We all aim to have a secure retirement, where we can focus on our passions and family, without having to worry about money. But according to the Employee Benefits Research Institute, only 22% of Americans are confident in their retirement plans. What’s worse, of those who feel very confident in their plan, many are unaware of 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 risk that your career could end prematurely due to poor health, disability, a job loss, or to care for a family member. Early retirement can destroy even well-laid retirement plans. Especially for high earners, the loss of income during the final years of their career can spell 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 earlier than they had planned. Working fewer years than expected can also decrease your Social Security benefits during retirement.
To protect against this risk, you must plan for the unexpected. First, be sure to 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 offered and negotiate for more if appropriate. Finally, keep your resume and skills sharp throughout your career to be sure you can find another job if you are laid off.
2. Premature Loss of a Spouse
Losing your spouse is devastating, whether they are near their life expectancy or not. 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 plan 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. 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 the 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 $151,000 and $350,000 in health care costs. Without your employer’s health insurance, adequate coverage may be more expensive and harder to find. Even with Medicare, there may 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 since there are so many uncertain factors. However, by planning for the unexpected, you can reduce the chances that your retirement plan will fail. To learn more, download our free report, 12 Keys to a Successful Retirement Strategy today. If you need help, call my office at 770.249.7424 or email me today at firstname.lastname@example.org.