What retirees really want: Peace of mind

Source: MARKETWATCH

Being health, wealthy and wise takes a lot of planning

By Robert Powell, MarketWatch

Last Update: 7:00 AM ET May 10, 2013

Some call it contingency planning while others refer to it as plain old risk management. But no matter what you call it, youll need to start thinking about it if youre saving for or living in retirement.

According to the findings from a new Merrill Lynch Wealth Management study, new retirees and those nearing retirement as they contemplate the next stage of their lives would benefit from at least six things, one of which is a better understanding of the issues critical to retirement, the risks they face, and what they need to prepare for.

And high on the list of risks they face are these: Inability to work and health-care costs.

Consider these two facts:

First, seven in 10 pre-retirees say they want to keep working in some form and fashion in retirement either for the income or for the social connections. But the sad truth is that many wont. In Merrills study, nearly three out of five retirees said they retired earlier than they expected, and only 27% said they had sufficient financial resources to retire (having achieved financial independence, by the way, is what best defines retirement to those surveyed).

The others left the workforce earlier than planned for personal health reasons (34%); job loss (24%); and having to look after family member (10%). Some 15%, for the record, said they retired early to spend more time with family.

Second, health problems and the cost of health care in retirement (which some estimate to be from $250,000 to more than $1 million not including nursing home costs for the average 65-year-old couple) now top the list of retirement worries.

And there are, of course, good reasons why this is so. For one, organizations estimate that the average 65-year-old couple might spend anywhere from $250,000 to more $1.3 million on health care expenses in retirement. Not surprisingly, such costswhen unanticipatedcan derail even the best of plans. The study notes, for instance, that 60% of bankruptcies in the U.S. today are related to medical bills, and retirees who are struggling with health issues are twice as likely to say they are in a financial crisis. (Read Why Medical Bills Are Killing Us.)

My take-away, at least, with these two risks is this: If you want to keep working for pay in the years before retirement and after retirement, youll need to maintain your health. (Hows that for having a unique ability to detect the obvious?) In addition, youll need to determine how to stay in the workforce or return to the workforce if thats your goal. What education, skills and knowledge will you need?

If you want to change careers, for instance, you might need to assess your current skills, knowledge and experience and then determine what, if any, additional training and education you might need for your next career. In some cases, you might need to enroll in a certificate or degree program to acquire the education needed for your next career or job.

Experts, meanwhile, recommend several ways to deal with unanticipated health-care costs in retirement. Some suggest, for instance, that you earmark your current savings and nest egg to pay for such expenses. Others meanwhile suggest that you earmark you Social Security benefit for health-care expenses. And still others suggest that you do a little of both: Earmark a portion of your current savings and nest egg and then plan to use a portion of your Social Security benefit for health-care expenses in retirement.

By the way, the Society of Actuaries has published a guidebook that details some ways to mitigate the risks that youll face in retirement, including unemployment and unanticipated health-care costs. Read Managing Post-Retirement Risks: A Guide to Retirement Planning.

The Merrill Lynch study also suggests that new retirees and those nearing retirement could also benefit from a clear definition of their goals and what is most important to them in retirement; knowledge of potential trade-offs they must consider; an ability to examine various scenarios and the potential outcomes of decisions they are being asked to make; a plan of action that puts all their resources to work to help them to live their very best lives in retirement; and an ability to correct course when circumstances warrant.

In an interview and during a news conference, David Tyrie, the managing director of personal wealth and retirement at Bank of America Merrill Lynch, referenced one focus group session in which an engineer suggested that space missions to the moon often required constant course corrections. And so do retirement plans, he said.

Read Merrills report, Americans Perspectives on New Retirement Realities and the Longevity Bonus.

Other findings of interest to those nearing or living in retirement are these:

New family dynamics

Pre-retirees and retirees are increasingly dipping into their own savings to help out family membersadult children (52%) and grandchildren (35%)in need of loans and cash, housing, health care, and education.

In addition, Tyrie noted that theres been a dramatic increase in the percent of households that are multigenerational, from 11% in 1980 to 22% in 2010.

My take-aways: If you dont have it, you wont be able to help out family members in need of money. And if you do have it, be prepared to part ways with some of it. Likewise, given the trend toward multigenerational households, you might want to consider downsizing. It is quite possible that someone in the family will be moving in with you.

Passing on life lessons and values

The study also highlighted how retirees and would-be retirees want to pass on to the next generation not just money and real estate but other pillars of legacy, such as their values and life lessons (75%); instructions and wishes to be fulfilled (47%); and personal possessions of emotional value (43%).

Others, including Karl Pillemer, founder of the Legacy Project and author of 30 Lessons for Living, have identified that passing on values and life lessons to the next generation is extremely important. Read Before Passing Along Valuables, Passing Along Values.

Peace of mind

The other big finding from the study has to do with what Merrill called retirement peace of mind. Instead of saying they want to accumulate as much as wealth as possible, those surveyed say their ideal financial goal is saving enough to have financial peace of mind. Its not about getting rich or retiring early.

And according to the survey, the following four key elements help create retirement peace of mind:

  • Financial security, confidence in having sufficient resources for retirement;
  • Health optimization (confidence in having resources and reliable care to maintain health in retirement);
  • Family well-being (feeling assured that family members will be financially secure and can rely upon each other when needed); and
  • Personal purpose (having meaningful retirement goals, faith/spirituality, social connections, and personal legacy).

To be fair, one finding from the survey seems to suggest that some folks still have a traditional view of retirement. In the survey, 31% said having achieved financial independence and 23% said stopping work permanently best defined what retirement means for them.

Robert Powell is editor of Retirement Weekly, published by MarketWatch. . Follow his tweets at RJPIII. Got questions about retirement? Get answers. Email rpowell@marketwatch.com.

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