How to Overcome 5 Major

Retirement Challenges

The New-Age Solutions That Could Get You Across the

Finish Line

5 RETIREMENT CHALLENGES © FCM CONTENT SOLUTIONS 2021

 Introduction
If you’re on the verge of retirement, there’s one thing you need to know: This isn’t
your grandparents’ Golden Years.

The days of a fat company pension, well-funded social security bene ts, and
double-digit interest rates, are over. And the odds of them coming back are slim
to none.

Retiring in today’s climate is complicated, confusing, and full of traps and snares
that could devastate your nest egg. It requires a comprehensive game plan, to
say the least.

When you retire, there will be severe challenges around every corner. And those
challenges could get much worse as the years go by.

But the good news is, there are some simple steps you can take today (before
you retire), that could make this process a whole lot easier.

It’s up to you to learn what your challenges will be, and more importantly, how
you could overcome them. And the sooner you get in front of these challenges,
the more options you’ll have.

Below are 5 major challenges you could face in retirement, and some effective
strategies to tackle them head on…

1. Record Low Interest Rates Punishing Savers

There’s a new constant in the nancial world, and that’s low interest rates. Low
rates are great if you’re buying or re nancing a home, or if you’re a large
corporation looking for a cheap loan. But for retirees, it’s an outright slap in the
face.

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The money you’ve saved is either 1) losing its value to in ation, or 2) being
forced into riskier investments like stocks. Neither are good options when you’re
looking to make your money last in retirement.

Back in the 90s, you could get 5% or more on a 1-year C.D. (certi cate of
deposit) or savings account. Today, you’re lucky if you can get a measly 1%.

Here’s a great quote from Kiplinger (10/19/20) …

“It’s been decades since you could waltz into a bank or credit union and buy a
nice, safe certi cate of deposit with an interest rate in the double digits.”

“These days, you’re lucky to get 1.25% for a 36-month CD. Bonds can be
similarly disappointing. And a good old-fashioned bank savings account, with
an average interest rate of 0.1%, will give you safety, but not much else. 

Unfortunately, it’s been that way for a while now — and it doesn’t look as
though it will be changing anytime soon.”

Ever since the 2008 nancial crisis, rates have been pushed lower and lower.
Even when we saw rates inch higher, they were soon lowered again.

So, it’s safe to say that low rates are the new reality. And it’s up to you to
navigate how you’ll put your money to work without taking on too much risk.

The Solution: A comprehensive income/withdrawal plan

Depending on your situation, you’ll want to have to have multiple nancial

buckets in retirement.

One bucket will have guaranteed income to cover your basic expenses –
insurance products like annuities and your social security bene ts.

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 Next, you will you will have a bucket for long-term growth – stocks and other
riskier investments.

And last (but certainly not least), you’ll have a liquid bucket – cash and short-term
CDs. This can be used for emergencies like an unexpected cost or a stock
market decline where you won’t want to sell your stocks at a loss.

These buckets will t in with a much broader withdrawal strategy that considers
tax ef ciency and longevity. All of these things working together could lessen the
blow of low interest rates in retirement, and put your money to work for you, while
helping you avoid too much risk.

2. Out of Control Health Care and Long-Term Care Costs

Do you know how much healthcare will cost you in retirement? How about long-
term care? And do you know what’s covered by Medicare, and what’s not?

According to USA Today (1/17/21) …

“The average healthy 65-year-old couple leaving the workforce this year can
expect to spend $662,156 on medical bills in the course of retirement. Ouch.

The average 65-year-old today has close to a 70% chance of needing long-term
care at some point during retirement.

While the cost of that (long-term) care can vary tremendously based on speci c
needs, duration, and location, the average senior spends $172,000 to cover it.”

Talk about sticker shock, right? I’ll give you a second to pick your jaw up from off
the ground.

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To make matters even worse, these are the just the costs for today. We see
sharp increases in the cost of healthcare and long-term care year after year, so
you can expect that trend to continue.

How much will it cost in 10 or 20 years? It won’t be pretty. And that’s why you
must take the proper steps to protect yourself today, before it’s too late.

The Solution: LTC insurance, HSAs, and Medicare

A comprehensive income/withdrawal plan is critical for just about any challenge

you’ll face in retirement, including healthcare. But there are a few solutions in
particular that could help you cover the growing costs of healthcare in retirement:

1). Health Savings Accounts – A great way to pay for these skyrocketing costs is
by socking money away into an HSA. You contribute to these accounts early on,
and the money can grow tax free. Plus, the money never expires.

This gives you a nice pool of money to work with when facing out of pocket
medical expenses and deductibles. And here’s the best part - it can also be used
to pay for long-term care and long-term care insurance.

2). Long-term care insurance – Long-term care is a topic no one wants to think
about. But that’s a huge mistake. The probability of you needing some form of
LTC is through the roof. And most people don’t realize they will be on the hook
for the majority of these costs.

Here’s how this insurance works: the earlier you apply, the cheaper the policy.
And if you wait until you actually need the care, you won’t qualify for a plan. So,
don’t put this off. It can be expensive, but the amount of money you’ll save down
the line could amount to a small fortune.

There could also be some tax advantages, depending on how you le your taxes.
So, this could lessen the blow of the cost and be used a part of your tax-ef cient
withdraw plan for retirement.

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3). Understanding Medicare – When you turn 65 years old, you’ll be eligible for
Medicare. This seems pretty straightforward, but there’s more to it than you may
know.

You’ve got Medicare Part A, Part B, Part D, you’ve got supplemental insurance
plans, and so on. Knowing what care you might need, and taking the proper
steps to have that care covered, is critical.

3. Living Longer Than You Ever Thought Possible (and

Running Out of Money)

It’s no secret that we’re living longer lives today than ever before. And that could
pose some serious challenges to retirees who are ill-prepared.

According to US News (4/22/20) …

“A 65-year old can expect to live another 19 to 21.5 years, on average, according
to the Social Security Administration. What's more, the government agency says
a third of 65-year-olds will hit age 90, and 1 in 7 will live beyond age 95.”

“Those numbers show a signi cant improvement in life expectancy over time. “

“In 1960, for instance, a 65-year-old man was only expected to live an average of
13 more years while a 65-year-old woman had an average remaining life
expectancy of 17 years.”

One thing to remember is that these numbers are averages. If you’re healthy, you
could live a lot longer.

And what about the future?

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 If we’ve seen such great improvements over the last 70 years, what’s in store for
the next 20 years. With technology expanding at such a rapid state, we could see
major improvements in the near future, which means you could live even longer.

According to Pew Research (4/21/16) …

“The world was home to nearly half a million centenarians (people ages 100 and
older) in 2015, more than four times as many as in 1990, according to United
Nations estimate.

Projections suggest there will be 3.7 million centenarians across the globe in
2050.”

This may seem like great news at rst glance. Who doesn’t want to live longer,
right? But making your money last as long as you do is no easy feat.

The longer you live, the more living expenses you’ll have to pay, the more taxes
you’ll be forced to shell out, the more healthcare costs you’ll incur, the more
in ation you’ll face, the more stock crashes you’ll encounter, and so on.

If you don’t have a plan for these challenges, you could be setting yourself up for
some serious nancial pain. And that’s the last thing you’ll want to experience in
in your older years.

The Solution: Guaranteed income

Relying solely on a retirement withdrawal strategy like the “4% rule” won’t cut it.
You could nd yourself living longer than you ever imagined and then your
biggest fear comes true - you run out of money.

Guaranteed income is the only answer.

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According to Kiplinger (12/24/20) …

“Retirees with guaranteed income live happier, and longer.”

The good news is, you already have one source of guaranteed income, and
that’s your social security bene ts. But social security alone won’t be enough.
And getting the most amount of the bene ts you are entitled to is a lot easier said
than done.

Claiming your social security bene ts is complicated and confusing. A simple

wrong move could cost you thousands of dollars in potential income. The key is
work with a quali ed nancial advisor to nd that perfect claiming strategy that
works well with the rest of your retirement plan.

Another option that retirees are ocking to, is purchasing an annuity. An

annuity is an insurance product that offers a steady stream of income for the rest
of your life. And newest versions of these products allow you to participate in the
gains of the stock market too.

You can buy one with a lump sum of money or a series of payments. Your
income payments can start right away or they can be “deferred” to a later date.

There are a handful of different options for you to consider. You have xed index,
deferred, variable, and other hybrid options. Finding the right one for you
depends on your speci c situation and needs.

An important note: annuities are not for everyone. But with growing life spans;
uncertainty in the nancial markets; and the fear of running out of money in
retirement, annuities have been growing in popularity.

Once again, work with a quali ed nancial advisor to see if an annuity makes
sense for you.

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 4. In ation eating away at your life savings (and robbing
you of your purchasing power)

According to Forbes (8/27/21)…

“In ation is the silent asset killer.”

“It eats away at your hard-earned savings, often in a stealthy manner that you
hardly notice.”

“It even masks itself behind misleading good news in your investment returns
that may not be as good as you think.”

In ation is one of these sneaky threats you hardly notice. Lately in ation has
been steadily climbing. You’ve probably noticed it at the grocery store or the
pump. And I’m sure you’ve seen it in housing (although there are other factors at
play with housing).

To put it simply, in ation means that the dollar you have today, is worth less
tomorrow. And over a 20 or 30-year time horizon, this could have a devastating
impact on your retirement.

If you’re living on a set budget in retirement, in ation forces you to either 1)

increase your budget, or 2) reduce you quality of life. There’s no way around it.

Everything you consume will become more expensive. Your food, power, travel,
and especially your healthcare costs will all take up more and more of your
savings.

The Solution: The right investment plan

Your investment plan needs to take this into account. Not only must you be
prepared for ongoing in ation, you must ensure your investments are keeping up.

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Will your investments grow with in ation? Will you outpace in ation?

Stocks tend to grow with in ation because companies have the ability to 1) push
their higher costs onto consumers, and 2) borrow money at cheap rates to invest
in productive technology that will offset these higher costs.

Investing in the right sectors at the right time is critical though. There are also
alternative options such as TIPS bonds (Treasury In ation-Protected Securities)
and even precious metals like gold and silver. But your strategy will need to go
much further if you want your quality of life to stay constant.

5. Sneaky tax traps that could catch you off guard (and
tax rates that could skyrocket)

They say “save the best for last” and we did the opposite. We saved the “worst
for last.” Taxes are one of the biggest surprises retirees come across. And they
could wind up being your biggest expense in retirement if you’re not prepared.

Most people think they will pay less in taxes when they retire. And that makes
sense. You’re no longer working, so you shouldn’t be paying as much in taxes,
right?

But unfortunately, this line of thinking could be dead wrong.

For starters, taxes are considered “low” by today’s standards. To pay for the
ongoing Covid-19 relief programs, the growing interest on our national debt, all
the social programs the government wants to keep funding (and add to), there
will come a time when tax increases will likely be the only solution.

On top of higher tax rates, there are common scenarios that commonly catch
retirees off guard.

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Ever heard of social security taxes? You could pay taxes on as much as 85% of
your bene ts. How about Required Minimum Distributions? These could force
you to pay more in taxes than you planned, and even throw you into a higher tax
bracket.

Planning for your future tax liability now (before it’s too late) is critical to your
success.

The Solution: Roth Conversion

Most people save in a 401K through their job, or with a self-funded Traditional
IRA. You fund these accounts with pre-tax dollars, meaning you didn’t have to
pay taxes on the money you contributed.

When you save money in a Roth IRA (or Roth 401K), you contribute after-tax
dollars, meaning you already paid the taxes.

But’s here’s the best part – with a Roth, your money grows tax-free. And when
you withdraw that money in retirement, you won’t have to pay a dime in taxes.

Say tax rates went up 15% to pay for all this government spending. You still won’t
have to pay a dime. Sounds pretty good, right?

And if you saved in (or converted to) a Roth IRA, you won’t have to deal with
Required Minimum Distributions either. That gives you more exibility with your
withdrawal plan.

But you can’t just convert all your money at one time. There will be tax
consequences, so it’s crucial you have a conversion plan to make the most out
this opportunity.

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 Conclusion

Retirement planning may be a challenging feat in today’s new world, but all is not
lost. There are more options for overcoming these challenges today, than ever
before.

It’s up to YOU to research these options, understand the pros and cons of each,
and identify which ones t best with your speci c retirement needs.

Every pre-retiree is different and will require a different approach. There are no
“one-size- ts-all” solutions with retirement planning. You must do the hard work
of creating a comprehensive plan that’s unique to you.

If you have any questions about your retirement game plan, give us a call or
email anytime. Here at Presidio Capital Management, we’d be happy to help put
you on the right track.

858-461-4959
dustin@presidiocm.com
www.presidiocm.com

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