By David Brooks, Founder & President of Retire SMART
I like hiking, but my brother is a serious mountain climber. He has scaled Denali and other major mountains. The more I listen to him talk about everything that goes into a successful climb, the more it reminds me of everything that goes into a successful retirement plan. You might enjoy this article at the Center for Financial Planning, which that notes that more people have died descending Mount Everest than ascending it.
When you climb a mountain, the journey does not end when you reach the top. There is of course the journey back down the mountain and the pleasures it offers. It’s nice to have gravity working with you instead of against you. You can savor the views of the valley, other mountains, and the sky, sun, and clouds.
But one must be careful not to be complacent or lackadaisical on the descent. My brother says more injuries happen on the way down than on the way up because people tend to amp themselves up for the ascent, but lose focus after that. There are dangers, some of them hidden, on the way down. The terrain may be steep or rocky. There may be patches of loose or slippery terrain. A misstep could cause significant injury.
The similarities to retirement are striking. People amp themselves up for the climb up the mountain of working life, along the way placing their funds in various accounts for maximum growth. They persevere and finally make it to the peak – retirement! Then they figure it’s all downhill enjoyment from there. And there is much to enjoy: travel, time with family, and other bucket list items.
What happens in some cases, though, is that people reach that pivotal moment of retirement and realize they don’t have a plan for how to keep living without that paycheck. They aren’t prepared to descend the mountain. They’re figuratively stuck up at the top with no clue how to proceed.
And you need to proceed carefully because, as with descending a mountain, living in retirement has dangers, some of them hidden.
Most people get health insurance through an employer. Do you have a plan for health insurance in retirement? Medical expenses will be one of your biggest budget items.
Are your home and car properly insured so your retirement nest egg is not wiped about by an unexpected damage claim? What about long-term care for a loved one or yourself? That also can deplete retirement accounts if there is not adequate planning to manage it.
Retirees routinely are blindsided by unexpected tax hits. It’s common for people to end up with more income in retirement than they had in their working lives, and thus find themselves in a higher tax bracket. What about the taxes assessed on withdrawals from retirement accounts?
There are ways to reduce or eliminate the impact of such taxes, but it requires planning so you know how to make the right financial moves at the right time.
Make sure you work with a financial advisor who puts as much time and effort into planning and managing what happens after you retire.
