For Real Retirement Security, Make a Plan for Everything that Could Possibly Go Wrong
If you want to achieve retirement security, it may not be adequate to just have enough money saved and have a detailed financial plan. Even if you have guaranteed retirement income, maximized your social security, secured terrific Medicare supplement insurance, and you know exactly what you want to do in your golden years, there is – unfortunately – plenty that could still go wrong.
As most people know, even the best-laid plans can get derailed.
Here are some of the worst things that could happen to ruin your long term financial wellness.
We each get one chance at this life. And, managing your money toward the retirement you want is a big part of living without regrets.
It is not unusual to save “too much.” But, how do you know if you have enough or too much? Plan. And, build back up plans. Understand what you need in a best case scenario and what you need in a worst case scenario where maybe not everything on this list happens, but some of them. (Use the NewRetirement Planner to take control of your money.)
2. General Inflation
We are seeing the impact of high inflation for the first time in over 40 years. The annual inflation rate for June 2022 was 9.1%. This is a significant increase over the 1-3% we have grown accustomed to. The question for people worried about their future financial security, is how long will this inflation last.
Normally, inflation only slightly increases the cost of goods and services from year to year. However, in retirement, the impact of inflation (at even low rates) is magnified because each year your dollars have less and less purchasing power and you aren’t getting a pay raise to keep up with the rise in costs.
Strategies to address inflation:
Be Flexible with Your Budget: People who have wiggle room in their budget are best equipped to deal with inflation. One strategy is to bucket your expenses into those that must be paid each month and those that are discretionary.
Understand Your Personal Inflation Rate: The increase in prices is not uniform across everything you purchase. Inflation varies across goods and services. For instance, in the last few decades, the cost of medical care has been rising at a significantly higher rate than average inflation. That’s a big hit to retirees, who devote a substantially larger share of their budgets to medical care.
Reconsider Your Long Term Inflation Rate: Prices probably won’t increase by this much forever. You don’t necessarily need to change your projections to use a 10% inflation rate. However, you may want to increase both your optimistic and pessimistic inflation rate for your planning. The NewRetirement Planner gives you this control. Run “what if” scenarios to see the impact of a higher inflation rate on your cash flow, net worth, and expenses.
3. Financial Fraud
Elder fraud comes in many forms and the results can be devastating.
Data from the Investor Protection Trust Elder Fraud Survey reported that one in five Americans over 65 has been a victim of financial fraud.
For retirement security, learn more about critical ways you can protect yourself from fraud.
4. Boomerang Kids
Today, many adults nearing retirement age are providing financial assistance to their grown children while in the later stages of their own careers, typically prime earning and investing years.
People age 50 and older have the opportunity to beef up their retirement accounts with additional “catch-up” contributions of $1,000 to IRAs and $6,500 to 401(k)s. If you are still supporting adult children, you may not have room in your budget to make those catch-up contributions. Spending an extra $500 per month on gas, groceries, and health insurance costs for an adult child adds up to an extra $6,000 per year (that could have gone to retirement savings).
At age 50, putting away an extra $6,500 per year in your 401(k) could grow the balance by well over $150,000 by the time you’re 65, assuming a 5% annual return.
For retirement security, prioritize your retirement savings and encourage kids to make their own way. If you need to help your boomerang kids, then focus on giving them a place to live or other benefits that don’t cost you over giving them cash that could go into your retirement accounts.
It is unsettling to think about. But, it is far more likely than not that either you or your spouse will die before the other.
The death of a spouse is a traumatic emotional event from a personal and family perspective. Beyond that it is a major financial event that can have grave consequences if proper planning is not done beforehand. This is especially the case if the deceased spouse was working and the primary breadwinner.
There are a few financial planning moves you can make to minimize the financial impact.
Make sure that both you and your spouse understand the details of your retirement plan and have a complete list of accounts, debts, income sources and more…
- Use an online retirement planner and sit down together to review every input and projection.
- You should also make sure that your spouse is aware of any and all accounts that you might have.
An estate plan can insure that your loved ones are cared for. A good estate planner or financial advisor will also help you maximize your wealth.
Ensure that all beneficiary designations on life insurance policies, annuities and retirement accounts like IRAs and 401(k)s are up-to-date. Beneficiary designations govern how these assets pass to heirs and they supersede any other directives like a will.
If you have not already started Social Security, think carefully about when to begin benefits. One of the best strategies couples can use is to have the spouse with the highest benefit wait as long as possible, ideally until their benefit maxes out at age 70, to claim their benefits. This ensures that the surviving spouse will receive the highest possible benefit — the higher of their own benefit or a survivor’s benefit based upon their late spouse’s benefit. Learn more about the smartest Social Security decision you can make.
Life insurance can play a role in your retirement if one or both spouses is still working in retirement and/or the couple’s assets are not sufficient to ensure a financially secure retirement. The proceeds can supplement any retirement savings, Social Security benefits, pensions, or other assets.
6. Claims From Potential Creditors
Speaking of kids, remember that car loan you cosigned for your child Junior? If Junior loses her job, and can’t make her payments, are you ready to pay off the loan? If you have debt – or have cosigned a loan – those debts can come back to haunt you. If you are involved in an accident, it’s possible you could be sued. Even if you win – and don’t have to pay out a large settlement – it’ll cost you money to defend yourself.
For retirement security, keep your money in the right kinds of accounts. Funds in a retirement plan set up under the Employee Retirement Income Security Act (ERISA) are normally protected from judgment creditors. ERISA-protected accounts include 401(k) plans, deferred compensation plans, and profit-sharing plans. Non-ERISA accounts include IRAs – both Roth IRA and Traditional IRAs – and 403(b) plans.
7. Great Health! (Huh?)
Yes, you read that right. Great health is something that can go wrong with your retirement finances.
While diminishing health can obviously hurt your retirement, great health can also indeed be a threat to your retirement security. After all, the longer you live, the more risk you have of running out of money.
In the 1950s, people retiring at age 65 lived until 78. Today’s retirees can expect an average lifespan of 83 or 84 years – which means that half of you will live even much longer than that.
For retirement security, you do need to plan for a long life. Find out what happens if you really do run out of money.
8. Parents Who Need Your Help
If your kids don’t disrupt your retirement plans, your aging parents might. Many Americans are juggling the demands of caring for children or their aging relatives.
The average cost of an assisted living facility is $4,300 per month. This doesn’t account for more expensive senior care services, such as memory and Alzheimer’s care, which can cost several thousand dollars more. Remember that Medicare and most health insurance plans don’t cover long-term care.
For retirement security, talk with your parents now about creative ways to plan for long term care costs.
9. You Need Long-Term Care
It’s not just your parents you need to worry about.
Plenty of people don’t have enough saved for retirement, but when you factor long-term care expenses in the mix, almost nobody has enough savings.
Unfortunately, not everyone will spend all of their retirement years being active and enjoying all of the fun things they had planned.
For retirement security, consider long term care insurance. Paying thousands of dollars for a long-term care insurance plan may be a bitter pill to swallow, but it’s something you may have to consider as part of your retirement plan. Again, look at creative ways to plan for these costs. Also, there are new hybrid Long Term Care and Life Insurance or Annuity products that can provide more flexible benefits.
10. You Can’t Work
A rapidly growing number of Americans are continuing to work well beyond their 65th birthday. Some because they want to continue working, and some because they can’t afford to give up that paycheck.
But what if you are unable to work into your retirement years? Since the economic downturn in 2008, annual surveys from the Employee Benefits Research Institute show that about half of retirees left the workforce before they were ready. Some were laid off from jobs they’d held for years and others say health problems made work impossible. A recent study showed that many people expect to work until 65, but actually left their main career job in their late 50s.
For retirement security, be flexible with work after 65. Second careers and new perspectives on retirement jobs can really improve your retirement. Explore the best retirement jobs.
11. Bad Financial Decisions
We’ve all made a bad financial decision. We sell stocks at a loss because we are worried about recession. We tap retirement savings before we should. We go all-in on something that doesn’t work out. Maybe it’s overpaying for a home, investing in a business venture that fails, or forgetting to pay a parking ticket and letting it turn into a huge bill.
For retirement security, try making financial housekeeping part of your monthly routine. You should review your budget monthly and assess your retirement plan quarterly. And, if you are feeling unsure, don’t be shy about asking a lot of questions, researching the topic or even consulting with a financial advisor.
NewRetirement Advisors offers fee-only engagements with a Certified Financial Planner (CFP)®. Book a FREE discovery session to assess whether working with an expert is right for you.
12. Volatile Financial Markets
Even if you have made great financial decisions, volatile markets cause a great amount of anxiety for retirees. If your retirement income comes from a pension, you can rest easy knowing that your pension payments are not subject to market risk. But in this day and age, chances are a large portion of your retirement savings is in 401(k)s and IRAs that are likely to hold stock investments that are subject to the risk of market volatility.
For retirement security, annuities are one way to guarantee your retirement income. Here are some additional tips for turning savings into a reliable paycheck.
Retirement depression — feeling sad or lacking energy and focus after retiring — is surprisingly common. Find out why it happens and what to do about it.
14. Change in Benefits
Are you one of the lucky few with a pension? Don’t think you’re immune to disaster. A private retirement plan can change its rules or terminate at any time. If a plan terminates, participants are usually entitled to all of the benefits they have earned, but if your pension plan ends without enough money to pay all promised benefits, your benefit will be limited to the amount guaranteed by the Pension Benefit Guaranty Corporation.
Consider this: in 2005, United Airlines received court permission to default on its employee pension plan, to the tune of $3.2 billion in pension obligations. The PBGC assumed responsibility for the plans, which covered about 134,000 people, and many employees received far less than they were counting on for retirement.
For retirement security, if you have a pension, be sure to research the solvency of your plan and think seriously about the benefits of taking a lump sum payment instead of monthly income. And, even if you don’t have a pension, it is probably a good idea to keep an eye on potential changes to Medicare and Social Security.
15. You Get Bored
When preparing for retirement, its pretty obvious that you need to figure out your finances. However, many people overlook that they also need a real plan for how to spend their time.
Endless days without responsibility may sound blissful. The reality is that the lack of a schedule, responsibility, intellectual stimulation and social interaction can cause depression and even an early death.
16. You Own Too Much House
New U.S. homes today are 1,000 square feet larger than in 1973 and living space per person has nearly doubled. What’s worse, however, is how really difficult it can be to afford to live in these homes. Many Americans have to make major sacrifices in order to cover their rent or mortgage payments.
For retirement security, cash in on your home equity. Retirement is the ideal time to consider relocating and downsizing to a more affordable home.
17. You Don’t Pay Off Debt
When living in retirement on a fixed-income, you will not have more money tomorrow to pay off the debt than you do today. So, carrying debt and having to pay interest is akin to setting your money on fire.
For retirement security, explore 13 tips for dealing with debt.
For the majority of Americans, the divorce rate is declining. The exception to this rule is the over-fifty population. Just two decades ago, only one in 10 spouses who split was age 50 or older; today, according to Dr. Susan Brown, professor of sociology at Bowling Green State University and co-author of The Gray Divorce Revolution, it is one in four.
Divorce can be a costly prospect at any age, but particularly damaging in retirement
For retirement security, explore the financial ramifications of divorce. And, maybe divorce is less likely if you and your spouse are on the same page with retirement plans.
Here are eight topics to tackle if you want to survive retirement with your loved one.
We’re talking about the worst that could happen, right? When the zombies are heading toward your front door, those 401(k)s and IRAs aren’t going to be much help.
Okay, maybe this is ridiculous, but the point is that we don’t know what is going to happen in the future and we need to prepare our retirement plans for the unexpected.
We weren’t really prepared for the pandemic. And floods, fires, drought, extreme heat, and more represent real risks to the places we live and the things we do there. Who knows what is next?
20. You Really Do Run Out of Money
Unlike a zombie apocalypse, compelling research from the Employee Benefit Research Institute (EBRI), finds that many of us are very likely to run out of money. According to the latest survey, “40.6 percent of all U.S. households where the head of the household is between 35 and 64, inclusive, are projected to run short of money in retirement.”
The picture for Boomers in particular isn’t good: “When looked at on an individual basis, the average retirement savings shortfall for those ages 60–64 ranges from $12,640 per individual for widowers to $15,782 for widows. It increases to $24,905 for single males and $62,127 for single females.”
Most people who run out of money in retirement continue to scrimp by – living on Social Security income and they have probably opted into Medicaid instead of Medicare. However, a good living retirement plan could prevent this from happening (see below).
21. You Don’t Have a Retirement Plan (Or, Aren’t Updating it Regularly)
If not having a retirement plan is the worst thing that happens to your retirement, you’re in luck! Because it really can be fixed pretty easily. Nobody can predict with 100 percent certainty what the stock market will do (or when the zombies will take over). But needing a plan for retirement is certain and something you can get started on today.
No matter how young or old you are, it is not too late to create a plan. Get proactive now and stick with it. You’ll be glad you did.
The NewRetirement Retirement Planner is one of the best retirement calculators. It answers your questions and lets you try out different scenarios so you can immediately find out what happens if you save $100 more each month, spend less or do something big like downsize your home. Best of all, your information is saved so that you can keep planning as your needs and goals evolve.