Financial considerations for elders

Bill Farley

Retirement offers a perspective of how you have lived your life. The hand has now been dealt on how you will live the rest of your life. Worked, earned, saved, made decisions, and made plans, or let life carry you on with little care about the coming years - whatever your past decisions have been, it is never too late to try and finesse your way through the coming years. In an academic community like ours, the employers have done a good job of helping you to prepare for retirement. However, if you are not associated with that world, more decisions will be required. A review of some general principles may help.

Your income in retirement is complicated. If you have a federal or state pension, that one card is an ace. This pension offers an iron clad promise from a taxing authority. Unlike USAir, or other corporate pensions, it can not fail because of bankruptcy. The government entity simply has to raise taxes to meet its obligation. The two issues facing a pensioner are how to take care of your spouse with the pension, and the recognition that the largest part of your net worth will not be available to send any kind of endowment to other loved ones at your death. The beautiful thing about a pension is that you have few money management issues to ponder in retirement. The money comes monthly from the pension and between the pension and social security you may be as close as 70% of your pre-retirement income. This is the reward of 30 years of faithful service. Now the challenge is to live on it and take care of the expenses of being retired.

Most of us do not operate on a pension. We have typically worked for employers who offered some variation of a 401-k, stock incentives, and profit sharing plans. In this model you have been asked to take care of yourself and acquire wealth within the plan. With your funds in retirement plans during retirement, more decisions are put on the retiree. This is the time in life when many retirees freeze. They have been used to generally high equity exposure and want to see the account "grow." They often refuse to take out more than the minimum required with a potential loss of life style in order to help their balance sheet. Of course, they also do not want to spend down their nest egg, only to live to be 95 and be without funds. The biggest need for retirees in this group is to balance asset diversification and asset mix and pick a reasonable "take out rate" from their overall portfolio. It also requires continual monitoring. As we age this becomes a responsibility that others family members may have to understand. Making them part of the process now will offer rewards later. The final question is how the retirement accounts and after tax funds will be taken care of when you have the highest need - that is in your final years when an increasing need will be placed on them to provide care.

After the pure money part of retirement is understood, the next biggest decision is "Who will provide care for me in retirement?" and "Do I need an insurance partner that I can pay now to take on some of the unforeseen risk?" In my practice, I often ask clients their thoughts on these questions. The overwhelming initial answer is they will handle it in their own house. They often reflect on how a parent was taken care of in their home, and they would like the same treatment. A couple of things have changed for all of us. First, America is an aging population. Care givers of the past are a quickly vanishing breed in our community. Like Japan and Europe, America is aging rapidly. The ability to find in-home assistance will be extremely difficult. (By 2020, nearly 40% of the in-home care givers will be Latino; learning Spanish now is highly recommended.)

Your aging spouse will also be going through many of the same health difficulties that you might have thought about. They may have lost the ability to provide the level of care you require. I encourage all my clients to consider many of the continuing care facilities in our community. While each of them has a different type of "care contract" to offer residents, they all have one thing in common - the ability to offer a continuum of age-related services to their residents. Second, I encourage clients to think about an insurance partner that offers not only cash payments for care but also practical assistance for in-home care. While many will consider themselves self-funded, i.e., there are assets in place to fund this care, the likelihood is that this type of in-home care will be far more expensive than you realize. An insurance partner is willing to bear some portion of this daily potential expense. Basically the expenditure of the premium offers protection to your net worth for later use by your spouse or as an estate gift. This entire care strategy needs to be considered in your late 50s and completed by mid-60s. By making these decisions early you will have more options as life styles change.

Making the most of retirement involves planning, budgeting, and adjusting to the increased life spans that most of us will enjoy. Stocks play an important part of your portfolio mix as they will give some assurance of keeping up with inflation. Taking care of each other financially means that partners and children need to understand your complete financial situation. With a little help from your family, friends, and long term advisors, the financial aspects of retirement can be understood, comprehended and dealt with over the course of your life.

Bill is President of Phoenix Financial, a Registered Investment Advisory Firm and serves on the Investment Committee for the Chapel of the Cross.

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