Suze Orman was nearing 65 when she pulled the plug — literally — on her high-profile career. The certified financial planner and television personality wondered if she would be happy out of the spotlight, and rather than ease into retirement, she decided to find out right away.
“One day I shut everything down,” she tells MONEY. “I stopped going on QVC. I stopped writing for Oprah [magazine]. I shut my own TV show down.”
Orman did find happiness, in a most unexpected place. She moved to a private island in the Caribbean with her wife, KT. The two became serious fisherwomen, reeling in 40-pound wahoos and winning tournaments. “We found a new passion,” she says. “When I say we fish for eight to 12 hours a day, I’m not kidding.”
As content as she was, Orman realized she wasn’t done dispensing financial advice. The economic landscape had changed, and so had she.
“The advice that I gave you 20 years ago doesn’t hold up today,” she says. For starters, interest rates are at record lows, so it’s much harder to buy bonds and live off their yield. Real estate is “over the top,” Orman says, and most retirees don’t have the security of a pension any more.
And Orman was no longer a 45-year-old telling 65-year-olds what to do with their money. She was retirement-age herself. She had helped her mother manage her finances until her death at age 97. She had left her big career and faced the yawning abyss that followed.
“I realized there aren’t really that many books that focus on those of us who are older now,” she says. “So I decided to write a book for today for those of you who are 50, 60, 70 and 80.”
The stock market was at an all-time high last fall when she was writing her book, The Ultimate Retirement Guide for 50+. Now fears of the new coronavirus, and the accompanying economic slowdown, have decimated shares, erasing about one-third of their value since the peak.
In her book, Orman includes advice on weathering bear markets. She also dishes her trademark tough love to those who haven’t saved enough, offering practical guidance instead of judgement. And for the fortunate ones who have amassed a healthy nest egg, she offers recommendations to make sure it won’t be drained on long-term care costs or squandered through poor estate planning.
Here’s Orman’s advice for every aspect of your life leading up to and in retirement:
1. Your Portfolio Isn’t Retired
A generation ago, retirees generally retreated from stocks once they stopped working and loaded up on bonds. There were a few reasons for this: bonds used to pay much higher interest than they do now, so they offered a good source of income; more retirees had pensions, so they didn’t need as much growth from their stock investments; and, life expectancies weren’t as long, so most retirees didn’t need to worry about their portfolios outpacing inflation for 30-plus years.
Times have changed, and retirees can’t afford to get too conservative these days. “You’re retired,” Orman says. “Your portfolio isn’t.” In other words, it still needs to keep working for you, and that means a healthy allocation of stocks.
But what if the market crashes, and your portfolio tanks? Plenty of retirees and near-retirees are sweating out that scenario today. Orman has some advice for them: “This is not the time to be taking money out of your retirement account.” Not only are you going to deplete your assets much quicker than you would in a rising or even a sideways market, but also if you drain your balance you won’t be invested to participate in the recovery that will eventually happen, Orman says.
How to avoid pulling money out now? Orman recommends that you fund your day-to-day living expenses through guaranteed income sources and cash, so you know you can pay your bills no matter what the Dow is doing. In other words, make sure that your Social Security and other sources of solid income are enough to cover your housing, food, transportation, health care and other essentials. Other guaranteed income sources could include a pension if you’re lucky, or an income annuity that you purchase.
Here’s what that looks like: let’s say you need $50,000 each year for your basic living expenses. You receive $25,000 annually from the (formerly) higher earning spouse’s Social Security check (it’s important for married people to count only the higher earner’s check in this calculation, Orman says; that’s what your household will revert to when one spouse dies and you lose the smaller check). Let’s assume you also get $10,000 a year from a pension. That leaves you with a $15,000 gap that you fund with your cash reserves.
Brace yourself: you’ll need a cash cushion to cover five years’ worth of your funding gap, Orman says. In good economic times, you might be able to get away with three, but now it’s important to have a full five years in liquid accounts. In this scenario, your cash bucket is $15,000 x 5, or $75,000.
With your immediate, essential needs taken care of, you can afford to leave your stocks alone and give them time to recover. Once the stock market eventually recovers, you can replenish your cash bucket by selling shares.
One rule of thumb Orman suggests is subtracting your current age from 110 to get your stock allocation. Other advisors recommend going higher. Bill Van Sant, senior managing director at Girard, a Univest wealth division in Souderton, Pa., says he has a lot of clients in a 60% stock/40% bond portfolio, at least for the first 10 or so years of retirement.
“Maintaining that classic 60/40 mix when you’re crossing into retirement and even the first 10 years in retirement will give you the best possible chance to get the returns you need,” he says.
2. Understanding Your Health Care — Including Medicare
“Medicare” is best understood as an umbrella term for a group of insurance programs, Orman explains. All are for adults ages 65 and over (and younger people with certain disabilities). Some programs are run directly by the federal government, while others are administered by private insurance companies. Some programs are mandatory, like Part B outpatient coverage; others are optional, like Part D drug coverage or Medigap supplemental coverage.
Many of the programs charge premiums and deductibles. Understanding the costs beforehand will help you budget for health care in retirement, and minding Medicare deadlines will help you avoid lifetime late-enrollment penalties.
First things first: you have a seven-month window to sign up for Medicare, from three months before your 65th birthday to up to three months after your birthday month. If you don’t sign up for Medicare on time, you face lifetime late-enrollment penalties on your Part B premium, and, if you choose to sign up for it, on your Part D drug plan premium. The only exceptions are if you’re still working, on a company health plan, and your company has at least 20 employees, or if you’re covered by a spouse’s plan. In either of these scenarios, you can postpone enrolling in Medicare but must sign up within eight months after you stop working to avoid the late-enrollment penalty.
Another key fact about Medicare is that it doesn’t cover long-term care. In other words, the program won’t pay for your home health aides, assisted living or nursing home (unless it’s a brief, rehabilitative stint). To pay for that and avoid draining your nest egg, consider buying a long-term care insurance policy, Orman recommends. The best time to do that, she says, is in your 50s.
You get more coverage for your money with a traditional policy than you do with hybrid policies that combine life insurance with a long-term care benefit, according to Phyllis Shelton, a licensed agent and 30-year long-term care insurance expert whom Orman recommends. To provide around five years of future benefits for a couple ages 64 and 56, the annual premium would be $10,034, according to an illustration Shelton did for MONEY. (This couple is located in Sacramento and their projected cost of care in 25 years is $25,000 a month.) That plan will provide $1 million in benefits for each spouse plus another $1 million to access on a first come, first serve basis. By contrast, if the couple bought a hybrid policy, they could generate about $2 million in total future benefits with an upfront lump sum payment of $100,000 each.
The big downside of the hybrid policy is that it would provide only about half of the monthly amount the couple would need for their future care. (For more coverage, Shelton sometimes combines hybrid policies with smaller traditional policies for her clients.) An upside of hybrid policies is that the benefits generally come in the form of cash that’s dispensed when the policyholder triggers the need for care. Traditional policies are typically run like health insurance, Shelton says, so policyholders–or, more likely, a representative handling their affairs–have to submit a claim and get reimbursed. Another upside of hybrid policies is that your heirs may get a payout (known as a “death benefit”) when you die, depending on how much long-term care benefits you used.
Many workers have already lost their jobs due to the coronavirus pandemic. If you’re one of them, and you own a traditional long-term care policy, don’t immediately drop it to cut costs, Orman says. If you can no longer afford your premiums, call your insurance company and ask if they can work with you to maintain your coverage. They might offer you a period of forbearance on the premiums. If you drop the policy, you’ll lose what you’ve paid in premiums, and even if you’re eventually in a position to buy a new policy to replace the one you dropped, you’ll be older and it will cost you more.
3. The Smart Reason to Delay Social Security
Orman says she’d like folks to continue working, if possible, until age 70. It doesn’t have to be in your main career — you can downshift and still reap significant benefits, she argues. These include enjoying the camaraderie and mental stimulation of the workplace while adding to your savings instead of drawing it down. Delaying retirement will also make it much easier for you to postpone claiming Social Security. “The payoff from waiting until age 70 to start your Social Security benefit is the best investment you can make for your retirement,” she writes in her book.
If you claim at age 62, the youngest allowed age, you lock in lifetime benefits that are around 30% less than what you would receive if you waited until your full retirement age, which for most people is between age 66 and 67, depending on when you were born. At your full retirement age, you receive 100% of your earned benefit. But if you can hang on until age 70, you’ll collect 24% to 32% more than your benefit at full retirement age. No investment on the market guarantees you the kind of return that you’ll get from waiting from age 62 to 70 — a more than 7% annual increase to your future benefits.
Many people will counter, “but what about the break-even age?” That’s the age at which you will have collected the same amount, whether you start early and receive smaller monthly payments, or start later and receive bigger monthly payments. The break-even age generally ranges from your late 70s to early 80s, depending on when you start taking your benefits.
What if you wait until 70 to claim Social Security, only to die a few years later? You won’t have broken even yet. Guess what? You won’t be around to worry about not getting your due. But you’ll find yourself in a world of worry if you’re 90 and struggling to make ends meet. Think of Social Security as longevity insurance that helps prevent this worst-case-scenario.
Of course, it’s not always possible to work until 70, Orman acknowledges. Even if you remain healthy, your workplace might have other ideas. Or your spouse, if you have one, might need care that forces you to retire early. In that case, it can often make sense to tap your cash bucket to tide you over so you can wait until age 70 to claim your Social Security benefits. (In an up market, Orman would recommend tapping your retirement accounts to bridge the gap, but that’s not advisable now that the stock market is down, she says.)
4. Fine Tune Your Legacy
Even if you’ve done a good job with your portfolio, Orman says many neglect to plan for a likely future when you will no longer be able manage your own finances, make your own health care decisions, or manage daily activities like eating and bathing by yourself. “How well you set up your family to navigate your later life will also be a part of your legacy,” she writes in her book.
Having the right documents in place is key to ensuring that your wishes are respected when you can no longer act for yourself. These include a financial power of attorney document that names someone to make financial decisions and transactions on your behalf, and a health care power of attorney to make medical decisions in accordance with your wishes. Depending on the state, this trusted person — or persons — can be called an agent, a proxy, or attorney-in-fact. (In reality, all adults age 18 and over should have these documents in place.)
You also need a will to spell out how you want your assets dispersed after your death. Once you have this accomplished, don’t stop there. “If you put all those documents in place and shove them in a drawer, it can really confuse everyone and lead to conflict,” says Jennifer VanderVeen, president of the National Academy of Elder Law Attorneys and a practicing elder law attorney in South Bend, Ind.
Instead, gather your loved ones together and explain your decisions, she recommends. Orman agrees and further advises that folks communicate their wishes for a funeral or memorial service. “If you don’t want your family to overspend, put that in writing,” she writes. “It will make it so much easier on them. It’s a gentle reminder that you always had their back.”