Cracks in the Nest Egg - by Glenn Ruffenach
A look at the biggest mistakes investors are making with their retirement savings.

People make all types of mistakes with their money, but few are more painful than those that involve the nest egg. One or two financial missteps with your retirement savings, and you could pay a penalty well into later life.

Until early last year, of course, a remedy for such mistakes was close at hand ( Article written in Oct. 2001). A healthy stock market -- in the 18th year of a bull run, by some measures -- covered a multitude of sins. Need to borrow $20,000 from your 401(k)? No problem. By the end of the year, the markets probably gave you back that much and more.

Eighteen months later, the landscape has changed considerably.

With that in mind, we decided to canvass financial planners and educators across the country and ask this single question: What are the biggest mistakes investors today are making with their nest eggs, both before and after they retire?

From the answers, we've culled what might be called the whoppers -- the 10 errors that were mentioned most frequently and that cause the most damage.

1. Failing to consider long-term care needs.

When people think about threats to their retirement savings, "they primarily think about market losses," says Joe Bowie, chief executive officer of Retirement Investment Advisors Inc. in Oklahoma City. What they fail to consider, he explains, are "the nonmarket-related threats -- health care, long-term care -- the catastrophic events" that can cause as much harm, or more, as a volatile market.

First, the good news: Most of us will never end up in a nursing home. Now the bad news:More that 50% of Americans will need some form of long-term care, either home care or institutional care, at some point in their lives, according to the Health Insurance Association of America. And the daily cost of good home care already approaches that of a nursing home: about $128 for the former vs. $157 for the latter, according to Phyllis Shelton, an insurance consultant in Nashville, Tenn., and author of a book on long-term care.

So, the question you have to ask yourself is simple: Could you finance potential costs of long-term care out of your nest egg? And the key work is "your". No one else will pick up the tab. Medicare and private insurance don't pay for most long-term care. And forget about transferring your assets to your kids so that Medicaid will step in. Impoverish yourself and you "simply don't have as many choices as a private-pay patient," Ms Shelton says.

Yes, premiums for long-term care insurance can be steep. the average annual tab is $1,700. But "the notion of spending a few thousand dollars a year vs. hundreds of thousands of dollars in the future is smart money management," says Michael K. Stein, a certified financial planner in Boulder, Colo., and author of a book on retirement finances.

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Reprinted from The Wall Street Journal, Monday, October 22, 2001

 

 

 

 

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