Four Ideas For A Richer Retirement

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BERLIN – During the five years leading into retirement, there’s an almost inevitable change in how you focus on this time in your life. You’ve likely already dealt with the overarching issues such as maximizing your savings and investing to grow your portfolio over time, so that you can generate the income you’ll need to support the lifestyle you want. You’ve also probably started thinking about how you’ll cover health care costs and where you’d like to live. Now you’re at the point where you should be taking concrete steps to reach the goals you’ve identified. Developing a long-term strategy earlier in your career and saving towards your goals will have done much to allay any anxieties you might have about the future. But you’ve still got some decisions to make.

With just five years to go until you retire, you certainly don’t want to be exposed to too much risk. This is an ideal time to speak with your financial advisor about how best to balance your need for income with your desire for continued growth of your portfolio. There’s a good chance that growth stocks may well still play a role in your portfolio as you approach retirement. In fact, being overly conservative with your investments just before you retire could limit your opportunity to keep or exceed the pace of inflation.

How do you strike the right balance between safety and growth? According to Vince Grogan, Director of the Retirement Group at Merrill Lynch, “This is a great time to think about how you can establish your guaranteed income base with solutions like a variable annuity, which can provide a guaranteed income floor no matter where the market goes. Even putting a portion of your portfolio into an annuity can help provide growth potential through tax deferral and market participation as well as greater income security.” You may even wish to link certain regular expenses, such as health insurance premiums, to income from predictable sources, whether it’s Social Security, a pension payment, earned income or an annuity.

Potential health care expenses should also figure into your strategy. In fact, another reason many younger retirees stay in the workforce is to draw health benefits. If you plan to retire before age 65, devote some thought to how you’ll bridge the gap — with COBRA or other group coverage — between your end-of-coverage date and the start of your Medicare eligibility.

The run-up to retirement is also a smart time to look into long-term care insurance (LTCI), which can help cover the costs of home health aides or nursing home care. Timing is key here, because the cost to initiate coverage escalates as you grow older.

Where you’ll spend your retirement factors heavily into your retirement plan – If for no other reason than because your location informs your cost of living.

“It’s important to think hard about whether your dream destination, even if it’s your existing backyard, makes sense as a retirement spot,” says Grogan.

Another, nonfinancial, factor to consider is the kind of support system you would have if you moved. You may be leaving behind a network of connections that would need to be replaced.

Ultimately, ensuring that your life in retirement matches your vision should be the motivation behind your decisions in those critical five years before you switch gears. Work with your financial advisor to develop strategies that can enhance your post-career adventure.

(A Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-8520.)

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