stressful decisions. And even making better financial decisions. If you're not going to stay in your home, maybe you then don't need to do all of these renovations and updates, because you're not going to be there. So really thinking about where are you going to live in retirement?
Now, these next unexpected expenses, I think of them like the wild cards, right? There's always going to be these unexpected expenses that pop up, because that's life, and they can happen out of nowhere, they can derail even the best financial plans. So what are some common ones? Well, first of all, think about major home repairs. Roof replacements, HVACs, system failures, floods, hurricanes. Some sort of like major home repair. Medical expenses, which we talked about earlier, right? Could be unplanned surgeries, hospital stays, expensive treatments.
You might have to travel for treatment, and that's an additional cost. Family support. Are we having to support our parents, our siblings, our adult children, grandchildren? What are these like, financial supports for our family? Any sort of legal costs that may come up in retirement. So how are we going to handle these unexpected expenses?
Because we know they're going to happen. Well, one is like first, and we always hear this, right is having an emergency fund. So think about that, like your bank savings. Having an emergency fund for these expenses. You know, think about using cash value life insurance, like I talked about earlier, where it's more of a tax efficient way to access funds when needed. You can use a HELOC or a home equity line of credit as a backup, right for these large expenses.
Now that one you just want to be very strategic about. You really want to pay attention to interest rates. HELOCs were much more accessible and made more sense a few years ago, we had really low interest rates. But as those interest rates have gone up over the last few years, they haven't been as sustainable. So thinking about some of my clients, you know, a few years ago, they actually took a loan from their life insurance policy to renovate their kitchen.
We talked through all the different options. Do we want to withdraw money? We have the option to do a loan? And they said, you know what, we want to pay ourselves back. We want to pay for the renovation. We don't necessarily want to just take it out of our assets, but we'd rather do a loan against the cash value.
We know we're going to pay some interest, but we're gonna pay ourselves back for this, and then we don't have to go through the bank and get some type of personal loan. You know, another client had a HELOC, and at one point the interest rate was really great, and over the last few years, when interest rates have spiked, the HELOC interest rate got up to 9% and they really wanted to then pay that off because of the high interest.
So we looked at some different options, and they actually had an investment account that was paying a fixed three and a half percent. At one point, that was really good. So what made sense for them to do is take money out of that investment that was paying a lower interest to pay off the HELOC at the higher interest.
And then another one of my clients recently retired, and they wanted to go ahead and buy a new car. That way, hey, I'm going into retirement. I've had my last car for over 10 years. I plan to have this one for over 10 years. I want to go ahead and buy a car. And they use, you know, a combination of things like put a big down payment on the car.
They use some final payouts that they received at work in the form of cash to put money down and then they also did take some money out of their investment account that's done really well to put a large down payment on the car, and then they're working to pay that off as quickly as possible.
So you know, preparing for these unexpected expenses in retirement allows you to have financial security and really make sure that these surprises don't disrupt your long term plans. So it's important for us to be flexible and adaptable. These surprises are inevitable, but really that financial flexibility is going to allow us to adapt without stress. If our financial plan is too rigid, it's going to leave us vulnerable when these unexpected events occur.
So having financial flexibility matters. You know, the ability to adjust spending withdrawals based on market conditions, the ability to access multiple income streams to not have so much reliance on the market. To have liquidity to cover these unexpected expenses without disrupting our long term investments. So again, what are some of these key strategies for us to have this flexibility? Well, you know, it's diversifying your income.
Ensuring you've got a mix of guaranteed income and discretionary income. It's maintaining liquid savings for that emergency fund. Keeping assets liquid accessible is going to help cover those short term surprises. Think about using a bucket strategy, where we've got short term, mid term, long term assets that provide structure for funds that we can access based on when we need them. Work on having tax efficient withdrawals.
So if we're withdrawing money from different buckets, we can then start to try to control and minimize how much we're paying on taxes, which means more money that we get to keep in our pocket, more money we get to keep on our balance sheets. So flexibility is not just about having money, it's about having options when life throws surprises your way.
And the more adaptable your financial plan is, then the more confidence that you're going to fill. So you know, today, we've really kind of talked about how planning for these unexpected events in retirement is essential, and having the right strategies in place can give you a feeling of security. So one of the best things that you can do, too, to kind of stay ahead of some of these things, is like what you're doing here today is listening to podcasts and webinars and continuing to learn and plan.
So we have a series of webinars coming up over the next few months. We really plan on doing like one webinar per month on a wide range of topics, mostly centered around retirement planning. And so if you'd like to know more about our webinars, and if you'd like to be on our mailing list, our email list, to receive these exclusive notifications when our webinars are going to be, then you can go to our website to sign up. So you can go to curryschoenfinancial.com/events again, that is curryschoenfinancial.com/events.
You can just put in your name and email, and we'll make sure that you're on our email list so you know about all the future events that we have coming up, as well as you'll get notified when we have new podcasts and new webinars. So thanks again for joining us today. You know planning really ensures that smooth transition into retirement, it's really going to smooth even your experience in retirement. So I encourage you, as you're thinking about these today, let's get financially prepared for the unexpected. Bye now. See you next time.
Voiceover: This promotional information is not approved or endorsed by the Florida Retirement System or the Division of Retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the Division of Retirement. This material is intended for general public use. By providing this content, Park Avenue Securities, LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, visit our website at curryschoenfinancial.com or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities, LLC. Address, 1700 Summit Lake Drive Suite 200, Tallahassee, Florida, 32317. Phone number 850-562-9075. Securities products and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.
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