"Get Your Finances Ready for Retirement"-Expect the Unexpected
Monday, November 24, 2008SUSIE GHARIB: It's tough to plan for retirement or plan while in retirement when things are volatile in the stock markets and the economy. But it's tougher when you hit bumps in the road, expenses that are totally unexpected. Having a plan B can help you get through those times. As we continue to help you, "Get Your Finances Ready for Retirement," Connie Hicks reports that for retirees, the unexpected can take many different forms.
CONNIE HICKS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Frank and Hazel Peters, the unexpected turned out to be their water system. Living in rural, northern Florida, the Peters must use ground water in their home. That was never a problem, until their water purification system failed.
HAZEL PETERS, RETIREE: Here we have a beautiful house, we had a home that we've always wanted that we have never had before and then you have this water system that we had to constantly boil our water.
FRANK PETERS, RETIREE: Now we go to the back of the house where the pump pumps the water to the softener.
HICKS: Even after replacing the water system twice, problems continued. And with no way to pay, the Peters ended up thousands of dollars in debt.
F. PETERS: Spending money like crazy, more than I need, money I didn't have to spend.
HICKS: For another Floridian, Ruth Scher, the unexpected was maintenance costs on her Delray Beach condo, up almost 700 percent since she moved in 30 years ago. Then two years ago, another unexpected event. She took a fall, breaking her clavicle. Worried she might fall again, Scher wants an alert system that could summon help. But it costs $300 to set up and then there are the monthly fees.
RUTH SCHER, RETIREE: One type of choice is $50 a month and another one is $60. The $60 gives you a better way for the people will get to you, it's like a telephone.
HICKS: Scher and the Peters had something in common. They were financially stretched and didn't have the funds to cover emergencies. But if possible, many financial planners suggest having between three months to a year's worth of living expenses in reserve for just that purpose. Former educators David and Cindy Farah are savers by nature and had set aside emergency funds. That helped when their condo assessed each owner $5,000 to reinforce the units' balconies.
DAVID FARAH, RETIREE: Fortunately we had the money in the bank. And we heard that that some of the people had to take loans out in order to pay the $5,000, so we're just very fortunate that we plan ahead.
HICKS: Common, unexpected expenses in retirement can include: illness, a parent who needs to move in or an adult child who decides to return home and substantial home repairs. Financial planner Ellen Siegel says if you sense a big expense is on the way, try to start saving up for it.
ELLEN SIEGEL, CFP, ELLEN R. SIEGEL & ASSOCIATES: Absolutely, you should do it. And a good way to do it so you see that pot growing, that pot of money growing, would be to allocate a little bit of every piece of income that comes in to your contingency fund, your emergency fund.
HICKS: Financial analyst Jeffrey Helms has written a book on expenses in retirement. He says using your long-term investment should be a last resort.
JEFF HELMS, CFA, FIRST COAST FINANCIAL ADVISORS: If you have an unanticipated expense and you have to tap into your long-term retirement savings, look at the consequences of that when they're low. The consequences of them are that you may very well run out of them.
HICKS: Because you may need to get to emergency funds quickly, Helms suggests putting them in money market accounts, bank certificates of deposit or high-yield savings accounts. Ruth Scher hopes to sell her condo and move north where she has relatives. The Peters had to get an attorney to get them out of their financial predicament. As for the Farahs, they're in the enviable position of using their reserve funds for pleasant unexpected expenses, like helping their son buy a house. Connie Hicks, NIGHTLY BUSINESS REPORT.
