As much as you may be looking forward to a fun and relaxing retirement, there can be a fair amount of stress once you get there. You'll be going from having a steady paycheck to suddenly having to live largely off of your investments and Social Security -- neither of which is a totally secure source of income. After all, the values of your 401(k), IRA, and brokerage accounts will fluctuate based on market conditions, and Social Security's future is somewhat shaky given that, if Congress does not act to shore up the program's revenues, benefit cuts will be required in only a few years.
The good news, however, is that a few simple moves on your part could make retirement much less stressful -- both in theory and in practice.
1. Have a well-diversified portfolio
A stock market crash can hit at any time and send your portfolio's value plummeting -- and while that will always sting, the pain will be particularly sharp if it comes during a time in your life when you're drawing down on those investments to pay your bills. But with the right asset allocation, it should be less of an issue. While it's definitely wise to keep a fair share of your portfolio in stocks during retirement, they shouldn't constitute the overwhelming majority of your assets. As a general rule, stocks should account for between 40% and 60% of your portfolio during the early stage of retirement, and a bit less during its latter stages. If bonds -- which are far less volatile -- constitute a solid chunk of your investments, you may not have to worry as much when the stock market goes south.
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Of course, there are options beyond stocks and bonds to consider. For one thing, you should always have at least a year's worth of cash on hand, whether in your retirement savings plan or a standard savings account. You might also think about investing in real estate, whether by owning physical properties or putting money into REITs, many of which are less vulnerable to economic downturns, and which therefore can provide you with some diversification and protection.
2. Fund a health savings account
Once you're retired, the money you have in your 401(k) or IRA can be used for any purpose, and that of course includes paying for healthcare. But having a separate, dedicated account with funds for medical care could help you breathe easier when those expenses start to mount.
That's why it's a good idea to contribute to a health savings account (HSA) if you're eligible. To participate, you must be enrolled in a high-deductible health insurance plan. With an HSA, contributions and withdrawals are tax-free, provided the latter are used for qualified medical expenses. And HSA funds never expire, so you can dip into them throughout retirement as needed.
3. Buy long-term care insurance
The average senior who needs long-term care winds up spending $172,000 on it during retirement. And most retirees do eventually need it -- among those hitting 65 this year, almost 70% will need long-term care at some point, according to the Department of Health and Human Services. Those are not great odds to gamble on, and it's a lot of money to come up with. It's also only an average. If you wind up needing extensive care for many years, your costs could be far higher.
The solution? Buy long-term care insurance. While it is an added monthly expense you'll need to cover, the upside is that your policy could more than pay for itself if you wind up in a nursing home for the last three to five years of your retirement. The best time to apply for long-term care insurance is during your 50s, but don't assume you're too late if you're older than that. If you're in your 60s and in good health, you may well still be able to get approved for an affordable policy. And, if you have an HSA, you can use it to pay your long-term care insurance premiums.
Retirement can bring a whole new set of stresses -- but it doesn't have to. Plan properly, and you'll have a far better chance of being able to enjoy your senior years rather than spending the bulk of them worrying about finances.
