We all look forward to a comfortable retirement after decades of hard work. But as the retirement landscape has vastly changed over the last few decades, from diminishing pensions to Social Security concerns to longer life expectancies, more Americans are concerned about having enough money to carry them through their retirement years.
According to the Employee Benefits Research Institute (EBRI), only 22% of Americans are confident in their retirement plans, and another study reports that 80% of Americans between the ages of 30 and 54 believe they won’t have enough saved for retirement. Even among the small percentage who do feel confident, many are unaware of potential risks to their retirement. Here are three common, yet unexpected risks to your retirement plan.
1. Forced Early Retirement
It’s no secret that unexpected life events can occur at any time and derail our carefully laid plans. The same can happen to your retirement. While the average expected retirement age is 66, most people end up retiring at 62. Among those who left the workforce earlier than planned, 61% retired to cope with a health problem or disability and 18% left to care for a spouse or other family member. Overall, the EBRI study tells us that 47% of retirees stop working sooner than they had hoped.
Early retirement can destroy even strategically planned retirement portfolios. To protect yourself against this risk, plan ahead for the unexpected. Make sure you have adequate disability insurance to safeguard your income in the event of an illness or disability. You can also work with an advisor to project what your savings and income would look like if you were forced to retire early.
2. Premature Loss of a Spouse
The loss of a spouse is not only devastating but can be dangerous for your financial plan. 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. Health Care Costs that Drain Your Nest Egg
Health care is often a retiree’s biggest expense. One study estimates that the average 65-year-old healthy couple can expect to spend $266,600 on Medicare premiums alone, not including out-of-pocket expenses or long-term care costs.
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.
Cover Your Bases
Retirement planning can be complicated and stressful due to the multitude of uncertain factors. 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. To learn more about retirement options that apply to your unique situation, call my office at (949) 221-8105 x 2128, or email me at [email protected].
About Mike Loo
Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to provide a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at [email protected].
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Trilogy Capital, a registered investment advisor. Trilogy Capital and Trilogy Financial are separate entities from LPL Financial.