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Expect the Unexpected

Expect the Unexpected
3 retirement savings challenges to prepare for

Life's unpredictability works both ways. While some surprises can boost your spirits and your wealth, others can derail the best-laid financial plans. But even without a crystal ball, you can take steps to help protect yourself from three all-too-common scenarios that could damage your retirement security.

1. Market Volatility
The impact of a bear market on your portfolio can be staggering. Recall the 2000-2002 dot.com crash and the 2007-2009 market implosion. It's natural to want to flee the bear - but if you do, you lock in your losses and risk being out of position to benefit from a market upturn.

One sensible course is asset allocation: spreading your portfolio investments among major asset classes (stocks, bonds, alternatives, cash equivalents) and diversifying within those classes. A good asset mix, maintained by regularly rebalancing your portfolio, can help preserve your potential long-term return while reducing the risk that you'll experience the full impact of a bear market.

Keep in mind that neither asset allocation nor diversification guarantees a profit or protects against a loss during volatile markets. Periodically transferring assets from an overheated asset class to those that are out of favor helps limit your losses if a bubble bursts - and it's a discipline that keeps you steadily buying low and selling high.

2. Health Care Costs
Your out-of-pocket retirement medical expenses may exceed your expectations. Medicare pays only about 80 percent of the amount charged for the medical services it covers for people over age 65. You can buy a supplementary policy to cover the other 20 percent, but the premium is in addition to your regular Medicare premium. And Medicare generally doesn't cover long-term care.1

A recent study found that Medicare recipients in the last five years of life paid an average of $38,688 out of pocket for medical care. The study also revealed that these costs vary dramatically - 25 percent of participants spent an average of $101,791, and 25 percent spent an average of $5,163.2

If health care inflation continues to outpace overall inflation, as it has for years,3 your out-of-pocket costs are likely to be much higher over time. Some possible ways to meet these expenses include steadily saving in a dedicated health care account, buying long-term care insurance and using a home equity loan or reverse mortgage. You'll need to find the financial strategy that's right for you.

3. Caring for Your Parents
Nearly 10 million adults over the age of 50 now provide financial assistance and/or personal care for their parents, with many leaving the labor force early or reducing work hours. For a typical caregiver the estimated lifetime cost in lost wages, pension and Social Security benefits due to caregiving ranges from $283,716 for men to $324,044 for women, or $303,880 on average.4 Anticipating this responsibility can help save your family time and money.

Ask your parents to give you their durable power-of-attorney and advance medical directives - legal documents that will let you quickly step in to pay their bills, file their taxes and insurance claims and authorize their medical care if they become incapacitated. Get the names and telephone numbers of their doctors, lawyer and financial advisor. Seek advance information about government assistance programs to learn how your parents might become eligible for financial help. (Good resources: AARP, the National Academy of Elder Law Attorneys and state and municipal departments of aging.)

More Retirement Resources Check out more retirement resources to help you stay in control.


Avoid Taking Retirement
Account Loans

When you're hit with unexpected expenses, don't pay them by using your retirement savings without considering all the costs - especially if you're thinking of borrowing from your workplace Plan account.

The opportunity cost: You'll lose those potential tax-deferred, compounding earnings that were the whole reason you started contributing to the Plan in the first place. What's more, some Plans forbid retirement account contributions until you've paid off the loan, typically over five years. Those lost contributions "add up" - and not in a good way - especially if your employer would have matched them.

The downside risk: If you leave your job for any reason, you're required to pay the entire amount you owe within 60 to 90 days. Miss that deadline and you may owe taxes on the unpaid balance - plus a 10 percent early-withdrawal penalty if you haven't reached age 59½, unless you're over age 55 and were laid off.


1Employee Benefit Research Institute, Fundamentals of Employee Benefit Programs, Chapter 4 "Medicare," 2009
2Journal of General Internal Medicine, "Out-of-Pocket Spending in the Last Five Years of Life," Sept. 5, 2012. Data covers 2002-2008
3Consumer Price Index, U.S. Bureau of Labor Statistics
4MetLife Mature Market Institute, "The MetLife Study of Caregiving Costs to Working Caregivers," June 2011