Your Retirement Shot Clock Is Ticking

Tayvon Jackson is a financial advisor in Washington, D.C., and author of the books Poor Dad No Dad and 40 Acres and Some Dividends.

The 24-second shot clock was created in 1954 with the intention to force NBA teams to pick up the pace of games. Without it, teams had no sense of urgency and could literally hold the ball the entire game. A lot of pre-retirees also lack a sense of urgency about preparing for the day when they will be without a paycheck and be forced to go decades without their employer depositing a check every two weeks. I like to call this the “retirement shot clock,” and it consists of the things you need to prepare for to overcome any opponent you may face in retirement.

I was fortunate enough to play Division 1 basketball at Mount Saint Mary’s University, and at 6 foot 8, I may be the tallest financial advisor you’ll see. If I learned anything from basketball, preparation is the key to success. Before every game we scouted our opponents to give our team a competitive advantage, and this is exactly what you need to be doing in retirement to avoid the risk of running out of money. Your opponents in retirement may be a little different than on a basketball court. You won’t come face to face with a diesel like Shaq, or have to chase Steph Curry around for 48 minutes, but there are other risks you will face.

Your biggest opponents in retirement are:

1. Taxes.

2. Market risk.

3. Inflation.


4. The cost of long-term care.

Let me provide you the scouting report so you can overcome these obstacles and be set for success.

1. Taxes. So, this is a sneaky opponent. The one thing I can say about him is that no matter what, he doesn’t stop coming at you. In fact, we need to check if he’s on steroids because sometimes he’s big and sometimes he’s small. But if you ask me, I think taxes are going to get bigger over time. So, if you have a 401(k) plan, be mindful that you have never paid taxes on your account before. And when you turn 72, you are going to be required by law to pay them. It’s called your required minimum distribution, or RMD. Look into a Roth conversion that will allow you to pay taxes on your retirement money now while you know what bracket you’re in versus later when you have no clue.

2. Market risk. Now market risk is an old-school basketball legend. He’s been ballin’ for years and can catch you by surprise when you least expect it. Just be careful because he can sweet talk you, make you feel good and have you put your guard down only to then turn brutal and have you come crashing down. One thing about market risk in retirement is that once you are 59 1/2, you can protect your account from loss. There are investments such as fixed indexed annuities that have no fees and allow you to participate in some of the upside of the market while getting none of the downside. Also, by rolling your funds into an individual retirement account (IRA) at 59 1/2 if you are still working, you will have access to more investment options than the limited funds your 401(k) plan or Thrift Savings Plan (TSP) may offer.

3. Inflation. This is that player you can’t trust. Reliability is very important in the game of basketball, and inflation is not someone you want to have on your team. Inflation starts off hustling, shooting, rebounding, doing everything to win the game. But each year, he gives you less and less effort. With the costs of living going up, you have to make sure your investments are keeping up. No longer can you go to a bank or credit union and get 5% certificates of deposit. And these days, being too safe is just as risky as being too aggressive. You can put $10,000 in your bank account right now, and guess what? Ten years from now, it may still be $10,000 but can only buy half of what it can buy today. That is the risk you face. Investing or remaining invested in stocks during retirement can help you keep up with the rising costs of living. Of course, there are no guarantees, but stocks in a diversified portfolio have done well long term.

4. The cost of long-term care. There is an almost 70% chance you will need some type of long-term care in retirement. Injuries are such an important aspect of the game of basketball, and there is a good chance in retirement you may not feel as well as you do now. So, it is important to look into long-term care while you are healthy to assist with any major health concerns in the future. Many people have strayed away from traditional long-term care policies because if you have one and do not use it, you lose most of the money you paid into it. One popular option for pre-retirees is a living benefits rider. These are life insurance policies you can use before you die. By having a life insurance policy with living benefits, if you ever had a terminal, chronic or critical illness, you would be covered.

In basketball, preparation is key to success. You’re going to face hostile environments from the other team and referees who never blow their whistles, but you have to control what you can control. In retirement, by identifying risks and understanding your opponents early while working with a financial advisor who can put together a game plan for your retirement, you will be set up for financial success. Good game.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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