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- Herausgeber: John Wiley & Sons
- Kategorie: Ratgeber
- Sprache: Englisch
Move confidently into your retirement planning years with financial advice from a bestselling personal finance advisor
Retirement is lasting longer than it ever has. And a little bit of careful planning can ensure that you spend your retirement—and the years leading up to it—in comfort and financial security.
In the latest edition of Personal Finance After 50 For Dummies, trusted personal finance author and advisor Eric Tyson delivers an up-to-date and expert take on how to enter your fifties in the best financial health possible. The book offers advice designed to help regardless of your income or living situation. You'll find sound and crystal-clear advice you can apply immediately on everything from investing to managing when to take Social Security, securing long-term insurance, navigating taxes, and establishing an estate plan.
You'll also get actionable guidance on the latest financial trends, including no-nonsense strategies regarding alternative investments and how to navigate financial products aimed at those nearing or in retirement, like reverse mortgages. Inside the book:
- Effective, step-by-step guides to building a financial plan that works for you, saving for the long-term, and creating a realistic budget
- Strategies for managing and reducing financial risk without missing out on sound investment opportunities that keep pace with inflation
- Explanations of how to blend government programs like Social Security and Medicare into your plan
Perfect for anyone interested in taking a serious look at planning for middle age and beyond, Personal Finance After 50 For Dummies covers the topics of unique interest to those looking to build a comfortable life in their golden years.
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Seitenzahl: 701
Veröffentlichungsjahr: 2025
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Personal Finance After 50 For Dummies®
To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Personal Finance After 50 For Dummies Cheat Sheet” in the Search box.
Table of Contents
Cover
Table of Contents
Title Page
Copyright
Introduction
About This Book
Technical Review by AARP
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1: Understanding Personal Finance After 50
Chapter 1: Looking Ahead to Your Future
Planning for the Longer Term
Eyeing Keys to Successful Retirement Planning
Chapter 2: Protecting Your Employment Income and Your Health
Assessing Your Need for Life Insurance
Protecting Your Employment Income: Disability Insurance
Investing In and Protecting Your Health
Chapter 3: Developing a Retirement Plan
Preparing for the Road to Retirement
Knowing How Much You Really Need for Retirement
Eyeing the Components of Your Retirement Plan
Setting Up a Couples Plan
Crunching the Numbers
Making Plans for Nonfinancial Matters
Chapter 4: Identifying Retirement Investments and Strategies
Defining Investments
What You Need to Do Before You Select and Change Investments
Surveying Different Investments
Managing Investment Portfolios
Chapter 5: Grasping Retirement Accounts and Their Rules
Eyeing the Characteristics of Retirement Accounts
Identifying the Different Types of Retirement Accounts
Rolling Over Retirement Balances
Choosing Beneficiaries for Your Retirement Accounts
Taking Required Minimum Distributions
Part 2: Making Money Decisions in Retirement
Chapter 6: Managing Budgets and Expenses
Discussing Some Retirement Worries You May Have
Spending Your Nest Egg
How Spending Really Changes in Retirement
Managing Your Expenses
Chapter 7: Guiding Investments and Distributions in Retirement
Guiding Your Investments through Retirement
Looking Closer at Annuities
Choosing Your Pension Options
Eyeing Withdrawal Strategies for Your Investment Accounts
Chapter 8: Making Important Housing Decisions
Analyzing Moving
Tapping Your Home’s Equity: Reverse Mortgages
Looking at Tax Issues Regarding Your Housing Decisions
Chapter 9: Considering Your Long-Term Care and Insurance Options
Understanding Long-Term Care
Planning to Pay for LTC
Considering Traditional LTC Insurance
Using Hybrid Insurance Products
Reimbursement versus Indemnity Coverage
Financing LTC Yourself
Evaluating Employer and Group Coverage
Combining LTCI and Self-Insurance
Part 3: Dealing with Government Programs
Chapter 10: Making Your Best Choices under Social Security
Getting the Lowdown on Social Security
Determining When You’re Eligible for Benefits
Taking a Closer Look at Spouses’ and Survivor Benefits
Identifying When You May Need to Receive Benefits
Noting How Working Reduces Benefits
Preserving Your Benefits
Being Aware of Potential Income Taxes on Your Benefits
Changing Your Mind: A Do-Over
Looking at What the Future Holds for Social Security
Chapter 11: Getting the Most Out of Medicare
Starting Medicare: A Broad Overview of Enrollment Deadlines
Understanding Part A
Exploring Parts B and C
Acquiring Part D Prescription Drug Coverage
Eyeing a Medicare Supplement
Resolving Some Sticky Issues
Chapter 12: The State Healthcare System Backup: Medicaid
Discovering What Medicaid Is
Considering Medicaid Eligibility
Establishing Functional Eligibility
Meeting Financial Requirements
Examining Planning Strategies
Using Both Medicare and Medicaid
Eyeing Reasons Not to Seek Medicaid
Part 4: Estate Planning: It’s More than Just Dead People and Lawyers
Chapter 13: The Basics on Estate Planning
Understanding Estate Planning
Studying Some Strategies Before Starting Your Estate Plan
Answering Key Questions to Gather Critical Information
Knowing How Estate Taxes Work
Finding Good, Affordable Advice
Chapter 14: Eyeing Wills and Other Legal Documents
Creating Your Will
Assigning a Financial Power of Attorney
Delegating Medical Decisions
Passing Other Assets
Looking Closer at Probate
Chapter 15: Solving for When You Have “Too Much Money”
Understanding the Estate Tax
Tallying Your Assets
Reducing Your Estate
Taking Deductions
Choosing Family Estate Strategies
Contemplating Life Insurance
Avoiding the Tax on Gifts to Grandkids: The GSTT
Chapter 16: Meeting Goals with Different Types of Trusts
Identifying the Cast of Characters
Naming the Types of Trusts
Using Trusts in Estate Planning
Part 5: The Part of Tens
Chapter 17: Ten Common Retirement and Estate Planning Mistakes
Not Having at Least a Basic Financial Plan
Procrastinating about Estate Planning
Underestimating Life Expectancy
Miscalculating Inflation
Believing You’ll Retire When You Expect To
Ignoring Nonfinancial Planning
Failing to Coordinate with Your Spouse
Expecting to Age in Place
Thinking Most Medical Expenses Will Be Covered
Missing the Initial Enrollment for Medicare Plans
Chapter 18: Ten Things to Know about Working in Retirement
Some Work Is Good for You
The Social Security (Tax) Impact Can Be Huge
Number Crunching Can Show You How Different Scenarios Work
Life Is Short and You Owe It to Yourself to Do What You Love
Investing in Education Can Boost Your Employment Value
Some Employers Are More User-Friendly for Older Workers
Taking Some Employment Risk Is Important
Starting/Buying a Small Business May Be a Rewarding Option
Your Spouse May Not Want What You Want
Volunteering Makes You Happy and Benefits Your Community
Chapter 19: (Almost) Ten Tips about Caring for Your Aging Parents
Leverage Off Others’ Experiences
Ask for Professional Help
Invest in Their Health
Get Your Parents’ Affairs in Order
Examine Housing and Medical Care Options
Use Caregiver Agreements
Separate Living Spaces if Parents Are Going to Move In
Take Care of Your Family
Take Care of Yourself
Index
About the Authors
Connect with Dummies
End User License Agreement
List of Tables
Chapter 1
TABLE 1-1 The Long-Term Value of Saving More and Earning Higher Investment Retur...
Chapter 2
TABLE 2-1 Calculating Your Life Insurance Needs
Chapter 5
TABLE 5-1 Retirement Tax Rates That Would Negate Tax-Deferral Benefits
Chapter 6
TABLE 6-1 Per Person Changes in Expenditures by Age Group
TABLE 6-2 Household Changes in Expenditures by Age Group
Chapter 7
TABLE 7-1 Allocation Changes
TABLE 7-2 Allocations after Rebalancing
TABLE 7-3 PBGC Maximum Monthly Guarantees for 2025
Chapter 10
TABLE 10-1 Age to Receive Full Social Security Benefits
TABLE 10-2 Full Retirement and Age 62 Benefit by Year of Birth
TABLE 10-3 How Much Will Delayed Retirement Increase My Benefits?
Chapter 11
TABLE 11-1 Part B Total Premiums Due, According to MAGI
TABLE 11-2 Part D Monthly Premiums and Monthly Adjustments According to MAGI
TABLE 11-3 Coverage for Medigap Plans
List of Illustrations
Chapter 4
FIGURE 4-1: Comparing risks and returns of different portfolios.
Chapter 15
FIGURE 15-1: Estate or inheritance tax by state.
Guide
Cover
Table of Contents
Title Page
Copyright
Begin Reading
Index
About the Authors
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PRAISE FOR ERIC TYSON
“Eric Tyson is doing something important — namely, helping people at all income levels to take control of their financial futures. This book is a natural outgrowth of Tyson’s vision that he has nurtured for years. Like Henry Ford, he wants to make something that was previously accessible only to the wealthy accessible to middle-income Americans.”
— JAMES C. COLLINS, COAUTHOR OF THE NATIONAL BESTSELLERS BUILT TO LAST AND GOOD TO GREAT
“Personal Finance For Dummies is the perfect book for people who feel guilty about inadequately managing their money but are intimidated by all of the publications out there. It’s a painless way to learn how to take control.”
— KAREN TOFTE, PRODUCER, NATIONAL PUBLIC RADIO’S SOUND MONEY
“Eric Tyson … seems the perfect writer for a For Dummies book. He doesn’t tell you what to do or consider doing without explaining the why’s and how’s — and the booby traps to avoid — in plain English… . It will lead you through the thickets of your own finances as painlessly as I can imagine.”
— CHICAGO TRIBUNE
“This book provides easy-to-understand personal financial information and advice for those without great wealth or knowledge in this area. Practitioners like Eric Tyson, who care about the well-being of middle-income people, are rare in today’s society.”
— JOEL HYATT, FOUNDER OF HYATT LEGAL SERVICES, ONE OF THE NATION’S LARGEST GENERAL-PRACTICE PERSONAL LEGAL SERVICE FIRMS
“Worth getting. Scores of all-purpose money-management books reach bookstores every year, but only once every couple of years does a standout personal finance primer come along. Personal Finance For Dummies, by financial counselor and columnist Eric Tyson, provides detailed, action-oriented advice on everyday financial questions… . Tyson’s style is readable and unintimidating.”
— KRISTIN DAVIS, KIPLINGER’S PERSONAL FINANCE MAGAZINE
“This is a great book. It’s understandable. Other financial books are too technical, and this one really is different.”
— BUSINESS RADIO NETWORK
MORE BESTSELLING FOR DUMMIES TITLES BY ERIC TYSON
Investing For Dummies®
A Wall Street Journal bestseller, this book walks you through how to build wealth in stocks, real estate, and small business as well as other investments. Also check out the recently released Investing in Your 20s and 30s For Dummies.
Mutual Funds For Dummies®
This best-selling guide is now updated to include current fund and portfolio recommendations. Using the practical tips and techniques, you’ll design a mutual fund investment plan suited to your income, lifestyle, and risk preferences.
Home Buying For Dummies®
America’s #1 real estate book includes coverage of online resources in addition to sound financial advice from Eric Tyson and frontline real estate insights from industry veteran Ray Brown. Also available from America’s best-selling real estate team of Tyson and Brown — House Selling For Dummies and Mortgages For Dummies (with Robert Griswold).
Real Estate Investing For Dummies®
Real estate is a proven wealth-building investment, but many people don’t know how to go about making and managing rental property investments. Real estate and property management expert Robert Griswold and Eric Tyson cover the gamut of property investment options, strategies, and techniques.
Small Business For Dummies®
This practical, no-nonsense guide gives expert advice on everything from generating ideas and locating start-up money to hiring the right people, balancing the books, and planning for growth. You’ll get plenty of help ramping up your management skills, developing a marketing strategy, keeping your customers loyal, and much more. And, find out how to use the latest technology to improve your business’s performance at every level. Also available from co-authors Eric Tyson and Jim Schell: Small Business Taxes For Dummies.
Personal Finance After 50 For Dummies®, 4th Edition
Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com
Copyright © 2026 by Eric Tyson and Bob Carlson. All rights reserved, including rights for text and data mining and training of artificial technologies or similar technologies.
Media and software compilation copyright © 2026 by John Wiley & Sons, Inc. All rights reserved, including rights for text and data mining and training of artificial technologies or similar technologies.
Published simultaneously in Canada
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Library of Congress Control Number: 2025946513
ISBN 978-1-394-35048-3 (pbk); ISBN 978-1-394-35049-0 (ebk); ISBN 978-1-394-35050-6 (ebk)
Introduction
Some things get better with age. Aging presents opportunities for increased wisdom and broader perspective as well as some increased challenges. One of those challenges has to do with finances. The new, and sometimes more complex, financial decisions that confront folks in their later working years and then in retirement can be tough to work through.
For example, consider the types of questions we, your humble authors, have been asked from folks in our advisory businesses:
Can we afford to change careers, cut back on work, or simply retire? How much can we comfortably spend per year given our assets? Should I plan to move to an area with a lower cost of living?
My employer is offering me pension options. How do I choose among them?
I just left my employer (by choice or through layoff) and have some money in a retirement account. What should I do with it?
How should I manage my investments now and in the years ahead? When should I begin collecting Social Security benefits?
What’s the process for withdrawing money from my retirement accounts, and how can I minimize my tax hit from doing this?
Should I buy an annuity? If so, what type? Are reverse mortgages a good idea?
What types of additional medical insurance — long-term care insurance, Medicare supplement, and so on — do I need pre- and post-retirement?
An agent is telling me to buy more and different types of life insurance. How much do I need and what type of life insurance should I buy?
Do I need a will? Do I need an estate plan? Should I move to a more tax-friendly state? What should I do to protect my spouse, children, or significant others?
We wrote this book to answer these important questions and many more. We aim to not only answer your questions but also highlight important issues you may not be aware of. This way, you have ample time to consider them and make decisions that support your financial independence.
About This Book
Everyone needs to make financial decisions. Whether you’re rich, middle class, or lower-income; 50 or 85 years old; retired or still working two jobs, money passes through your hands every day. No matter your situation, we’re excellently positioned to give you sound financial advice on the range of issues presented in this book. We each have decades of professional experience in the financial services industry; we each have extensive training and background to provide expert personal financial and retirement advice; and we both communicate in plain English with our readers, operate free of conflicts of interest, and interact with people like you with real financial problems that need solutions.
Eric started as a management consultant in the financial services industry and then worked as a personal financial counselor. Now he’s an author and the proprietor of www.erictyson.com. Eric is a trained economist who graduated with honors in economics and biology from Yale University and got his MBA at Stanford. Bob was chairman of the board of trustees of the Fairfax County Employees’ Retirement System from 1995-2024, which had more than $4 billion in assets. He served on the board from 1992-2024. He’s also the editor of the monthly newsletter and website Retirement Watch. Bob received his JD and an MS in accounting from the University of Virginia, received his BS in financial management from Clemson University, and passed the CPA exam.
We also have established a few conventions to help you navigate through this book: First, although we’d like to believe that you want to pore over every last word in this book, we make it easy for you to identify “skippable” material — information that’s interesting but not essential: text in sidebars (the shaded boxes that appear here and there) and paragraphs marked with a Technical Stuff icon. Second, we include web addresses if you’d like to find out more about a particular resource. If a web address breaks across two lines of text, just type it in exactly the way you see it in this book, pretending as though the line break doesn’t exist. (If you’re reading this book online, simply click the link to go to the web page.) Finally, we refer to the decade from 2000 to 2009 as the 2000s. We just want to avoid any confusion in case you were thinking of the year 2095.
Technical Review by AARP
AARP, the advocacy group focused on the needs of people over the age of 50, reviewed the completed manuscript and offered insight and suggestions based on their research and policies. While our point of view aligned with AARP much of the time, there are instances where we don’t see things the same or use the same terminology you might find in AARP publications. Because a piece of advice that’s perfect for one person may not work for another, we think it’s valuable to collect multiple points of view before making any personal finance decision and to make those decisions only in consultation with your family or a trusted, professional advisor.
Whenever you see the word “we” throughout the manuscript, know that the word means “the authors” — Eric Tyson and Bob Carlson — and our advice and opinions. As we’ve done in the previous three editions of this book, we share insight based on our professional expertise and experience working directly with clients over 50 and appreciate AARP’s assistance in making sure the information in the book is technically accurate.
Foolish Assumptions
When writing this book, we made some assumptions about you:
You’re around age 50 or older and are approaching or are in retirement or at least thinking about it more these days.
You’re probably still in the workforce and have no immediate plans to retire, which is fine and compatible with our approach in this book too.
You want expert advice about important financial topics, and you want easy-to-understand answers.
You want a crash course in personal finance and are looking for a book you can read to help solidify major financial concepts and get you thinking about your finances in a more comprehensive way.
Throughout this book, we offer many resources, including websites and online tools to help you, as well as plenty of alternative offline resources and assistance.
Icons Used in This Book
The icons in this book help you find particular kinds of information that may be of use to you. Here’s a rundown of what each icon means:
This target flags strategy recommendations for making the most of your money.
When you see this icon, you’ll know the text next to it points out information that you definitely want to remember.
This icon alerts you to scams and scoundrels who prey on the unsuspecting as well as possible financial missteps.
Personal finance advice can differ from advisor to advisor. When you see this icon, it means that the advice being shared matches with what author Eric Tyson has consistently recommended over the years. This guidance might differ a bit from what you’ll find in other resources, but it’s proven effective for Eric’s clients throughout his career.
The investigate icon tells you when you should consider doing some additional research. Don’t worry — we explain what to consider and what to look out for.
This icon appears beside discussions you can safely ignore because they aren’t critical to your understanding of the topic at hand; however, reading them can help deepen your personal financial knowledge.
Beyond the Book
In addition to the material in the print or e-book you’re reading right now, this product also comes with some access-anywhere goodies on the web. To get the free Cheat Sheet, simply go to www.dummies.com and search for “Personal Finance After 50 For Dummies Cheat Sheet.” Here you will find such things as stats on the age at which you can retire and the benefits you will receive, additional information on Medicare, and how to protect your pension.
You might also want to visit AARP.org, the website for this book’s technical reviewer. The site is a good resource for finding up-to-date news and information on policies that affect those over 50.
Where to Go from Here
This book is organized so you can go wherever you want to find complete information. Want advice on managing and tracking your expenses in retirement? See Chapter 6. If you’re interested in investing strategies and developing a retirement plan, cruise on over to Part 2. If you’re not sure where you want to go, you may want to start with Part 1. It gives you all the basic info you need to assess your financial situation and points to places where you can find more detailed information for improving it. Check out the table of contents for a chapter-by-chapter rundown of what this book offers. You also can look up a specific topic in the index. Last but not least, you can turn to Chapter 1 and begin reading for a complete and thorough crash course in personal finance during your golden years.
Part 1
Understanding Personal Finance After 50
IN THIS PART …
Get complete and easy-to-understand guidance on how to best plan for a secure financial future.
Find out how to protect your employment income and your health.
Develop a plan that will see you through your retirement years by discovering the best retirement investments and strategies, and understanding retirement account rules.
Chapter 1
Looking Ahead to Your Future
IN THIS CHAPTER
Taking charge of your long-term plans
Implementing retirement planning strategies
From a young age, various adults in our lives tell us to plan ahead. Although it may be sunny and clear outside this morning, they tell us to take rain gear for this afternoon’s forecasted heavy rain. When packing for a day at the beach, they suggest sunscreen. And do your best in high school, they say, because your transcript will in part determine which colleges accept you.
Although some parents provide guidance to their children on the topic of long-term financial planning, most don’t because they aren’t sufficiently knowledgeable or are reluctant to explain these things to their kids. And therein lies a pretty significant problem concerning finances for your adult and especially later adult years.
And retirement has its own set of trials. Unexpected life events (such as a loss of a job, the death of a loved one, or a major medical problem) and economic challenges can throw a wrench in the best plans. The severe recession and stock market decline in the late 2000s — both of which were the worst in decades, and then the 2020 COVID-19 pandemic — highlight other potential planning obstacles. Many near-retirees and recent retirees caught off guard face the possible need to keep on working beyond typical retirement age, the need to reduce spending and make do with less (for example, one car rather than two), and the need to cope with the loss of jobs, diminished investment portfolios, and reduced home values.
These challenges can occur at any time during life, but they’re especially challenging when they happen in or near retirement. You have less time to make up for setbacks (and any mistakes you make) as you age. At some point in most folks’ lives, working longer or going back to work no longer are viable options. That’s why planning and regularly reviewing and reevaluating your financial plans is essential.
We know many of you are reading this book having done little or no planning to this point. Don’t worry, though. It’s not too late to start planning. Studies of retirees show those who are most content in retirement are those who did some planning, even if it was a small amount. Planning is how you match your resources with your goals and expectations and identify where adjustments need to be made. Even if you’re already retired, planning now can improve the rest of your retirement.
This chapter discusses important themes that run throughout the book: the value of planning ahead and getting on the best path as soon as possible, the importance of taking personal responsibility, and the significance of taking a long-term perspective to make the most of your older years. We also discuss how to keep the right focus to optimize your retirement planning.
Planning for the Longer Term
Planning doesn’t sound fun, and for many people, it isn’t one of life’s most enjoyable activities. But nearly everyone values the benefits of proper planning: peace of mind, financial security, more options and choices, improved health, and a better lifestyle.
During your later adult years you have many choices about different financial issues. You can change some of the decisions after you make them, but others can’t be altered. If you do decide to make adjustments, you have fewer years to benefit from the new choices. That’s why as you approach your older years, planning your finances is more important than it was earlier in life.
In this section, we discuss the important issues that warrant your planning attention, explain why you should be the person to take the most responsibility for making that happen (even if you hire some help), and quantify the value of your taking our advice.
Identifying long-term planning issues
What’s on your mind (or should be on your mind) regarding your financial future? Consider how many of the issues in the following sections require long-term planning.
Choosing among an employer’s pension options
You need to look not just years but decades into the future to determine which pension option (see Chapter 3) may best meet your needs and those of your loved ones. A pension is an employer-provided retirement benefit from money that your employer puts away on your behalf, wherein you receive a monthly payment based on your years of service and earnings. A pension typically is just one of several sources of retirement income you may have (the others typically being Social Security and personal savings including retirement accounts), so you must consider how these will fit together over many years.
Pensions (check out Chapter 7 for more info) differ from other sources of income, such as 401(k)s, individual retirement accounts (IRAs), profit-sharing plans, and employee stock ownership plans (ESOPs), mainly in that only pensions guarantee you a fixed monthly payment backed by your employer. With other types of retirement savings, the amount you receive in retirement depends on the amount you contribute and how you invest the account. (See Chapter 5 for more info on other retirement accounts.) Pension plans are on the decline, especially in the private sector where retirement savings plans dominate.
Leaving an employer and deciding what to do with your retirement account money
When you change jobs, get laid off, or retire, you often are faced with choices about when and how to withdraw money from retirement accounts — such as 401(k)s or 403(b)s — and minimize the tax hit from doing so. Moving money is a decision you may have to make today, but don’t make light of this decision because it affects how much money you’ll have in the decades to come.
Some employer plans allow you to keep retirement money in place even if you’re no longer employed with the company. You may choose to accept the offer to keep money in place if it’s a plan with good investment options and low costs. Planning retirement account withdrawals requires long-term tax planning if you want to make the withdrawals in the best way possible. For more information on handling retirement accounts, see Chapter 5.
Determining whether you can afford to retire and how much you can safely spend per year
To assess whether you can afford to retire and how much you’ll be able to spend after you do retire, you have to do some analysis relating to your spending habits, temperament, and investment holdings. And, to be sure that you don’t run out of money or come close to running out of money, you also need to consider a wide range of scenarios for how your investments may perform in the years ahead. You can’t assume investments will return their historic averages each year. In fact, we’ve seen some stock indexes generate low returns or even negative returns over periods of a decade or more. See Part 2 for more information on each of these issues.
As with other aspects in life, differentiate between the things you can control and the things you can’t. The economy will go through recessions, and the stock market will decline. Predicting their timing, depth, and duration is beyond anyone’s control. Although you can’t control these events, you can be prepared for them. Your plan should reflect that by having some flexibility and, if possible, a cushion. For example, you can control some of your spending and how much risk you take investing.
Deciding when to begin collecting Social Security
Deciding when to begin collecting your Social Security is a complicated decision that’s impacted by many factors, including tax laws, your earnings and your spouse’s earnings, your marital status, and your health, among others. As we discuss in Chapter 10, you have to look years and decades ahead to make an appropriate and successful decision.
Considering a reverse mortgage
Reverse mortgages provide supplemental retirement income to cash-poor (and relatively house-rich) people. With a reverse mortgage, you receive payments (or a lump sum) from the lender. Interest on the loan (and fees) compounds, but the debt doesn’t have to be paid until the home is sold. When you consider taking out this type of mortgage, you should do plenty of long-term analysis to compare your options and be sure you’re getting the right one for your situation and that you understand the risks associated with doing one. See Chapter 8 for the details.
Contemplating additional medical insurance
Health insurance is always a prickly issue to deal with because it’s difficult to know what medical issues you may be facing 5, 10, 20, or more years from now. Sure, you can gain a general sense from your parents and from the types of medical issues that aging adults deal with, but only time will tell what unique issues you’ll confront. Different options you have to consider pre- and post-retirement are long-term care insurance (see Chapter 9 for more info) and Medicare supplements (refer to Chapter 11).
Weighing the option to buy more or different life insurance
When others are dependent on your employment income, you may need some life insurance coverage. And, depending on your specific assets, the type of life insurance you may most benefit from may change over the years.
To determine your life insurance needs, you should have a good sense of your current financial assets and current and future obligations. Refer to Chapter 2 for more information on evaluating your need for life insurance.
Developing your estate plan
Your financial circumstances of course will change in the years ahead, and so, too, tax and probate laws will likely change. Planning your estate involves many issues, including ensuring your own financial security, taking care of your affairs in the event you’re unable to do so yourself, and protecting and providing for your heirs. Head to Part 4 to find out more.
BE AWARE OF AND INVOLVED IN YOUR INVESTMENTS
Keeping a close eye on your investments and knowing what’s going on with your money is important, particularly during your older years. You should never blindly trust someone with your money.
Consider the victims who lost tens of billions of dollars to hedge fund Ponzi-schemer Bernard Madoff, many of whom were near or in retirement. The prime targets of the Madoff scam (and of most financial scams) were people in their 50s and older who worry about their standard of living and income, though they’re what most people consider financially comfortable. Within this group was another target group: entrepreneurs and successful professionals. Risk-taking usually is part of their personal profiles, and risk-takers often are attracted to unique and little-known strategies. That’s why con artists seek them.
Madoff investors lost so much money in such a total fraud primarily because of a lack of homework. Victims failed to conduct proper research (or even any research) on Madoff’s claimed returns. They simply invested with Madoff due to the recommendations of others investing with him. With a private money manager like Madoff, investors should have been far better educated regarding his investing options and conducted lots of due diligence. They should have insisted on knowing what his investment strategy was and how it was supposed to work. They should have reviewed audited statements of the amount of assets he claimed to be managing. If they had, they would have noticed that the market for the stock options he claimed to be trading wasn’t big enough to support his portfolio, much less all the other investors’ trading options.
Interestingly, it came out that Madoff largely refused to provide much information to inquisitive prospective investors and essentially blew them off and turned them away. In retrospect, such behavior makes sense because Madoff wasn’t interested in and didn’t need to accept money from investors who were asking too many questions. After all, they may have uncovered his enormous fraud.
Taking personal responsibility for your financial future
Our lives are filled with responsibilities — jobs, family obligations, bills, household maintenance, you name it. We all try to make time for friends, fun, and recreation as well.
With all these competing demands, it’s no wonder that many folks find that planning for their financial future continually gets pushed to the back burner. Most people don’t have the time or expertise to make good financial decisions. But you’ve taken a huge step to erase those obstacles in reading this book. We provide sound counsel and advice, and now you’re investing the time and energy to get on a better path toward retirement.
From this point forward, we urge you to always remember that you — and only you — can take full responsibility for your financial future. Of course, you can hire advisors or delegate certain issues to a willing and competent spouse or other beloved relative or friend. But, at the end of the day, it’s your money on the line, and you had better take an interest in it! Delegating your responsibilities without knowledge, understanding, and some involvement is a recipe for disaster. You could end up without vital insurance, be taken advantage of in terms of fees, or even be defrauded among other unsavory outcomes.
Saving and planning sooner and smarter pays off
Throughout this book, we discuss financial strategies and tactics for making the most of your money over the coming decades of your life. The sooner you get control over and optimize your finances, the bigger your payoff will be.
You should never rush into making changes that you don’t understand and haven’t had time to properly research. But procrastination comes with many costs, including lost financial opportunities. Creating a financial plan and sticking to it is so important when planning for retirement. Chapter 3 helps you make your own plan.
Consider, for example, something that nearly everyone wants to do: save and invest for future financial goals such as retirement. Take the case of the Fuller family, who came to Eric for financial counseling years ago. The Fullers enjoyed a healthy and relatively stable income, yet they saved little, if any, money annually. They knew how to spend money!
In terms of savings, they had about $100,000, which may sound like a lot, but given their annual income ($150,000) and ages (late 40s), they still hadn’t accumulated savings equal to a year’s worth of income. The money they had wasn’t well invested — nearly all of it was in low-interest bank accounts and a pricey life insurance policy that provided just $500,000 of coverage (not nearly enough given their incomes and the fact that they had dependent children). Of course, they could have done worse (at least the money was growing slowly). However, they weren’t going to reach their retirement goals unless their money started working harder for them.
Over a number of months, the Fullers worked with Eric and were able to implement the following changes, which they stuck with for the years that followed:
They increased their savings rate. They were able to consistently save about 15 percent of their annual incomes (about $22,500 per year), which was up from just 4 percent ($6,000). They accomplished this through a combination of reduced spending and reduced taxes by directing their savings into tax-advantaged retirement accounts including a 401(k) and SEP-IRA.
“Cutting our expenses was easier than I thought. We were wasting money on things we didn’t really need or even use in some cases,” said Mrs. Fuller. Her husband added, “We felt much more relaxed and less stressed by cutting our expenses and boosting our savings.”
They improved their investment returns.
Rather than earning a meager return having their money in low-interest bank accounts, the Fullers enjoyed 8 percent annual returns by investing in a diverse mix of stocks around the world along with some high-quality bonds.
They purchased better insurance coverage.
The Fullers needed about $1.5 million of life insurance coverage — triple the amount they had been carrying. They were able to buy that increased level of coverage along with some additional needed disability insurance by raising their deductibles on some other insurance policies and by switching to lower-cost (but still high-quality) providers.
So what were these changes worth to the Fullers? As they themselves said, they had much more peace of mind and comfort with their new financial situation. In the remaining part of this section, we briefly examine the true financial value to them over the decades following the changes.
If the Fullers had continued saving as they had been (saving just 4 percent of their incomes yearly and keeping that money in a bank account), in ten years (when they reached their late 50s), they would have accumulated $188,000. This would have put them in a relatively poor situation for their future retirements given their annual income of $150,000.
On the other hand, the changes (saving 15 percent annually and instead earning an average investment return of 8 percent yearly) would lead the Fullers to have more than $541,000 in ten years — nearly triple what they would have had if they hadn’t made changes. The differences are even more dramatic looking 20 years out. Check out Table 1-1 to see the calculations.
TABLE 1-1 The Long-Term Value of Saving More and Earning Higher Investment Returns
Number of Years
Status Quo (Save 4% per year, earn 2% per year)
With Changes (Save 15% per year, earn 8% per year)
10
$188,000
$541,000
20
$295,000
$1,494,000
By making sensible changes, the Fullers are well positioned to retire with a hefty nest egg. (In fact, they could consider retirement sooner.) In the absence of those changes, however, they would have a small amount and be unable to even come close to maintaining their lifestyle during retirement.
Eyeing Keys to Successful Retirement Planning
Although you may like to consider other factors as more important than money — such as your health, relationships with friends and family, and interests and activities — the bottom line is that money and your personal financial fitness are extra-important factors in your retirement lifestyle.
Getting caught up in planning the financial part of your future appears easy. After all, money is measurable, and so much revolves around the money component of retirement planning. So what can you do to successfully plan for retirement? You could simply work really hard and spend lots of time making as much money as possible. But what would be the point if you have little free time to enjoy yourself and others? Fortunately, you can implement the following strategies when planning for retirement. We weave discussions on these important issues throughout the book.
Saving drives wealth
You may think a high income is key to having a prosperous retirement, but research shows that the best way to retirement bliss is to save. Research demonstrates that wealth accumulation is driven more by the choice to save (rather than spend) than it is by a person’s income.
For example, professors Steven Venti and David Wise examined nearly 4,000 households across an array of income levels to challenge the notion that many households lacking high incomes don’t earn enough money to both pay their bills and save at the same time.
Venti and Wise examined these households’ current financial statuses and histories to explain the differences in their accumulations of assets. Their findings showed that the bulk of the differences among households “… must be attributed to differences in the amount that households choose to save. The differences in saving choices among households with similar lifetime earnings lead to vastly different levels of asset accumulation by the time retirement age approaches.”
It’s not what you make but what you keep (save) that’s important to building wealth. Of course, earning more should make it easier to save, but many folks allow their spending to increase with their incomes.
Keeping your balance
Most people we know have more than one goal when it comes to their money and personal situations. For example, suppose Ray, age 50, wants to scale back work to a part-time basis and spend more time traveling. He reasons, “I don’t want to wait until my 70s, because what if my health isn’t great or I don’t make it!” But Ray also wants to help his adult children with some of the costs of graduate school and possibly with buying their first homes.
Ray’s situation — of having multiple goals competing for limited dollars — is often the norm. Thus, a theme we discuss throughout this book is how to trade off competing goals, which requires personal considerations and balance in one’s life.
Unless you have really deep pockets and modest goals, you need to prioritize and develop price tags for each of your goals.
Understanding that planning is a process
The Aircraft Owners and Pilots Association has a slogan: “A good pilot is always learning.” Likewise, to have a good retirement, you should view planning as an ongoing activity, not a one-time endeavor. Financial planning is a process. Too many people develop financial plans and then think they’re finished. Taking this route is a good way to run into unpleasant surprises in the future.
A plan is based on assumptions and forecasts. However, no plan — no matter how carefully it’s developed — gets all the assumptions and forecasts correct. Even your best, most careful guesses may miss the mark. So every few years, you should review and update your plan.
As you’re reviewing, assess how much reality differed from your assumptions. Sometimes, you’ll be pleasantly surprised. Your portfolio may earn more than you expected, or you may spend less than you estimated.
Other times the review won’t be as pleasant. The markets may have dragged down your portfolio returns. Or your spending may have exceeded your estimates. In either case, you aren’t reaching your goals.
Even if you do meet the mark in most instances, you still are never really done planning and revising. You’re bound to experience changes in your life, the economy, the financial markets, tax law, and other areas. You may come across new opportunities that weren’t available a few years ago or that weren’t right for you then but make sense now. You need to continually adapt your plan to these changes. You may need to adjust your spending or change your investment portfolio.
You don’t have to be obsessive. Daily, or even quarterly, changes in your portfolio that are different from the plan aren’t a reason to go back to the drawing board. But every year or so (or when you have a major change in your personal situation), take a fresh look. Review the plan and your progress. Figure out what went right and what went wrong. Decide whether your goals or situation have changed and whether any adjustments are needed. Finally, implement the new plan and enjoy life. After all, that’s what the money is for.
Chapter 2
Protecting Your Employment Income and Your Health
IN THIS CHAPTER
Evaluating your need for life insurance
Seeing why most working people need disability coverage
Making the most of your health
During your working years, especially your earlier working years, your future income earning ability is probably your most valuable asset. Consider that the typical person in their 20s and 30s has many years (decades, in fact) ahead to earn enough money to pay for current expenses such as food and clothing, transportation, taxes, medical bills, and vacations and save for the future. Unless you’re independently wealthy (or have an affluent relative ready to provide long-term care for you if you hit hard times), you should carry the proper types and amounts of insurance to protect yourself and your family if something occurs to you that would affect your ability to earn a living. In this chapter, our focus is on protecting income you’re earning while employed.
Insurance isn’t free, of course. And, like other companies, insurance companies are in business to turn a profit. So you want to make sure you obtain proper insurance protection at a competitive price and buy only the coverage you need.
In this chapter, we dive into the details regarding life and disability insurance you may need. Here, we also discuss your employment income and how best to protect it. Finally, we cover the importance of making the most of your health to minimize the chances of future insurance claims. If your health isn’t good as you enter retirement, you’re going to have more issues to face than just those dealing with your personal finances. So, getting your health in order is important.
Assessing Your Need for Life Insurance
Needing insurance is kind of like needing a parachute: If you don’t have it the first time you need it, chances are you won’t need it again. Regarding your need for life insurance, of course, you don’t get second chances. (Unless you’re considering near-death experiences; and the life insurer doesn’t pay out for those!) So if you want life insurance, you should get it as soon as possible.
The following sections explain what life insurance can do for you. They also help you determine whether you need life insurance, and if you do, how much you should consider buying.
Understanding the purpose of life insurance
The primary reason to consider buying life insurance is to provide financially for those who are dependent on your employment income. However, just because you have a job, earn employment income, and have dependents (children, a spouse, and so on) doesn’t mean that you need life insurance.
So how do you know whether you need life insurance coverage? Your current financial situation is an important factor in determining your need. If you haven’t already assessed your retirement plan and tallied your assets and liabilities, be sure to read Chapter 3.
If you’re still working, aren’t yet financially independent, and need your current and future employment income to keep up your current lifestyle — and you’re saving toward your financial goals — life insurance may be a good choice. If you have others depending on your continued employment income, you generally should get term life insurance coverage (which we discuss in the later section “Figuring out what type to buy”).
On the other hand, you may find that even though you’re still working, you’ve achieved financial independence. In other words, you’ve accumulated enough assets relative to your spending to be able to actually retire and no longer need to earn employment income.
Determining your life insurance need
Each person’s circumstances vary tremendously, so in this section we don’t tell you specifically how much life insurance to get. Instead, we show you the factors you should consider to determine that amount. We’re not fans of general rules like getting ten times your annual income in coverage, especially for those approaching or already in their older adult years. The reason? Each person’s circumstances can vary tremendously among many factors, such as:
Your assets:
Generally speaking, the more assets you have relative to your income, spending, and obligations, the less life insurance you need.
Your debts:
Of course, not all debts are created equal. Debts on real estate or small businesses tend to have lower interest rates, and the interest is often tax-deductible. On the other hand, consumer debt — such as credit card and auto loan debt — tends to be at higher interest rates, and the interest generally isn’t tax-deductible. Overall, the more total debt you have, the more life insurance you’re likely to need.
Your health and the health of your family members:
If you have major medical problems or have a family member who’s ill or who has special needs, you may need more coverage.
The number of children you desire to put through college:
A four-year college education, especially at private schools, is a major expense. So, if you have kids to put through school — and they may attend costly schools — you could be talking some really big bucks. And you face even bigger bucks if you want to help them through graduate or professional school after college.
Whether you’ll have elderly parents to assist:
Of course, this factor is difficult to predict, but you should have some sense of your parents’ physical and financial health. If you don’t, try to broach the topic in a sensitive fashion with them.
After completing your retirement planning (see Chapter 3), you should have the current financial information you need to begin your calculations for how much life insurance you need. Here’s a quick and simple way to determine how much life insurance to consider buying:
Determine your annual after-tax income (from working, not investments).
You can find this number on your tax return or W-2 form from the past year. (The reason you work with after-tax income is because life insurance death benefit payouts aren’t taxed.)
Determine the amount of money you need in order to replace your income for the appropriate number of years.
You can find this amount by simply using the information in Table 2-1.
Consider your overall financial situation and whether you need to replace all your income over the time period you chose in Step 2.
High income earners who live well beneath their means may not want or need to replace all their income. If you’re in this category and determine that you don’t need to replace all your income, apply an appropriate percentage.
TABLE 2-1 Calculating Your Life Insurance Needs
To Replace Your Income for This Many Years
Multiply Your Annual After-Tax Income by
5 years
5
10 years
9
15 years
12
20 years
15
25 years
17
30 years
19
Assessing your current life coverage
Before you rush out to buy life insurance, make sure you first assess how much coverage you may have through your employer and through Social Security. The amount of coverage you have can reduce the amount you need to purchase independently. Employer-based life insurance coverage is an easier issue to deal with compared to Social Security survivor’s benefits, so we address it first.
Employer-based life insurance
Some employers offer life insurance coverage. If it’s free, by all means factor it into your calculations for how much additional coverage you may need. (Refer to the preceding section, “Determining your life insurance need,” for more on calculating the coverage you need.)
For example, if your employer gives you $50,000 in life insurance without cost — and in Table 2-1 you calculated you should have $300,000 of coverage — simply subtract the $50,000 your employer provides to come up with $250,000 of life insurance you need to get on your own.
Keep in mind, however, if you leave the employer, you’ll most likely lose the provided insurance coverage. At that time, if your needs haven’t changed, you’ll need to replace the employer coverage.
