Middle Age Is the Best Time to Fireproof Your Retirement Portfolio

Like me, did you awaken one morning in the spring of 2009 only to discover that 40% of your retirement portfolio was gone thanks to the crash in US and European stock markets? (Hadn’t my financial advisor only recently assured me that my investments were “safely diversified”? ) Despite recent upward movement, my asset values still haven’t recovered fully to where they were in 2007. More frightening, what if I’d needed to retire early in 2009, right at the bottom of the market?

As you and I move into the latter years of middle age, perhaps five years or less from retirement, does it make sense to depend upon, then pray for stock market appreciation?  In fact, there are several steps you can take to “fireproof” your retirement finances so that you can plan the lifestyle of your dreams and count on not outliving your assets.

Here are four major financial threats that could rapidly derail carefree retirement plans, eat away at your assets and ultimately send you onto poverty row:

  1. Rapid, momentous declines in stock prices and/or bond values. Given the feeble economic recovery in the US and Europe and the spendthrift habits of our US politicians, a significant stock bear market is a strong possibility. At some point in the not-so-distant future, US inflation and interest rates are bound to rise. Any increase in interest rates guarantees a decline in bond market values so let’s hope you don’t need to cash in any bonds you now hold prior to maturity!
  2. A catastrophic and lingering health crisis for you, your spouse or a family member.  I recently learned of a woman who required extended chemotherapy treatment five days a week for an entire year. Total annual cost of her anti-cancer drug was $1,080,000, not including doctor and hospital fees!  Once we reach age 65, Medicare covers most medical costs but we aren’t protected against loss of income, our Medicare deductible or any convalescent, intermediate or respite care we may need. 
  3. The need for long-term care. Statistics demonstrate that once you reach age 65 there’s a 70% chance you will require some form of extended convalesecent or nursing home care during your lifetime. The startling average annual cost of extended care facilities in the US is $76,000 to $110,000, depending upon the area of the country where you live. Studies show that 2/3 of married couples and 50% of singles end up in bankruptcy within 13 weeks of entering a nursing home. Long-term care is not strictly for the ancient–accidents, strokes and lingering debilitating illnesses often claim far younger victims.
  4. Probate, attourney fees, potential law suits and endless time delays at the time of death. I know you won’t be around to suffer, but you certainly don’t want your heirs to lose a portion of their rightful inheritance, to fight each other in court or to wait around for years to obtain it. Marilyn Monroe’s estate was tied up for 18 years in probate and after expenses, fees and taxes shrunk from $1.8 million to $100,000!

Ours is not a financial advice blog and I am not a certified financial planner so I won’t recommend specific tactics to analyze and restructure your retirement portfolio or plan your estate. I can however offer a few common-sense nuggets of advice:

  • In retirement, what you need most is a reliable, steady and certain stream of cash each year to fund your desired life style. You most certainly won’t want to liquidate stock or bond investments when their values are down. To fireproof your portfolio, mix in a hearty portion of “cash-flow generators” like indexed fixed annuities, sophisticated “universal life” insurance (a policy which lets you “borrow” money from yourself), ownership of low-risk rental properties or a thoughtfully constructed reverse mortgage on your home.          
  • Don’t be scared off by the cost or policy restrictions of Long-term Care insurance. Unless you are very wealthy, LTC is a necessity. Coverage can be quite affordable, especially for those in their forties or early fifties. The average maximum stay in a nursing home is four or five years, so you don’t have to buy protection for twenty. Here’s another great feature: some policies will return paid-in premium to your heirs if you don’t enter a nursing home or require extended home care during your lifetime! Also, while still alive, you may be able to borrow from your whole life insurance policy to pay for long term care! It all depends upon how well constructed and flexible your whole life policy is–shop wisely!
  • If you are over 60 and your entire retirement savings are presently in a 401(k) or IRA common stock mutual fundcheck into rolling over your funds without tax penalty into reliable cash-flow generating instruments (see above.)  Certain indexed fixed annuities actually will pay you a 10-12% up-front bonus just for investing in them. At your age, you have no business jeopardizing your retirement by gambling on the stock market!  
  • Be sure to hedge against inflation. Even at our historically low 2.5% annual rate of inflation, prices at the supermarket keep spiraling. Have you ordered a steak at your favorite restaurant lately? Because our Federal Reserve continues to print money and our politicians continue to squander it, we can be certain that annual inflation soon will kick up to the 6-7% range (or much worse.). While precious metals generate no annual cash flow, it still makes sense to dedicate a sensible portion of your retirement portfolio to gold and silver, scarce commodities or some other form of inflation-advantaged assets.  
  • If you insist on continued stock market exposure, shift your investments into “no-load” funds only. Through fees and expenses, portfolio managers and financial institutions helped themselves to $1.3 trillion of the money we invested last year. So-called experts pay themselves regardless of portfolio performance and it’s all perfectly legal! Isn’t it time you stop investing money by playing against “house odds.” 
  • In planning your estate, never assume that a written will is all you need. To avoid probate, you should examine advantages of a “Living Trust.” Once it enters probate, your estate could be tied up for years and cost your heirs big bucks.. Equally disturbing, while in probate confidential personal information gets posted on the Internet, including heirs’ full legal names, amounts each will receive and their social security numbers! To learn more, talk to your attorney or search under “living trust guidelines” on the Internet. 

The ideal point in time to examine your current retirement portfolio, to review options going forward and to make tough choices is now, long before you retire. With your finances in order, you will have bought yourself a lifetime of peace of mind, a “lottery winner’s mentality.” Once retired, no sleepless nights pondering how to pay the bills! No delivery of newspapers at 5 AM or flipping of burgers at the local fast-food joint just to survive! No more putting off that dream vacation you thought you never could afford. No more fretting over whether the Dow Jones will rise or fall by 250 points tomorrow.

Want to learn more? Join me as I interview three widely-acclaimed wealth preservation experts on the February 11 and February 18 broadcasts of my weekly Internet radio program “Middle Age Can Be Your Best Age.” These broadcasts are live on the Internet right now; you can listen any day and time at your convenience. (Cant locate my program? Simply “google” our program name; the link is at the top of page 1.) On the February 18 program, you’ll also hear from a lady who will tell you how to accumulate and manage lots of “happy sexy money.”

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