Recently, we came across an article of a couple who “failed at retirement.” It turns out they were just an active couple who didn’t want to sit still in their golden years. Instead, they took their retirement funds and their passion for business and people and started a bed-and-breakfast. While they were successful, it got us thinking, what would be “failing at retirement?”
As financial advisers, of course, the short answer is, “running out of money.” Our number one goal is to ensure that our clients don’t outlive their assets. However, despite our guidance and carefully crafted plans, sometimes a client will make a decision without consulting their plan—after all, the thought is that it is their money. We can only project an outcome of a decision and adjust the plan accordingly.
For example, we have encountered investors who retire at 65 because they feel like they deserve it. Once they’ve retired, they come to us for a financial plan. Without a previously created plan, these investors do not know how much they spend or how much they need in retirement to maintain their lifestyle. They simply go to a financial adviser with a retirement balance and expect them to make it work. We use very conservative estimates for market growth, inflation, and taxes when we develop projections to determine a client’s max spending. We also assume a long life span to ensure the assets last. Unfortunately, there have been times when we have had to say a client cannot continue to spend at their current level and that they must pare back their expenses to have a successful retirement.
As you may guess, underestimating retirement costs one of the leading way seniors fail in retirement. Just because your 401(k) balance shows you have $1 million, doesn’t mean you have $1 million—most of that money is likely pre-tax, so any withdrawals will be reduced by ordinary tax rates. Part of your Social Security benefit will also go to pay for Medicare, and your Medicare premium may be affected by how much you “earn” in retirement withdrawals, pension payments, capital gains, etc. Not to mention, there are a vast number of services that are generally not covered by Medicare, from preventative dental and vision care to home health aides or nursing homes.
Other areas that may become a point of failure for your retirement plans include divorce and your adult children. Once you and your spouse are around each other 24/7, misaligned expectations, money, physical limitations, and irksome behavior become intolerable leading to divorce. In fact, about 1% of married Americans older than 50 get divorced each year, according to research at Bowling Green State University. Splitting assets once you no longer have income can significantly impact your financial future. Of course, you’d like to think that your children are off the household payroll once they’re on their own, but their financial missteps can quickly become your burden should they move back home. If the adult children are from a previous marriage, that could strain your current marriage.
While not every pitfall is preventable or avoidable, having a comprehensive plan should allow seniors to live within their means and have room to accommodate a significant life change. The more you plan, the less likely a life event will derail your retirement.
If you have questions on how to develop a comprehensive retirement plan, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
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