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I’m Old So I’m Smart

Few would say that out loud but that’s really what we think. I was reminded of this by the impending divorce of two friends, both of whom are in their late 60s.

 

This was a second marriage for both of them and both were retired when they married. It started off fine but one spouse started drinking too much and refused to acknowledge there was any problem. Sadly, it’s led to the end of their marriage.

 

The issue with being old and smart is because they did not have a pre-nuptial agreement even though friends, including me, tried to tell them they needed one. Both had (grown) children and money from their previous marriage, one ended by divorce and one by death. Now they are locked in a struggle over their assets, complicated (I believe) by the greed and need of one of the grown children.

 

Both members of this couple assumed because they were older and had been around the block that they knew how to make the right choice in spouse. The man believed his first marriage ended in divorce because he was too young and inexperienced and was too taken with physical appearance and aspects to make a good choice. The woman was a widow but admitted there had been problems in her marriage due to differences in values and religion.

 

This time around both assumed everything would work out. They were same age bracket, same religion and outlook on life, shared hobbies and loved living in the same community in Florida. Why wouldn’t it work out?

 

You may not have any plans to marry or re-marry but there are ways to protect any financial decision we make (isn’t marriage really a major financial decision). We’re never too old to take them and shouldn’t assume that years of life experience mean we can’t make a mistake.

 

This will be true with anything from how to invest money to what to put in your will to whom to give a power of attorney. Don’t assume you know it all; you don’t!

 

Ask for advice, solicit counter opinions, develop a Plan B and put everything in writing.

 

You don’t want to be too old too soon, too smart too late.

3 Ways Your Retirement Money Could Run Out

US News and World Report recently published 5 Ways to Run Out of Money written by a financial planner.

It’s worth reading but it also reminded me that there are reasons – driven by emotion rather than choosing the wrong mutual fund – that cause people to run short in retirement.

Granted, I only recently retired but I have been living in a senior community for several years and here are the most frequent problems I’ve seen.

1. Giving Too Much Money to Family Members

Sometimes adult children sponge off a retired parent and sometimes the retiree tries to buy affection and devotion by constantly gifting children and grandchildren.

I’ve seen so many people not have enough money to do the fun things such as travel or replace a 12-year-old car because they have depleted their savings in that manner.

You need to be realistic about what you can do for your children/grandchildren. If they’re hitting you up for cash constantly, hand them the Help Wanted ads the next time they ask for something.

2. Not Planning for Medical Costs

Too many people take “Medigap’ polices too literally and think it means that plan pays what Medicare won’t. Not exactly.  Medigap plans cover the 20% of Part B costs (such as doctor fees, home health care, medical devices) that Medicare doesn’t pay for. If Medicare wouldn’t cover the item, however, the Medigap policy won’t either.

Unfortunately, the list of items Medicare doesn’t cover is fairly long and includes such items as routine hearing or eye exams, eyeglasses, hearing aids, dental work, some vaccinations, and routine foot exams and procedures.

People also are surprised that so many doctors refuse to accept Medicare assignment. That means the doctor or medical practice will not accept Medicare reimbursement as payment in full. By law, they can charge up to 115% of what Medicare would pay. The remaining costs are to be covered by Medigap policy or out of your pocket.

According to Fidelity investment company, a couple retiring in 2013 will need $220,000 to cover uninsured medical costs during their retirement. You might talk to an insurance agent about policies outside of Medicare, such as AFLAC, that may help cover medical expenses.

3. Getting Scammed

I’ve seen some really sad stories. Elderly people taken for thousands of dollars by fraudulent investing schemes and by individuals that they thought they could trust.

The latter is especially heartbreaking when an older person has given money to someone in a romance. I’ve known several older gentlemen who’ve been taken by young health or homemaking aides.

I’ve also known elderly people who’ve invested thousands of dollars after telephone solicitations for things as dodgy as oil wells. None of them ever came in!

The first thing you should do is to register in the federal Do Not Call database at https://www.donotcall.gov/ as well as your state’s Do Not Call database. That will stop some, not all, of these questionable investment counselors from cold calling you. If you have elderly parents or other relatives, it’s a good idea to enter them in the databases as well – whether you tell them or not.

This is tough to hear, I understand, but none of us is going to be a sharp in our 80s and 90s as well are in our 50s and 60s. By the time you’re 70, have your long-term investment plan in place.

It’s also a good idea to designate a second person (not a relative) such as financial planner, tax preparer, CPA, lawyer or whoever that you trust as your financial advisor.  Anytime you consider a change to your long-term plan, get a second opinion from your advisor before you change anything. You don’t have to give them any power of attorney but get their review and opinion before you take an action.

Bottomline

None of us want to have a hand-to-mouth retirement and it’s unpleasant to have nothing but Social Security to live on. Work with competent financial advisors but also be hard-headed about the emotional actions that can drain retirement funds.

P.S. Here’s a 3-minute video from a financial planner that provides basic but no-nonsense tips for developing a retirement plan.