Three Unexpected Reasons Your Retirement Plan Could Fail
We all aspire 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 that they will have enough resources for a comfortable retirement.1 The statistics are even more alarming for women, with only 10% very confident about their long-term financial situation.2
Why is the retirement outlook for women so dire, especially since many women these days are better educated and have more career opportunities? It’s often because we face so many obstacles on our journey to financial freedom, such as lower pay and less time in the workforce due to raising children or caring for other family members. Take a look at these three common yet unexpected reasons your retirement plan could fail and take proactive steps to protect your future.
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 the responsibility of caring for a family member. Early retirement can destroy even the most well-laid retirement plans.
According to the Transamerica Center for Retirement Studies, 40% of women plan to retire after 65 and half of women plan to work in some way, shape, or form after officially retiring. Considering that 47% of retirees stopped working sooner than they had planned, these numbers show that many women may have to adjust their plans. Unfortunately, the data gathered shows that only 19% of women have created a backup plan if they are forced to retire early.
Working fewer years than expected can also decrease your Social Security benefits during retirement. If you want to protect yourself from this risk, you need to plan 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
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.
Women face this risk even more than men since women have longer life expectancies and men tend to marry younger women, making widowhood a very real issue for many women. The U.S. Census Bureau reports that 39.9% of women age 65 and older are widowed, compared to just 12.7% of men. Among women age 75 and old, 56.9% are widowed (compared to 21.2% of men).
Often, a husband plans to work until retirement, and both spouses intend 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. Examine multiple scenarios and make sure that you will be cared for no matter what happens. Evaluate where you would stand financially if you lost your spouse. How would your lifestyle change? What income would you need to make up financially for this loss? Life insurance is one option for covering income or wealth gaps and is a way for your significant other to help prevent your financial situation from crumbling. To assess your risk and evaluate your life insurance needs, consult with a financial advisor or use this helpful Life Insurance Needs calculator.
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 $157,000 and $392,000 in health care costs. Because women tend to live longer than men, we are at a greater likelihood of suffering chronic illnesses resulting in greater medical costs. In fact, women spend a third more on health care than men over our lifetimes and, until the Affordable Care Act, many insurance companies charged women higher health insurance premiums.
As we age, illnesses and health concerns only multiply, but you can be proactive and start taking care of your health now to prevent future problems. Also, consider working a contingency fund into your retirement planning so when costs arise, you aren’t forced to forgo other necessary expenses to pay for your healthcare. Finally, 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.
Retirement planning can seem overwhelming, but it is an essential part of your journey to financial independence. Despite the hurdles you may face along the way, you can create and stick to a plan that will provide confidence and peace of mind. If you want to take greater control of your long-term financial security, schedule a phone call now.
Lisa Strohm, CFP®, MBA is the founder and CEO of The Athena Network and Good Life Advisors of the Lehigh Valley, fee-based wealth management firms. She specializes in providing financial planning, investment management, and life management services for women and their families across the U.S. With more than 16 years of industry experience, she sets her firms apart from traditional wealth management companies by focusing on providing clients with an educational, collaborative, supportive experience that inspires her clients to engage in their financial lives. If you have a question, please click this link to schedule a phone call today. To learn more, visit https://the-athena-network.com/ or connect with Lisa on LinkedIn and Facebook.