You’ve probably worked hard to create a retirement plan that will sustain you in the future and allow you to focus on your passions and family. But did you know that there are some factors that could derail your retirement security? According to the Employee Benefits Research Institute, only 22% of Americans are confident that they will have sufficient resources for a comfortable retirement. What’s worse, of those who feel very confident in their plan, many are unaware of the unforeseen risks to their retirement. Here are three common yet unexpected reasons your retirement plan could fail:
1. Forced Early Retirement
As you accumulate wealth and build your retirement savings, there is always a chance that your career could end prematurely due to poor health, disability, a job loss, or the responsibility of caring for a family member. Early retirement can destroy even the most well-laid retirement plans. This is particularly the case for high earners, where the loss of income during the final years of their working life can result in financial disaster.
Being forced into retirement early is more common than you may think. The Employee Benefits Research Institute data shows that 47% of retirees stopped working sooner than they had planned. Working fewer years than expected can also decrease your Social Security benefits during retirement.
If you want to protect yourself from this risk, you need to plan for the unexpected. First, ensure you have adequate disability insurance to protect your income in the event of an illness or disability, especially if you’re a high earner. If you are laid off, do not take a severance offer until you speak with someone who can help evaluate what your company has provided and negotiate for more, if appropriate. Finally, keep your resume and skills sharp throughout your career to increase your likelihood of finding another job if you are laid off.
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.
Often, a husband plans to work until retirement, and both spouses intend to live from his company pension and Social Security benefits. However, depending on the pension benefits selected, the husband’s pension may not pay out in the event of his death. This could also decrease the spousal Social Security benefits the wife receives, leaving her with little income.
It’s critical to involve both spouses in the planning process and consider benefits for the surviving spouse. Examine multiple scenarios and make sure that you are taken care of no matter what happens. Life insurance may be a solution, with some companies selling first-to-die policies that could protect against this risk. Wills, trusts, and beneficiary designations must be reviewed to ensure both spouses are protected financially. Finally, you will want to create a pension and Social Security strategy to optimize the benefit for your surviving spouse.
3. Health Care Costs that Drain Your Nest Egg
According to the Employee Benefits Research Institute, the average couple at age 65 will need between $157,000 and $392,000 in health care costs. Without your employer’s health insurance, adequate coverage may be 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 selecting your health insurance for retirement, it’s important to work with an experienced professional to choose the plan that best fits your needs. Understanding all Medicare options and supplements will help you evaluate your choices.
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.
Retirement planning can be complicated and stressful because of the myriad of uncertain factors. However, by planning for the unexpected, you can reduce the chances that your retirement plan will fail. To learn more about retirement options that apply to your unique situation, contact us today at firstname.lastname@example.org or (913) 663-1144 to evaluate your portfolio and find ways to minimize this threat.
About Michael Goostree
Michael Goostree is the founder of Goostree Financial Group, an independent, father-son financial planning firm serving individuals, families, and business owners in the greater Kansas City metropolitan area. With more than 45 years of experience in the financial services and insurance industries, he brings a wealth of knowledge to the table in regards to retirement planning, wealth management, and insurance. Believing plans are the key to success, he focuses on building comprehensive and personalized plans for every client he works with. To learn more about how Michael may be able to help, connect with him on LinkedIn, call his office at (913) 663-1144, or email him at email@example.com.
About Toby Goostree
Toby Goostree joined Goostree Financial Group in 2006 after completing his graduate degree at the University of Arizona. He is a Certified Financial Planner ™ with over 10 years of experience and has worked, over the past two years, to become a Certified Financial Transitionist™, an expert in the stages of transition as well as the way to approach it. His ideas have appeared in The Wall Street Journal. To learn more about Toby, or how he can help you, connect with him on LinkedIn, send him an email at firstname.lastname@example.org, or call him at 913-663-1144.