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7 Surprise Retirement Expenses

By WTOP Staff

What’s the scariest thing about retirement? The things we don’t know. There are bound to be some surprises in retirement. But here are seven retirement unknowns that you can prepare for in advance:

1. Unexpected expenses. We carefully plan our monthly budget. We need so much to pay for the house, utilities, car and groceries. But then suddenly you need a new roof that costs $6,000, or you need a surgery with a $5,000 co-pay. What are you going to do? You need to be prepared. And if you follow a monthly budget, you may not be. In addition to your monthly budget you also need a supplemental annual budget, figuring in a realistic lump sum to cover uncertain but inevitable emergency expenditures.

2. Don’t delay investment decisions. Retirement is a big step, and with everything else going on, you may not get around to reformulating your IRA and other investments to accommodate your new stage of life. It’s also a big job that’s easy to put off. But your investment objectives change after you retire from wealth accumulation to wealth preservation and income production. So don’t procrastinate. Sit down with your spouse or financial advisor and make a decision to reinvest your nest egg for your new life.

3. Timing your retirement. Be very careful before you retire early. Your monthly Social Security benefit will be smaller and your savings will have to last longer, meaning your monthly income will be less. For example, an annuity with an initial investment of half a million dollars will bring in about $2,400 per month if you start at age 62, but $2,700 if you wait until 68. It may not seem like much, but what other way do you have to give yourself a 12.5 percent raise? If you absolutely hate your job, consider halfway options such as phased retirement or part-time work, which will supplement your lower income and help protect your nest egg from being depleted too quickly.

4. Playing it too safe. We need income in retirement, and the temptation is to protect our principle and live off the interest. But that’s almost impossible in these days of ultra-low interest rates. Instead, design your portfolio to produce total returns of 6 to 7 percent, even though the interest you get might be closer to 3 percent. That means you periodically sell some investments, and there will be years when your portfolio declines and you’ll dip into principle. But there will also be years when returns are higher, adding to your portfolio. This approach may seem uncomfortable at first, but it offers a higher probability of not outliving your money.

5. Figure in inflation. A monthly budget of $2,400 a month, or $2,700 a month, may seem like a reasonable amount of money to live on today. But if you retire in your 60s, you can expect to live another 20 years or longer. In 20 years, at recent inflation rates, that $2,400 will be worth less than $1,500. Social Security is indexed to inflation — for example, benefits will increase 1.7 percent for 2015 — but many other income producing products, such as annuities, typically are not. Inflation is yet another reason not to retire too early or play it too safe with your investments.

6. Falling victim to fraud. Everyone thinks they’re too smart to fall for a scam or sleazy solicitation. Tell that to the people who invested with Bernie Madoff. Also, like it or not, as we get older our cognitive abilities slow down. We think we won’t be taken in, but it happens all the time. So, only deal with reputable investment firms, keep a skeptical eye out for anything that seems too good to be true and think long and hard before jumping into any gold or real estate offer you hear about in the media.

7. Selling your life span too short. On average, a person who’s 65 will live to age 85. But one out of five men, and one out of three women, will live past age 90. So, you will probably live for another 20 years, but you have to plan for another 30. That means managing your money more carefully to ensure that it will last the rest of your life and you won’t have to cut back when you’re older and more vulnerable. Yes, you want to have some fun in your 60s, but you also want to husband your resources so you have some autonomy and dignity in your later years.

Tom Sightings blogs at Sightings at 60 .

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7 Surprise Retirement Expenses originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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