We all aspire to have a secure retirement where we can focus on our passions and family without having to worry about money. But when it comes to planning for retirement, most people feel uncertain and concerned. The Employee Benefit Research Institute’s 2017 Retirement Confidence survey reports that 82% of American workers do not feel very confident that they have enough money for a comfortable retirement, and 30% say that preparing for retirement causes them to feel mentally or emotionally stressed.
Even worse, of those who feel confident in their plan, many are unaware of unforeseen risks to their retirement. Here are three common yet unexpected reasons your retirement plan could fail:
1. Retiring Earlier Than Planned
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. This is particularly the case for high earners, where the loss of income during the final years of their working life can cause financial disaster.
While the average expected retirement age is 66, most people end up retiring at 62, as reported by an EBRI study. Among those who left the workforce earlier than planned, 61% retired to cope with a health problem or disability and 18% left to care for a spouse or other family member. Overall, the study tells us that 47% of retirees stop working sooner than they had hoped.
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. Relying Solely on Your 401(k)
Contributing to a 401(k), especially if your company matches, is an indispensable piece of your retirement planning. But too often people assume that their plan will fund a majority of their retirement. One report from the Economic Policy Institute estimates that only the wealthiest workers benefit from 401(k)s because they contribute enough to make their plans work.
A 401(k) can serve as an important piece of your overall retirement plan if you coordinate it with your other investments and plans. 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. 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. Unexpected Health Care Costs
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. Without your employer’s health insurance, adequate coverage may be 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.
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.
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.
Cover Your Bases
Retirement planning can be complicated and stressful due to the multitude of 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 Beacon Wealth Management, we focus on providing a collaborative client experience, sitting side-by-side with our clients as they navigate their financial journey. Working with us, you have a single point of contact to help you with any financially-based decisions in your 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 address these common reasons retirement plans can fail. To schedule a complimentary consultation, call (304) 626-3900 or email firstname.lastname@example.org.