Part of our Retirement Is For Living planning process involves a careful consideration of the risks you may encounter in the decades ahead. These include risks as far ranging as financial, healthcare, housing, and public policy concerns. According to a recent survey, personal and family related risks are an especially worrisome concern to most retirees.(1) Indeed, almost 2-in-3 millennials think parents should allow adult children to move home if needed.
Personal and family risks involve employment issues, longevity, change in marital status, and the needs of other family members such as those outlined above. Understanding post-retirement risks related to you and your family and then integrating them into your retirement planning is the first step in ensuring that your Retirement Is For Living.
Death of Spouse or Change in Marital Status
Periods of widowhood of over 15 years are not uncommon in retirement. Especially for female retirees, women must often (unfortunately) be prepared to handle a lengthy retirement without their life partners since they have a longer life expectancy. Careful financial planning is required to ensure that such an event doesn’t derail your retirement plans.
Besides dealing with the mental and emotional impact of a major life adjustment any change in marital status such as divorce or the death of a spouse is often accompanied by a reduction in standard-of-living. This is because retirement income can be cut in half while shared expenses only decrease by a fraction of that amount. Separation or divorce also increases bills, due to potentially having to pay 100% of living expenses instead of the 50% to which you had become accustomed.
Proper financial planning, therefore, needs to carefully insulate against wild swings in income and expenses. One variable to consider is the order of taking social security benefits for both you and your spouse. The death of a spouse can impact current — and future — benefits so the timing and sequence of claims can insure that you maximize the benefits you’ve earned for yourself over a lifetime of work. Our Social Security whitepaper provides helpful tips for navigating this key retirement decision.
Change in Employment
The second personal risk to consider relates to a change in your employment status. Many retirees intend to supplement their retirement income by working either part time in their former role or full-time in a new one. In fact, many businesses prefer to hire experienced workers because of their stability and the varied life experiences they can apply to the job.
However, success in the job market may also depend on technical skills that retirees cannot easily maintain or gain. Moreover, professionals in their 50s and 60s tend to gravitate to the higher end of the payscale. Uncertainty in corporate or organizational balance sheets often means that the highest earners — are those without a long-term future at the firm — may be the first to be laid off or furloughed. Re-employment prospects among retirees may also change rapidly due to economic, family, or health conditions unrelated to the job.
Having employment at any point can also reduce your retirement income from Social Security, as well as if you have a pension from your employer. If multiple income streams are part of your retirement plan, you need to understand how they interact with each other and whether you’re optimizing your potential retirement cash flows.
Family Member Need
A change in the health, employment, or marital status of immediate family members could require greater personal or financial support from the retiree for that individual. Uncertainty in the income and well-being of children and loved ones might result in you helping them financially more than you expected. The majority of parents want to help even adult children. It’s important to set boundaries on excessive gifts or emergency checks when you leave your steady paycheck behind.
It isn’t just children returning to the nest. Increasingly, the health and home care of elderly parents in their 80s and 90s are impacting working professionals. Individualized care can challenge even the best laid retirement plans as the costs can easily exceed thousands of dollars, monthly. Retirement planning should recognize the possibility of providing financial support for family members in the future, even if this does not seem likely at or before retirement. We can help you outline steps such as securing long-term care insurance for loved ones so as to protect your financial future
Fraud, Theft & Bad Advice
Based on 2019 study findings, Comparitech estimated that the number of elder fraud cases in the US now exceeds 5 million, annually, equating to roughly $27.4 billion in damages. Demographic changes and increased mobility means that many older Americans now find themselves with less family support than prior generations. The subsequent reliance on caregivers, advisors — and even scammers — for daily interaction can make a retiree’s data, passwords, assets, and other personal information vulnerable.
A comprehensive financial plan will account for advice from “bad actors” as a person ages through retirement. At Magellan Financial, we’ll sit down with you, your spouse, and other family members to account for these risks. General phishing techniques can include medical fraud (such as discounted prescriptions), financial support (for example, home equity or retirement savings proposals) or even offers of friendship or camaraderie. We can help you put safeguards in place to protect your assets and information.
Life spans at age 65 now range from 0 years to over 40 years. Statistically, half of the population will live longer than their expectancy, which means that many underestimate how long they will need their savings to last. Retirees who have spent a lifetime working for an employer who offered a defined benefit pension are better insured against longevity risk but those plans are few and far between
Retirees need a flexible plan that covers a range of possibilities. Our financial planning accounts for a number of contingencies in terms of how long your retirement (and your spouse’s) may last. A key element is diversifying investments across a range of asset classes. It also means building multiple income streams for later in life (dividend income, social security income, business income, rental income, etc.) Finally, to replicate the security and consistency of traditional pensions, we offer a number of annuities that will add stability to your portfolio.
Live the Retirement You’ve Been Working Toward
The current uncertainty surrounding COVID-19 means you have to be as vigilant as ever to protect the retirement you’ve been working toward. Understanding post-retirement risks related to you and your family and then integrating them into your retirement planning is the first step in ensuring that your Retirement Is For Living.
Overall, Magellan Financial believes that professional wealth management has only one definition of success: when our financial services allow our clients to realize their lifestyle and financial goals in retirement. Our thorough, thoughtful, risk-based strategies are designed to support your greatest objectives, so you have the freedom to enjoy them. After all, your Retirement Is For Living.
The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates The material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.
When considering rolling over your QRP assets, key factors that should be considered and compared between QRPs and IRAs include fees and expenses, services offered, investment options, when you no longer owe the 10% additional tax for early distributions , treatment of employer stock, when required minimum distributions begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.
Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.