Control Your Other Retirement Risks

An unexpected event can derail even the best laid plans. Risk management is just as important as investment management and withdrawal strategies. Sometimes risk management is called “what if” planning because it tries to minimize the impact of “what if this happened?”, or “what if that happened?” Here are some of the areas that could affect your retirement well-being.

Health
If you retire prior to 65, you’ll still need your own health insurance. At 65 you’re eligible for Medicare, the government’s health insurance program.

Part A – covers in-patient hospital care, skilled nursing facility care, skilled nursing home care, hospice and home health services (skilled care, physical therapy, etc.).

Part B – covers outpatient expenses such as doctor visits, lab tests, surgeries, some prescription drugs and supplies like wheelchairs and walkers. It also covers preventive services.

Part D – covers prescription drugs. Plans vary.

Part C – this is an option that can be purchased instead of traditional Medicare plans. It is also called Medicare Advantage.

Supplemental / Medigap – helps pay some of the health care costs that original Medicare doesn’t. Plans vary.

Death
Make sure your death or your spouse’s death won’t have a significant impact on your financial well-being. Living expenses are usually less for the survivor than that of the couple. However, income may decrease as well. If one of you receive a pension, protect it with either survivor benefits or life insurance (see pension maximization). Likewise, if the loss of social security or certain assets (because they go to a family member, etc.) would leave the survivor worse off, you’ll need a plan to address it. Maybe the survivor will plan to cut their expenses or downsize their home, or maybe life insurance is needed to keep the survivor at a certain lifestyle.

Disability
Prior to retirement, a disability is usually associated with a loss of income and is protected with disability income insurance. Most policies pay about 60% of your income. If you have retired but still work a job for needed income, disability income insurance may still be needed.

If you are fully retired, you won’t need this type of insurance. However, “disability” now means a possible medical or mental impairment. It is important to have a plan in case of disability. This could mean having a trusted doctor and hospital close by, researching and visiting rehab and assisted living centers ahead of time, and deciding on people who will take care of your financial and medical matters if needed.

Long-Term Care
Long-term care (LTC) is usually not medical care, but a range of services that supports your personal care needs. These are often called “activities of daily living” (ADLs) and include: eating, bathing, dressing, transferring, toileting, and continence. Studies show that at least 70% of people 65 and older will need long-term care support and services at some point in their lifetimes.

Some people can self-insure this risk, but others may need long-term care insurance. LTC insurance premiums have rapidly increased over the past several years as insurance companies found that more people than expected were filing claims. According to a 2023 Morningstar article on long-term care statistics:

3.7 years is the average duration of long-term care for women
2.2 years is the average duration of long-term care for men
67.9% is the percentage of people who are women in long-stay nursing facilities
$61,776 is the median annual cost for a home health aide
$54,000 is the median annual cost for assisted living facilities
$108,405 is the median annual cost of a private nursing home room

Most people assume LTC insurance is to help pay for nursing home care, but in reality, LTC insurance can help you avoid a nursing home by paying for home health care and assisted living.

LTC insurance can be a complicated product with many moving pieces. Even with the simplest policies, you still have to select:

Type of Policy (whether you just want nursing home coverage, home health care coverage, or comprehensive which covers both and assisted living facilities)
Daily Benefit Amount (how much you want per day, usually $125 - $350/day)
Benefits Period (how long you want the coverage to last, usually 1-10 years)
Inflation Protection (do you want your coverage to increase at a certain percentage to offset rising costs?)
Elimination Period (think of this as the deductible, how many day do you want to self-insure before coverage begins, usually 30-120 days)

There are also policies that combine life insurance or annuities with LTC insurance but they can be complex, expensive, and are usually not the best solution.

Property
Adequate home and auto (and boat/RV) insurance should still be maintained throughout retirement to protect your assets.

Personal Liability
You never know when an accident will occur, and you certainly don’t want to have to part with money you can’t replace in retirement. While home and auto insurance comes with liability protection, it may not be enough. A personal liability (umbrella) policy may be needed as well for more protection.

Emergency Reserves
A cash reserve could be more important in retirement than when you were still earning a paycheck. Being able to tap a reserve for a new roof, insurance co-pays and deductibles, or any other unexpected event is much better than pulling a large amount from your portfolio.

Even non-financial risks can affect your quality of life. Make sure you keep active, socialize, and engage your brain.

What is your biggest risk? Health? Overspending? Family longevity? Market crash? Threat of an income source decreasing?