Three Unexpected Reasons Your Retirement Plan Could Fail
Did you know that the fear of running out of money is number nine on the list of America’s top fears? (1) And fear of failure is number one on the list of fears that hold you back from success. (2) How do these two facts relate? Financial failure is a very real possibility in life, but no matter what it is you are putting your hand to, there are things you can do that will reduce the risk and help you achieve your goals.
There are factors affecting your retirement outside of your control, but there are also proactive steps you can take that will help you move forward with confidence and peace of mind. According to the Employee Benefit Research Institute’s 2017 Retirement Confidence survey, 82% of American workers do not feel very confident that they have enough money for a comfortable retirement. Along with a lack of confidence, 30% say that preparing for retirement causes them to feel mentally or emotionally stressed.
That doesn’t have to be you. Take a look at these three unexpected reasons your retirement plan could fail and what you can do to banish failure from your finances.
1. Unanticipated Health Care Costs
According to the Employee Benefits Research Institute, the average couple at age 65 will require anywhere from $157,000 to $392,000 in health care costs. That’s not a small chunk of change. Without your employer’s health insurance, adequate coverage is typically more expensive and harder to find. Even with Medicare, there could be significant out-of-pocket expenses and many conditions and treatments that are not covered.
When choosing your health insurance for retirement, make sure you understand all Medicare options and supplements and work with an experienced professional to help you evaluate your options. For example, many people don’t know that basic Medicare has no cap on out-of-pocket expenses. A supplement is required to achieve a limit on costs. Comprehensive insurance is more expensive but can limit unexpected expenses. If you plan to retire before age 65, be sure to get a pre-Medicare policy in place.
2. Premature Loss of a Spouse
Losing your spouse is devastating, regardless of when it happens. But losing a spouse during the final years of their career can be dangerous for the surviving spouse’s financial plan. Furthermore, retirement and long-term care costs may increase without a spouse to share costs and provide care. Depending on pension benefits selected, a spouse’s pension may not pay out to the surviving spouse in the event of his or her death. An early death may also decrease the spousal Social Security benefits the surviving spouse receives, leaving him or her with little income.
It’s critical for both spouses to be actively involved in the planning process to avoid a setback if this tragedy occurs. Take the time to consider benefits for the surviving spouse, such as life insurance. Wills, trusts, and beneficiary designations should be reviewed to ensure both spouses are protected financially. You should also create a pension and Social Security strategy to optimize the benefit for the surviving spouse. Examine multiple scenarios and make sure that you are taken care of no matter what happens.
3. Retiring Earlier Than Planned
We all know that unexpected life events can occur at any time and derail our plans. The same can happen to your retirement. While the average expected retirement age is 66, most people end up retiring at 62. According to the 2017 EBRI Retirement Confidence Survey, there is a considerable gap between when a person expects to retire and when they actually retire. While 38% of respondents stated that they would like to retire at age 70 or older, only 4% followed through. Most end up retiring earlier and often it’s not by choice.
There’s always the chance you could lose your job or fall ill. Even if you want to work longer and save more, there’s no guarantee that you’ll be able to do that. Early retirement can destroy even well-laid retirement plans. Especially for high earners, the loss of income during the final years of their career can spell financial disaster.
To protect against this risk, plan for the unexpected. Make sure you have adequate disability insurance to protect your income in the event of an illness or disability. You can also work with an advisor to see what your savings and income would look like if you were forced to retire early.
Failing To Plan Is Planning To Fail
Over a 25-year career in financial services, Rick has helped hundreds of business and personal clients meet their investment goals by developing risk-efficient portfolio management strategies. He holds degrees in Economics and Psychology from the University of California, Irvine.
The water is Rick's second home: He and his family have been fishing Southern California and Baja going on four generations. In the 1940s, his grandmother worked at the Cannery Restaurant in Newport Beach—when it was an actual Albacore cannery. In the 1950s, his father was on the crew that built two of the boats still in service at Dana Wharf Sportfishing.