Your retirement years are supposed to be golden. The goal is to be able to enjoy this portion of your life without having to worry about work or any significant financial burdens.
But you’ll need to make sound financial decisions throughout your working years, and in your retirement years, in order to achieve this goal. If not, you’ll likely deal with financial regret at some point in your retirement.
Three ways to avoid financial regret in retirement
There are proactive steps you can take in order to avoid financial regret when you retire. Here are a few things you can do to protect your nest egg:
Consider long-term care coverage
According to the United States Administration for Community Living, someone turning 65 years old today has almost a 70% chance of needing some type of long-term care services in their remaining years. Women typically need care for 3.7 years while men need care for 2.2 years on average.
If you don’t plan for these expenses, they could become a significant burden. The best way to ensure you’re covered is to purchase a long-term care insurance policy. These policies typically cost anywhere from $79 to $225 per month on average for about $165,000 in coverage.
Diversify your portfolio
When you think of retirement investing, you likely think of the stocks you want to invest in. However, diversification is key if you want the best risk-adjusted returns.
“Diversifying your portfolio is a best practice at all times. This is because diversification, no matter the time period, will reduce risk on an overall basis,” says Daniel Milan, managing partner and investment advisor representative at Cornerstone Financial Services in Southfield, Michigan. Diversification “increases the risk-adjusted return profile of a portfolio over time.”
But Milan says it’s “important not to over-diversify just for the sake of feeling diversified in your asset allocation. You should strive to find that optimal risk-adjusted return profile that is tailored to your own risk tolerance, long-term goals and time horizon. In other words, you want to strike a balance between diversification and maximizing returns.”
Considering the current state of inflation, coupled with geopolitical and market uncertainty, it may be important now to allocate some of your portfolio to safe havens. Consider assets like gold that tend to head upward in value when the stock market is headed down and have a history of keeping up with inflation.
Invest in CDs
Your retirement investment portfolio and long-term care insurance are important tools that help you plan for the long term. However, unforeseen circumstances could also result in financial regret in retirement.
For example, what will you do if your home needs a new roof or a large unexpected medical bill makes its way into your mailbox?
One of the best ways to plan for unexpected expenses during retirement is to invest in CDs and create an extra cash buffer. And, this is a great time to do so because CD interest rates are higher than they’ve been in years.
There are three common CD investing strategies that could help you build your nest egg, including:
- CD ladder: Put your money in multiple CDs rather than just one to build a CD ladder. The goal is to space out the CD maturity dates so that one is always close to its maturation date. That way, you’re able to access some of your cash if you need it, or if you don’t, you can reinvest it and continue to earn interest. This gives you the ability to take advantage of different rates at different term lengths, naturally balancing risk and reward.
- CD barbell: A CD barbell divides your CD investment in two. Invest half of your investment dollars in a long-term CD to take advantage of higher rates. Invest the other half in a short-term CD to reduce your risk.
- CD bullet: With a CD bullet strategy, you’ll purchase CDs over a span of time. The bullet strategy aims to make sure all CDs mature at around the same time. So, you make early investments with longer terms and later investments with shorter terms.
The bottom line
When you plan for retirement, it’s important to consider all aspects of retirement. The simple fact is that financial surprises will happen and it’s important to plan for them throughout your golden years. Moreover, you shouldn’t push predictable events like potential market declines and the need for long-term care to the backburner until it’s too late. Planning now can help you avoid financial regret later in life.
