A symposium at the recent Financial Advisors “Inside Retirement” conference (May 5-6, 2016 in Dallas, Texas) included a discussion on why people “fail” at retirement. Failure is not defined as “bankruptcy,” or inability to retire
- Health Care—Health care costs are increasing, even if one has health insurance. A retired couple could easily face medical costs in the hundreds of thousands of dollars over their life spans. A USA Today article (March 14, 2015, “How much will health care cost in retirement?”) quoted a study indicating that a man will spend $116,000 on health care in retirement; a woman will spend $131,000. Fidelity Investments has projected that a 65 year old couple retiring in 2015 will spend $245,000 on health care during their retirement.
- Divorce—Surprisingly, an increase in divorces in the 50 plus age group has appeared. The reduction in assets from such a separation means a potentially lower standard of living for both parties. Multiple marriages (through divorce or death) may also bring the necessity of planning for a subsequent re-marriage. Pre-nuptial agreements, especially where a disparity of assets exists between the couple, can prevent many future problems and are a definite item to consider.
- Overspending—Prior to retirement, a couple may spend more (especially on week-ends when they are not working) than they do in the normal course of living with a five day a week job. At retirement, every day is Saturday! Spending patterns may need to be adjusted significantly (i.e. reduced).
- Children-Parenting never stops. Many children return home after college to save money until they “get established.” Helping a child with bills, a substance abuse problem, or even a special needs child can add significantly to retirement outflows.
- Second Home-A second home purchased prior to retirement might be easily maintained financially while working. In retirement, property maintenance, insurance, property taxes, etc. may become more of a financial burden.
- Business-Starting a business in retirement may sound appealing, especially if another family member (see “Children” above) is involved. Some basic rules apply: a) It will cost more than you think, and b) revenues will come in more slowly than you plan. Always have a good business plan and, if other parties are involved, have a written agreement spelling out what is to be done. Allocate a set dollar amount (the maximum which you can afford to lose in entirety) to prevent “throwing good money after bad.”
- Identity-Many individual’s identity and self-worth are associated with their professional, work life. Retirement can change that significantly. Prepare for that transition. Retire to something, not from something.