Your future retirement may be exciting to imagine, but when it comes to planning for it, most people feel uncertain and concerned. According to the Employee Benefit Research Institute’s 2017 Retirement Confidence survey, 82% of American workers do not feel very confident that they have enough money for a comfortable retirement. Along with a lack of confidence, 30% say that preparing for retirement causes them to feel mentally or emotionally stressed.
And even among the small percentage who do feel confident, many are unaware of potential risks to their retirement. Here are three common yet unexpected reasons why your retirement plan could fail.
1. Unexpected Health Care Costs
According to the Employee Benefits Research Institute, the average couple at age 65 will require anywhere from $157,000 to $392,000 in health care costs. That’s not a small chunk of change. Without your employer’s health insurance, adequate coverage is typically more expensive and harder to find. Even with Medicare, there could be significant out-of-pocket expenses and many conditions and treatments that are not covered.
Along with reviewing your health insurance options ahead of time, making sure you understand all Medicare options and supplements will help you evaluate your choices. For example, many people don’t know that basic Medicare has no cap on out-of-pocket expenses. A supplement is required to achieve a limit on costs. Comprehensive insurance is more expensive but can limit unexpected expenses. If you plan to retire before age 65, be sure to get a pre-Medicare policy in place.
2. Relying Solely on Your 401(k)
Contributing to a 401(k) is an indispensable piece of your retirement planning, and can be especially powerful if your company matches your funds. But don’t assume that your 401(k) will fund most of your retirement. As reported by the Economic Policy Institute, only the wealthiest workers benefit from 401(k)s because they contribute enough to make their plans work.
For most people, your retirement income will come from a combination of sources, including Social Security, investments, savings, and other retirement accounts. Rather than view your 401(k) as the star, consider it an important piece of your overall retirement plan.
To make the most of your 401(k), be strategic in its management and coordinate it with your other investments and plans. Watch out for expensive annual fund fees and rebalance annually. Furthermore, look into opening a Roth IRA and other investment opportunities that may offer a higher rate of return without extending beyond your risk tolerance.
3. Retiring Earlier Than Planned
We all know that unexpected life events can occur at any time and derail our plans. The same can happen to your retirement. While the average expected retirement age is 66, most people end up retiring at 62. According to the 2017 EBRI Retirement Confidence Survey, there is a considerable gap between when a person expects to retire and when they actually retire. While 38% of respondents stated that they would like to retire at age 70 or older, only 4% followed through. Most end up retiring earlier and often it’s not by choice.
There’s always the chance you could lose your job or fall ill. Even if you want to work longer and save more, there’s no guarantee that you’ll be able to do that. Early retirement can destroy even well-laid retirement plans. Especially for high earners, the loss of income during the final years of their career can spell financial disaster.
To protect against this risk, plan for the unexpected. Make sure you have adequate disability insurance to protect your income in the event of an illness or disability. You can also work with an advisor to see what your savings and income would look like if you were forced to retire early.
Retirement planning can be complicated and stressful since there are so many uncertain factors. However, by understanding some of the risks and common roadblocks you may experience, you can plan ahead for the unexpected and reduce the chances that your retirement plan will fail.
At Private Client Wealth Advisors, we like our clients to think of us as their family’s executive team, sitting side-by-side with them as you navigate your financial journey, plan to attain your retirement goals, preserve your future and lean on our firm as your resource to allow for the best long-term financial decisions for your family. Working with us, you have a single point of contact to help you with any financially-based decisions in their life. By knowing we are there to go to bat for you, we hope you can focus on living your life and enjoying your passions.
We’d be happy to schedule an introductory meeting so you can learn more about our process and how we address these common reasons retirement plans can fail. To schedule a complimentary review, contact us by phone at 303-945-2222 or email us at firstname.lastname@example.org.
Barry Steelman, AIF® is the Founder, Principal, Managing Partner, and Client Advocate at Private Client Wealth Advisors, a registered investment advisory firm based in Denver, Colorado. He specializes in working with individuals, families and businesses and conducting financial planning, portfolio management and retirement plan services. Along with more than two decades of experience, he is an Accredited Investment Fiduciary®, which signifies knowledge of fiduciary responsibility and the ability to implement policies and procedures that meet a defined standard of care. Learn more about Barry by visiting www.privateclientwealthadvisors.com or connecting with him on LinkedIn.