CINCINNATI BUSINESS COURIER
April 17 – 23, 1989
Investments
By Charles D. Vaughan
Stress: Retirement Worries can be cut by Planning Early
WHAT WILL BECOME OF ME?
This question leaps to mind whenever we experience any great stress. When a traumatic event brushes a person’s life, it creates a feeling of lack of control. This, in turn, leads to a feeling of general insecurity.
Psychologist H. Abraham Maslow described a hierarchy of needs ranging from basic food, shelter and safety to love and self esteem. He argued that those who lacked the basics, including a safe environment, were hindered in dealing with higher needs. Thus, a person feeling very unsafe or unsettled may revert to excessive concern over personal well being.
Studies have shown that retirement is one of the most stressful periods of a person’s life. While we are working, we feel in control of our financial circumstances. This makes us feel in control of other aspects of our lives as well. When we cease to function as a human money machine, we have to rely on something else. We are no longer in absolute control, that may be why even affluent people become concerned about very basic needs when contemplating retirement. The list of questions which come up in planning for retirement is long. But, most of these questions come back to that one issue, “What will become of me?” This question goes far beyond mere material goods, but often does involve money. There are five basic financial aspects of this issue:
1. Will I have enough money to support my current lifestyle or will I have to reduce my standard of living? The answer to this ‘gets very complicated because it depends on so many variables. If we knew exactly how long a person would live, how much money they need to live, what rates of return could be earned and what the inflation rate would be, we could give a simple answer. Unfortunately, none of these factors can be forecast accurately. The best approach is to overestimate living expenses and inflation rates and underestimate income sources. It is also important to review progress periodically to see if adjustments must be made.
2. Will my invested dollars be safe? This begs another question safe from what? Guarantees only cover fixed dollars, not what those dollars will buy. There is no perfect investment that will protect us against all risks. That is why it is so important to balance investments among areas that have different risk protection. That is also why it is important to diversify.
3. If my health declines, will I have adequate resources to get good care? This may be the number one fear of the elderly. Too many people of ample means have been wiped out by medical bills. The new catastrophic medical care legislation should go a long way toward relieving this fear. It is very important to carefully review Medicare and other coverage. Much of the Medicare gap insurance that is bought out of fear is of little practical value. Few professionals have the expertise to help in this important field; so it is important to do your homework.
4. If I “live too long” will I run out of money and end up in a charity home? This is a real concern for many people as life expectancy increases. The ravage of inflation, even at modest rates, is great over long spans of time. What may be adequate now could be a pittance in 40 years. The best protection is to keep early retirement spending below income to build reserves for later. Nursing home coverage under Medicare is practically nonexistent. It is now possible to buy longterm health care coverage from private insurers. Those with a great concern should investigate it.
5. If something happens to me, will my family be provided for? Too many people fail to look at the spousal benefits of pensions and Social Security when planning retirement. In many cases, the surviving spouse may get only half of the previous income. This may force a big cutback in living standard for the survivor. Proper planning early in the process can make up for this shortage. Insurance coverage or investments may be set up specifically for this need.
Uncertainty is a big part of life. There is no way to be sure that everything will be all right. It is possible, however, to reduce the stress surrounding some big life events. Retirement is probably the best example of that. Unless one is forced to retire several years early, the stress level can be kept to a minimum.
With careful planning several years in advance of expected retirement, the number of worries can be cut substantially. Even if you don’t have the complete answer, you may not feel the need to ask the question as often.