7 Ways Retirement Plans Go Bust (Part 2)

7 ways retirement plans go bust pt 2

Editor's Note: This is Part 2 of a two-part series on different ways that a retirement plan can go bust. You can find Part 1 of this two-part series here.

In many ways, retirement is like a puzzle. It’s a matter of fitting different pieces together. You probably know what you want your retirement lifestyle to be. The next step is making that vision real. You put together a financial plan to make things happen.

But just planning for retirement isn’t a guaranteed formula for success. We also have to stick to the plan and, at times, revisit it to see if any adjustments should be made. After all, life throws curveballs and life situations change.

Even so, there are many situations that can throw a retirement plan off balance. Those variables can vary, from suddenly finding oneself as a surviving spouse to having personal health decline or taking on the responsibility of caregiver for parents.

While it isn’t a complete solution, understanding some situations that might put a financial plan on the rocks is a good starting point.

Retirement Plan-Busting Moves to Remember 

Here are some personal circumstances that could make a retirement plan go off-kilter.

Going Solo

It’s difficult enough to lose your loved one. Add to that the loss of their retirement income and you could be put in a precarious financial position when you are already at an emotional low.

It’s likely that your retirement plan hinges on the combination of you and your spouse’s retirement income. But according to a recent National Center for Health Statistics report, at age 65 men are expected to live 18 more years while women age 65 are expected to live for 20.6 more years.

One of you will likely live past the other, so what happens when that second Social Security check isn’t flowing in every month and the surviving spouse only gets the higher of the two? And if you still have your home, what about tasks that the departed spouse did that now have to be outsourced and paid for? Lawn or pool maintenance and house cleaning are a few examples.

Most critically, did the departed spouse manage the money? That’s something you can clear up immediately… making sure both spouses are fluent in the family finances. The surviving spouse needs to know how to change course once they face the reality of living alone. A good approach is to develop a comprehensive, joint retirement income and survivorship plan for the future. 

Perhaps you will be living alone by choice. According to the National Center for Health Statistics and the U.S. Census Bureau, for those ages 65 and older, the divorce rate has roughly tripled since 1990, reaching six people per 1,000 married persons in 2015.

Having No Spending Plan

You won’t know if you have those financial resources to cover your basic living expenses unless you have a spending plan. If you’re not sure what you can afford to spend each year, there is a higher probability that you’ll overspend in your early years of retirement.

Rather than risk running out of money later on because you spent heavily at the start, develop a spending plan that estimates what the living expenses for your imagined retirement lifestyle will be. Don’t forget to factor in pesky and ever-present inflation over time. Now look at your anticipated sources of income, including Social Security, investment returns, personal savings, annuity payouts, so on, and see how the two bottom-line figures match up.

Need to lower your spending to make those two figures equal? Better to know that now than to risk going into the red to pay your recurring expenses. Don’t forget to re-examine this relationship between income and lifestyle spending periodically to keep yourself on track.

Changing Health Situations

Long-term care and healthcare expenses can come out of nowhere. Perhaps that has been factored into your retirement plan. But personal health situations change daily for people who do not see these events coming. Approximately 1.5 million heart attacks and strokes occur every year in the United States, according to the Health & Human Services Million Hearts campaign.

A recent Ipsos survey sponsored by RBC Wealth Management revealed that the topic of retirement healthcare is on the minds of many Americans nearing retirement age or already retired. Most are concerned about funding the cost of healthcare in retirement (80%), fewer are planning for it (56%), and half of those who are planning woefully underestimate what they may actually need.

Investors in the survey expect to pay about $2,700 per year, on average, in out-of-pocket healthcare costs. In reality, experts estimate that at age 65, annual spending on healthcare is close to $16,000 per person.

Another Possibility: New Caregiving Responsibilities

But it’s not just your cost of care that should concern you. Is there a chance you could be responsible for caring for a parent or relative if they face health challenges?

In association with Age Wave, a consulting firm specializing in aging issues, Merrill Lynch surveyed more than 2,200 unpaid caregivers. They found that, because of their new caregiver role, 24% reported having trouble paying their bills, 21% dipped into their savings and 18% were unable to contribute to other expenses or savings—any or all of which can have a negative impact on your retirement resources.

“Caregiving is a hidden threat to retirement security,” says Catherine Collinson, of the Transamerica Center for Retirement Studies. “We talk about market fluctuations, but caregiving is just as risky a proposition.”

One option to the caregiving conundrum is to discuss your parents’ own plans for their medical needs and expenditures now, before they crop up and there is no plan to implement or fall back on. Having explored your own options in creating—or now potentially revising—your retirement plan, you may be better equipped to provide guidance and connect them with the professionals who can help them protect their (and your) financial future.

What's the Solution? Beef Up Your Retirement Plan!

Now that we have these potential retirement disruptors in view, it’s important to consider how they may affect your quality of life in retirement. Should you have an existing plan set, now may be a good time to revisit your retirement plan. And if you don’t have a retirement plan that clearly outlines out your income and spending goals, this is a good time to start.

Research and studies show that a financial professional can make a real difference as you work toward your goals. Investors with a guiding financial professional may gather up more retirement savings, feel better about their retirement readiness, and enjoy more peace of mind.

If you could benefit from the help of a financial guide, use our "Find a Financial Professional" section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

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