Financial Information
Retirement advice from recently retired folks?
Question : Retirement advice from recently retired folks?
I am 40 y/o; saving 12% in 401k; paying off home; kids college all paid for. I’m trying to be as thorough as possible and would like any advice you have! Thanks!
Hi Doug. I actually tend to agree with you. While I do have ins & see it’s purpose, I really didn’t want to purchase MORE. I was hoping to get other advice which reflected more “real world” experiences like “I really regret buying that new (fill in blank w/expensive toy)” or “I wish that I had downsized my home”. Are you retired?
retirement advice
Best answer:
Answer by Uncle Leo
From the standpoint of saving, you seem to doing very well. It might not be a bad idea to increase the level of saving to somewhere between 15% to 20%. That’s a lot, but it increases your chances of maintaining your lifestyle in retirement largely unchanged. See the first webpage listed below for more details.
What you don’t discuss is how you’re protecting yourself against life’s risks. Dealing with risk is important because a major problem can wreck your financial plan. For example, more people are forced into bankruptcy by unexpected medical expenses than any other reason. If another Katrina blows by your house and your homeowner’s coverage is inadequate, you could lose a bundle. Think about the following:
1. You probably have health insurance, but if not, be sure to get it.
2. Disability insurance–make sure you have good a policy (which defines disability as your inability to work in your field or profession, not as the inability to work in any job). Some disability policies provide that even if you can’t work in your field or profession, you don’t get benefits if you can flip burgers at McDonald’s. The better policies start paying benefits if you can’t work in your field or profession.
3. Homeowner’s coverage–make sure the policy limit is high enough to cover the current costs of rebuilding your home. Also think carefully about the optional coverages–flood, other water damage (like sewer backups), earthquake, etc. Global warming or something is changing weather patterns and buying some of these optional coverages may be a good idea, depending on where you live.
4. Life insurance. There’s no fixed rule of thumb for how much you’d need–it really depends on what other financial resources you might have. But add up your other financial resources and then buy enough life insurance to reach the amount needed to cover the costs of supporting your kids through college.
5. Umbrella Policy. If your net worth is getting up into six figures, you may want to think about buying an umbrella policy. It gives you additional liability protection if you’re involved in a car accident or if a guest slips and falls on your property.
6. Long term care policy. A long term care insurance policy with level premiums (ones that won’t rise) may be fairly inexpensive for someone your age (maybe less than $ 1,000 a year, depending on terms and coverage). These policies become much more expensive if you want one in your 60′s (thousands of dollars a year). These policies are mostly for protecting your net worth against the risk of gigantic nursing home or other long term care expenses. If you have a six figure net worth, you won’t be eligible for Medicaid, and could have to pay out-of-pocket for many of these expenses unless you have a long term care policy. It’s something to think about.
7. Investment risk: make sure your investments are reasonably well-diversified. Don’t put all your eggs in one basket. An easy way to invest is to use lifecycle or target date funds. These are mutual funds for which the fund managers allocate your money into a diversified portfolio. You don’t have to do the money management yourself.
For more information, see the webpages listed below.
I *hate* Uncle Leo’s advice above.
Insurance does one thing better than anything else: it makes insurance companies rich. You should only carry insurance to cover events which are catastrophic for you — things that you could simply not afford to have happen. For everything else, you’re taking probabilistic chances that always favor the insurance company.
The one insurance you do need, almost for certain, is medical insurance — the price that it would cost you if you get cancer, for instance, would be potentially hundreds of thousands of dollars (or alternatively, your life).
But the rest of the stuff is bunk. Life insurance is only useful if you feel that a loved one would be destitute without you. If, for instance, you’ve built up a net worth that you and your wife could live off of, then she could certainly live off of it by herself! Your kids have college paid off, so they’re good to go — you don’t want to give them a ton of free money anyway.
Even things like comprehensive and collision insurance for your vehicles is typically a waste — as long as you can afford to write a check and buy another vehicle if you’re in a wreck. The truth is that the odds are not in your favor when you take out an insurance policy and if you can afford the worst-case scenario, you shouldn’t do it.
My advice is pretty generic and broad. I have a metric I use called FTI (the F*** This Index):
Age * Net Worth / Yearly Expenses
Once it’s over 1000, you’re probably good to go.
There are other details to discuss — it’s probably not a great idea to pay off your mortgage as long as you’re still working (because of the wonderful tax breaks homeowners get), you need to watch out for having too much money in your 401k if you’re planning on retiring before 59.5, and a few other things, but if you’d like more help, feel free to post more questions here.
Good luck,
Doug