What is retirement success? One way of looking at it is having enough money to never have to work again. Considering this, there are four ways that your retirement can be derailed, financially speaking.
Upon retirement, you have spent decades of your life working hard, saving money, and hopefully having some fun along the way.
Many people reach retirement with tens or hundreds of thousands of dollars saved. This money, along with social security and maybe a pension, becomes the capital that will allow you to hopefully enjoy the rest of your years.
The obvious goal is to make your savings last as long as you do. There are four major pitfalls that could put a serious dent in your lifetime savings.
According to Investopedia, a 65-year-old couple can expect to spend $285,000 in healthcare and medical expenses throughout retirement. Sadly, it goes without saying that this number exceeds many peoples’ entire nest egg!
While insurance premiums understandably take up a part of this expense, proper insurance planning and coverage can mean the difference between a comfortable living and relying on Medicaid.
Original Medicare has coverage gaps and co-payments/coinsurance that can easily amount to tens of thousands of dollars in the event of a critical illness. Having a Medicare Supplement can put the burden of high medical expenses on an insurance company, rather than on your savings.
Investment Safety and Returns
Another dangerous arena for retirees is where they have their nest egg invested. Retirement is the wrong time for your nest egg to suffer a major stock market correction. Investors that had their money tied up in the S&P 500 index saw a 49% decrease in 2000-2002, and a 57% drop in 2007-2009. Many retirees or soon-to-be-retirees that hadn’t adjusted their holdings to include bonds and fixed-income investments were forced to go back to work or continue working.
It is critical to have your life savings in a prudent place. And that doesn’t mean hiding it under the mattress or earning a measly 2% in CD’s that likely won’t even outpace inflation!
Long Term Care
According to Genworth’s annual study, the average cost of nursing home care in the U.S. exceeds $90,000.
And according to AARP, 52% of people turning 65 can expect to develop a disability requirement long term care. The average duration of need is about two years.
Put another way, 1/2 of new retirees can expect to need about two years of long term care, and for the most needy (physically speaking), it will cost about $90,000 a year!
Planning for long term care expenses, whether through a traditional long term care insurance policy or through other ways, is an important step in ensuring a successful retirement.
Final Expenses and Estate Planning
The last pitfall of retirement planning may not affect your retirement per se, but it will definitely have an impact on your family and your legacy. Will you have enough money left over at the end of your life for a proper burial? Or will you be forced to pass that burden onto your family?
If you have a significant amount of money left over at your passing, will much of it be lost to probate and legal fees? Or to estate taxes? (For those who have done very well.)
Again, proper planning can make a big difference in how much of your nest egg is required for final expenses, or how much is passed on to your heirs. It is another very important factor in your retirement planning.
Sadly, in America, you can lose your life’s savings to one or two devastating events.
- Heart Attack
- Market crash
- Nursing home
- Final expenses / funeral
Proper retirement planning requires looking at four key areas that can ensure that your money can be spent on enjoyable living, and not on catastrophic events that can easily be foreseen.