Planning for and understanding these post-retirement risks can improve your chances of a successful life in your golden years.
Retirement is not an end-of-life journey but is instead the start of the next stage of your life. It is an achievement by itself for reaching this far in life. Pat yourself on the back and celebrate this milestone with family and friends. After the celebration, it’s crucial to plan for this next chapter in life.
People imagine their retirement as a laid-back life with few worries. In their mind there is a large nest egg in hand, so it is a time to spend and indulge. But the reality is in many cases vastly different as retirement brings a range of risks, as in the earlier life stages. Even though the risks are similar, they will have far greater consequences and less likelihood of having time to be adjusted.
Here are some risks you are likely to face which could affect your expected retirement life.
Risk 1: Investment Risk
“The probability of losing all or some of the original investment.”
Past trends have shown that investing in the stock market provides the best opportunities for a financial return ahead of other assets. That’s why they often suggest shares investment as part of a balanced asset allocation plan for retirees.
However, a bad asset mix strategy could cripple your plan for retirement income. If you are too cautious, you will risk money shortage while being too gung-ho could increase your exposure to market volatility. It is tough to plan and manage your lifetime goals on your own so it is best to leverage on educated professionals’ advice.
Risk 2: Longevity Risk (outliving one’s retirement savings)
“To live longer than expected and thus exhaust retirement savings.”
Thanks to breakthroughs in medicine and technological advances that have affected the growth of our population. People today live longer in retirement than ever before. A well-planned retirement fund should consider an optimistic view on lifespan. Most people are too conservative in estimating their lifespan and that increase their chances of outliving their nest eggs.
As you age, you should be celebrating your longevity and not worrying about exhausting your retirement fund.
On a related note regarding longevity, there are other questions to consider. For example, if a spouse passes away, what will happen to the surviving spouse? How will the surviving spouse adjust his income requirements and sources? Lifelong revenue policies, insured solutions, and a sound approach to asset allocation are ways of protecting against this risk.
Risk 3: Loss of Spouse
“The sorrow over the loss of a partner may lead to high levels of depression and suicidal thoughts. Then, the impact on finances…“
The passing of a partner can have a major impact on the retirement life of a surviving spouse. Most times, the surviving spouse experiences a reduction for earnings. Losing a loved one:
- may cause a drop in retirement benefits
- bring in additional costs such as medical expenses, funeral costs, and loans
If the deceased was managing the couple’s finances, the surviving spouse might not be ready or willing to take over the finances for him/herself. Don’t wait till this happens and start taking an interest in your finances. Gradually grow your understanding and familiarity to prepare yourself and your spouse should this event occur.
Risk 4: Inflation Risk
“The threat of inflation is that inflation would reduce investment returns by declining buying power.”
Inflation undermines our wealth. But the impact of inflation is much more catastrophic during retirement than when you are working. When we work, inflation is embedded in our salaries. Our pay keeps pace with inflation. In retirement, you don’t have a salary because you don’t work. Everything has to come from your retirement nest egg.
To avoid being a victim to inflation, work with an educated professional to get a good idea as to how much you would need to fund your retirement lifestyle, inclusive of inflation.
Risk 5: Healthcare Risk
“Take care of your body. It’s the only place you have to live”
For many senior citizens and retirees, this is an important concern especially over their ability to fund health care expenses in retirement. In addition, calculating health care costs over an even longer period can be a challenge — and one that many individuals are not sure how to deal with.
Because of advances in new medical treatments and technology, your golden years can now last decades. Although this is positive news, there may be a large financial implication on cost of healthcare.
Despite this concern, most individuals did not include health care costs in their retirement plan. For those who do, uneasiness persists as to the adequacy of savings for healthcare.
If unsure, it’s best to discuss the impact of health care expenses with your financial advisor.
Risk 6: Family members need monetary help
“When trouble comes, it’s your family that supports you”
Most pensioners are supporting other family members including relatives, children, and grandchildren. Any responsibility to help these family members should be noted in retirement planning. A change in health, career or marital status may disrupt these arrangements and demand more personal and financial assistance from pensioners. Family members are generally known when retiring, but new grandkids may arrive after retirement. Upon retirement often people remarry and the new spouse may bring their own financial risks as well.
Risk 7: Scam/Fraud Risk
“Who is going to believe a con artist? Everyone, if she is good.” ~ Andy Griffith
As retirees age, intellectual capacities decline, resulting in a reduction of financial skills and wisdom. They may be targeted for their substantial assets due to their deteriorating cognitive skills.
Brokers may market an inappropriate product. Members of the family or carers who are meant to be guardians can be irresponsible. Con artists advocating investing plans that are too good to be true.
Risk 8: Divorce after retirement
“Divorce is expensive. I used to joke they were going to call it ‘all the money,’ but they changed it to ‘alimony.’ It’s ripping your heart out through your wallet.” (Robin Williams)
Divorce may lead both parties to significant financial difficulties. Dividing assets will lead to an overall loss of living standards for both spouses, particularly if their lifestyle was preserved by combining income and capital.
Though the incidence of divorce is far smaller for older couples than for younger couples, it is not unusual for old couples to seek a divorce.
Risk 9: Loss of job during retirement
“Find out what you like doing best, and get someone to pay you for it.” – Katharine Whitehorn
Often retirees seek part-time or full-time retirement jobs to increase their income. Due to their maturity and experience in life, some employers love to hire older but skilled workers.
Nonetheless, job market performance may also rely on technical skills that retirees cannot easily obtain and retain. Job prospects for retirees may differ because of needs for different skill sets and may vary with health and economic circumstances.
Learning and re-skilling are becoming more relevant for those retirees who like to continue working during retirement.
Risk 10: Accommodation needs may change
Pensioners might have to switch from staying alone to other types of accommodation such as assisted living housing. The costs of such accommodation are not cheap. Also, it may not be easy to find one that fits your circumstances like location or may be placed on a long waiting list.
As you grow older, the possibility of relying on others for daily care is much higher. When is this required depends on the physical and mental health which themselves change with age.
Changes can happen unexpectedly due to a disease or injury, or maybe slowly due to chronic disease.
Risk 11: Unable to live by ownself
The changes display by the retiree may be abrupt, perhaps linked to an accident or illness, or gradually, linked probably to a chronic or mental disorder.
As physical or mental capacities weaken, several problems are common. If the family is not close by or reachable, the retired person may need help from friends, neighbours, and even strangers.
Faced with unforeseen events, even the best retirement plans can collapse. However do not be shaken, instead arm yourself with knowledge and move forward with eyes wide open. Employ diligent planning to reduce as many of the known risks as possible. Knowing and taking into consideration the possible post-retirement threats will help to make sure they are mitigated or handled accordingly. Prepare to have a Plan B or even a Plan C ready for each of the risk.
Work with a (trusted!) certified financial advisor to factor as many of the known risks as possible into your retirement plan. Your advisor would be able to provide guidance on several aspects including retirement planning, investment planning in your retirement, and estate planning. Take comfort in the fact that there are educated professionals who can and will help you have a better retirement.
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Never use uncertainty as a justification for not doing anything. The number one risk is the absence of a retirement plan. So have you started planning for your retirement? Speak to a financial advisor if in doubt