We all know about the big retirement risks: longevity, inflation, investment losses, and higher taxes (rates and/or the lowering of the tax brackets).
By retirement failure, I mean that what would have been a prosperous and predictable retirement… becomes much less so to say the least. Many folks think that we are really richer than hey are — if only because we cannot know the future.
But here are 5 other not-so uncommon reasons why clients “fail” in retirement. You could also consider them causes of major disruptions to retirement success.
A few of the reasons we have complete control over while others we may have some control over. And we might each come up with different ideas on which ones are which.
But in any case, here we go with some food for thought based on my own professional experiences and those of other financial planners that I keep in close contact with. They are in no particular order.
1) Divorce. Divorce rates for those in their 50’s and 60’s are soaring to all-time highs. In fact, about 25% of all divorces in 2010 were of couples over age 50. Divorce splits assets and income and the effects of this decision is probably clear to all but the very wealthy.
2) Ongoing financial support for adult children. Let them go before they can suck your finances dry. It’s time to stop supporting and perhaps enabling our grown kids by keeping them financially afloat and dependent on us. Some call it “tough love”.
Another situation that I see all of the time is when the parents feel the need to “fund a new business” for the adult child. If a bank, with all of their billions, won’t take a chance on your child, it’s probably a great indication that you — with just millions (or much less) shouldn’t take the capital risk either.
Sometimes my clients use me as the “bad guy” to simply explain to the adult child(ren) that the parent cannot continue this ongoing financial support or act as a second pair of eyes for the proposed “business plan”.
Of course, I am not referring to special needs adult children in this discussion. That is a parental responsibility not a hand-out.
3) Buying a second (and third) homes. Even if the primary home is paid for, the upkeep, maintenance, taxes, insurance on two homes can strain the finances on all but the well-off once many folks are on a “fixed” retirement income. I often find that the 2nd home becomes an elephant over time as expenses rise faster than income during retirement. Just something to think about — especially if you’re not wealthy.
4) Starting a Business. Many clients who have been successful in their careers (especially when they retire early) feel the need to get “back in the game”. If you want to start a business – one without a significant capital commitment (such as consulting, real estate agent) that could be a wonderful thing. However, until it’s up and running I wouldn’t count on big paychecks from it as part of a long term retirement income stream. If it is successful, then great — you can add to your lifestyle, savings or legacy. But I’ve seen too many IRA’s greatly depleted feeding a negative cash-flow business. At the very least, please know a figure at which you will pull the plug and cap your losses.
5) Medical Expenses and LTC. Every year the mutual fund family Fidelity does a study to project potential health care costs that are NOT covered by Medicare (premiums, deductibles, co-pays, etc.) and in 2014 that number was $220,000 for a couple retiring at age 65. And that figure does not include potential LTC costs – which could add many $100,000’s or be nothing at all.
I realize this week’s post is not going to be relevant for all readers, but if it helps just a few folks, then I hope you’ll forgive me.
all the best… Mark