5 Unexpected Threats To Your Retirement Plan
By Brett Gottlieb
When you think about planning for your future retirement, your first thought is probably, “Will I have enough money to maintain my current standard of living?” This fear is so prominent that only 27% of pre-retirees believe they’ll be financially prepared for a retirement lasting 10 years. (1) While saving enough to cover your expenses is a good starting point, there are little-known and often ignored threats that could eat away at the nest egg you have diligently worked to establish. Here are 5 factors that could threaten your retirement savings, along with some strategies to prevent them from derailing your golden years.
1. Rising Healthcare Costs
According to the Employee Benefits Research Institute, the average couple at age 65 will require anywhere from $151,000 to $255,000 just to cover their healthcare costs in retirement. (2) Most people don’t even have that much in their retirement accounts to live on, let alone cover medical costs. 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 your Medicare options and supplements and work with an experienced professional to help you evaluate these options. For example, many people don’t realize 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 cap unexpected expenses. And if you plan to retire before age 65, be sure to get a pre-Medicare policy in place.
2. Neglecting To Create A Withdrawal Strategy
Just because you’ve worked hard to save for retirement and build up a nest egg doesn’t mean you can rest easy. Once you start tapping into your savings, you need to develop a dependable strategy to withdraw your funds so they last the rest of your life, however long that may be.
Since you know that stocks have historically earned an average of 7-8% a year, you might assume that you can afford to withdraw 7-8% of the initial portfolio value (plus a little more for inflation each year). (3) But in reality, to protect against the uncertainty of the market, you may need to limit your withdrawals to less than 4%. (4) Remember, from the end of 1999 to the end of 2017, the S&P 500 only generated an average of 3.4% (5) per year. In fact, fixed income investments are also generating substantially lower rates in today’s environment. Since there is no simple, one-size-fits-all plan, you need to figure out what will work for you and your unique situation, taking various factors into account, such as time horizon, risk tolerance, asset allocation, and unexpected living expenses.
3. Ignoring Diversification
Diversification is one of the most talked-about investment strategies for a reason: it helps protect your investments from market volatility. While you can’t eliminate risk from your portfolio entirely, you can cushion the blow if things go south. If you put too much of your money into one stock or even one sector of the economy, you put yourself in danger of losing your retirement savings.
Work with a professional to evaluate your portfolio’s current allocation. Let them help you determine if your portfolio needs to be rebalanced or diversified. It is vital that you look at the big picture of all your accounts, including employer-sponsored ones, and ensure you are diversified across the board to protect your future.
4. Unexpected Early Retirement
Life rarely goes as expected. If you haven’t prepared for life’s surprises, they can derail your well-laid 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. (6) 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. The loss of income during the final years of your career can spell financial disaster, and this is especially true for high earners.
To help protect against this risk, plan for the unanticipated. 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 create scenarios and see what your savings and income would look like if you were forced to retire early.
5. Premature Loss Of A Spouse
Losing your spouse is devastating, regardless of when or how it happens. And while this is something most try to avoid thinking about, the hard truth is that losing a spouse during the final years of their career can be especially dangerous for the surviving spouse’s financial plan and well-being. Furthermore, retirement and long-term care costs may increase without a spouse to share costs and provide care. Depending on the 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.
Create An Action Plan
Retirement planning can be complicated and stressful due to the many unpredictable factors that go along with it. However, by understanding some of the risks and common roadblocks you may experience, you can plan ahead for the unexpected and reduce the chances that your retirement plan will fail.
At Comprehensive Advisor, our goal is to help you build a predictable and reliable retirement road map that will protect your assets and ensure you receive the income you need to enjoy your golden years. With our personalized planning process, we can help you prepare for both life’s expected and unexpected circumstances. If you want to get started on your retirement plan or think your current plan needs a second look, email us at info@ComprehensiveAdvisor.com or call (760) 813-2125 to set up a complimentary consultation.
About Brett and John
Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states.
John Mc Kean, financial advisor, joined Comprehensive Advisor in 2016. He has been in the financial services and retirement planning industry for over six years. John is Life Insurance licensed in California.
Brett and John previously worked as a Registered Representatives with Securities America, one of the largest independent broker/dealers in the country, and currently offer advisory services through Legacy Road, LLC, a Registered Investment Advisor. Both are passionate about educating clients on retirement planning. They take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County. Learn more by connecting with Brett on LinkedIn or email us at info@ComprehensiveAdvisor.com.
Advisory services offered through Legacy Road, LLC, a Registered Investment Advisor. Brett Gottlieb, Investment Advisor Representative. California Insurance License #0C68886. John McKean, Investment Advisor Representative. California Insurance License #0K37445. Comprehensive Advisor and Legacy Road, LLC are not affiliated.