THE ENEMIES OF WEALTH

You've worked hard all of your adult life, and you've managed to save enough money to accumulate a nice Retirement Nest Egg.  You should be proud of your accomplishment.  But will you be able to use ALL of that nest egg during your retirement?  You won't if your'e like most people. 

Why?

Because your wealth has enemies, and they are insidious, just waiting to erode your hard-earned savings!

Once you've made the transition from the accumulation phase (working) to the distribution phase (retirement), you have some additional problems with limited options (unless you want to go back to work).

Let's look at the new set of problems as you are near or in retirement.

1. Taxes - You may have been told that when you retire, you'll be in a lower tax bracket.  According to David M. Walker, former comptroller of the United States and current CEO of the Peter G. Peterson Foundation, tax rates will need to rise significantly just to cover mandatory programs such as Social Security, Medicare, and Medicaid.  (See more about David M. Walker here.)  In addition, once you're reached the age of 70 1/2, you need to take Required Mandatory Distributions ("RMDs") from your qualified tax-deferred retirement accounts.  And the IRS knows how much you've got stashed there.
2. Inflation - While inflation has been low the last several years following the Great Recession, inflation is likely to be more of an issue moving forward as the economy improves.  Quietly, your retirement nest egg will lose it's buying power.
3. Medical Expenses - As we age, our physical bodies tend to accumulate more little "friends" which require attention, such as arthritis, cardiovascular disease, type 2 diabetes, cancer, cataracts, osteoporosis, hypertension, and dementia.  While Medicare will help with expenses to manage these conditions, Medicare was never intended to be free or to cover everything.  You'll need to pay the Medicare Part B premium, deductibles for Parts A + B, and 20% coinsurance (with no limit) for most of the medical expenses that Medicare covers.  Is Medicare enough?
4. Long Term Care - Are you aware that Medicare pays for skilled nursing facility ("SNF") confinement ONLY if you're expected to improve, recover, and be discharged ("medically necessary treatment")?  And that Medicare pays for only up to 100 days of confinement per admission?  At any time during confinement to a SNF, your Medicare benefits may be cut off if you're no longer expected to improve, recover, and be discharged.  Long Term Care is the phrase which describes the type of personal services and specialized care necessary to assist people who are no longer able to engage in the 6 Activities of Daily Living ("ADLs") - bathing, toileting, dressing, eating, transferring (moving from one place to another), and continence.  Cognitive impairment by itself can render one unable to perform ADLs. The average rate for private pay SNF benefits in the San Francisco Bay Area is approximately $9,000 per month.  Private insurance companies offer Long Term Care insurance which can help to manage these costs, but don't count on getting coverage if you're older or have pre-existing health conditions. Most LTC insurance policies are limited to paying specific qualified LTC expenses ONLY... if you don't use that benefit, you've lost all the premiums you've paid.  How many months will you be able to privately pay for SNF confinement if you can't take care of yourself?
5. Stock Market Volatility - Even though you may have weathered the ups and downs of the stock market while you were saving for your retirement, you likely had time on your side to recover some of those losses.  But what happens if the stock market crashes the day after you retire?  Or any time during your retirement?  Most people don't have the resources or time to recover from a significant loss, such as the one we experienced in 2008.  Will your lifestyle need to change if you lose some of your nest egg in the stock market?  What will you need to cut out of your budget?