Everyone understands that having Lamborghini dreams on a Kia budget is a good way to go broke during retirement. But, over the years, I’ve seen a few things that can sneak up on even the most diligent and prepared retirees. Here are 5 insidious things that can happen to anyone that could make your retirement crash and burn.
1. Spendthrift Kids
One of the biggest retirement risks out there is a failure to launch. In the past, I’ve seen adult children hang around and stay on the payroll, even with the retirement nest egg wasn’t big enough to support them. It’s even more difficult for kids who may have drug or relationship problems.
Kids who are financially dependent on you may drain your retirement savings to support their lifestyle. Ironically, if you were planning on leaving them an inheritance, their spendthrift habits could result in there being little left for them when you’re not around.
You want to do everything you can to help put your kids on solid footing. However, help can easily turn into enabling for even the most disciplinarian parents.
To avoid any situations like this, it’s essential to define boundaries and teach them to become financially responsible. This may include setting expectations for their financial independence and discussing ways they can take greater responsibility for their finances.
It can help to see a counselor (for yourself or your kids) in order to help you figure out the best, most compassionate ways to draw these boundaries. However, drawing these boundaries could end up being a lifesaver for everyone.
2. Retail Therapy
When the going gets tough, the tough go shopping, right? Retail therapy is a time-honored method for many to cope with stress or negative emotions. If you’re not careful, this coping mechanism can turn into a habit that leads to overspending, credit card debt, and lower retirement saving.
Retail therapy, left unchecked, can ultimately lower your retirement savings or cause you to delay retirement. If it continues into retirement, it can also risk blowing up your retirement plans altogether.
Developing healthy coping mechanisms for stress or negative emotions is a healthier alternative – and one that is kinder to your retirement savings. Exercise, meditation, or talking with a trusted friend or therapist may be avenues to consider rather than reflexively shopping when stress or negative emotions may trigger an urge to shop.
3. A Partner Who’s Not on the Same Page
Obviously, a spouse who is an excessive spender can quickly deplete your retirement savings. If they’re making poor investment decisions along the way, that could compound the issue as well.
Openly communicating with your spouse about your retirement goals and working together to create a shared vision for retirement is essential for your retirement – and your marriage – to succeed. Even if you have plenty of retirement savings, if you’re not on the same page as your spouse, you could very well end up living a miserable retirement. Who needs that?
Getting a divorce typically means you split everything in half, including retirement savings. That could make retirement even more stressful. In comparison, seeing a couple’s counselor can be money well spent, both in terms of your happiness and your retirement.
That being said, life’s too short to be miserable. If half is enough and your partner refuses to change or compromise, don’t be afraid to walk away.
4. Not Planning for Long-Term Care Costs
Over the years, I’ve had more than one client ask me to help them “bounce their last check”. That sure is cutting retirement close, right? Of course, there would be no cushion for any unexpected expenses, especially long-term healthcare costs.
Unfortunately, few people plan for long-term care costs in retirement. According to a 2019 survey conducted by the Associated Press-NORC Center for Public Affairs Research, many people underestimate the cost of long-term care. For example, survey respondents estimated that the average monthly cost of a home health aide was $3,200. In reality, the costs were closer to $4,400. That’s a big difference!
It’s easy to put off planning for these costs since we all hope they’ll be in the distant future. Some people might assume that they won’t need long-term care, or they might believe that Medicare will cover these expenses.
Rather than hoping things will turn out okay, it’s a good idea to add a placeholder for these expenses to your financial plan. If you think about what type of care situation you’d prefer, whether it’s in-home care, assisted living facility, or nursing home care, look at the costs of these options in your area and add them to your plan.
Long-term care insurance policies are extremely expensive these days, but they’re still worth looking into. Even if you plan to use your home equity to pay the bills, it’s a good idea to think about these expenses before you need to pay for them.
5. Getting Scammed
If you’ve done everything right, you’re living a relaxed retirement! Unfortunately, when you’re relaxed, you can let your guard down. This is what can set many retirees up to be targeted by scammers.
It’s no fun getting scammed, and it can happen to anyone, especially if they catch us while we’re distracted or in a hurry. Depending on the size of the scam, it can range from being an embarrassing nuisance to something that could potentially impact your retirement.
Hearing that little voice in your head can be the difference between getting scammed and not. If you’re in a rush and you hear that little voice telling your something’s wrong – pause for a second to listen to it.
Yes, getting scammed can potentially blow up your retirement savings. Scammers can use a variety of tactics to deceive people and trick them into giving away their personal information or money. Some common scams that can impact retirement savings include:
Common scams include:
- “Too good to be true” investment opportunities that promise high returns with little risk.
- Identity theft where scammers steal your personal information to open credit cards, take out loans, or make unauthorized purchases.
- Sweepstakes scams where they may ask for your personal information or request that you pay a fee in order to claim your prize.
- Phishing scams where emails or websites appear legitimate but are actually designed to steal your personal information.
Our best bet against scammers is to ruthlessly protect your personal information. Never click on a link in an email or text unless you’re absolutely certain you know the person sending it. Add two-factor authentication to all your online logins, especially your financial accounts. And never send your personal information to an online source you don’t know.
Unfortunately, these scamming tactics continue to get more and more sophisticated over time. Don’t feel embarrassed if it’s happened to you. I had my identity stolen last year – and I had no idea how they did it. If you suspect you’ve been scammed, report it to the appropriate authorities, or your financial institution, freeze your credit, and visit identitytheft.gov for more help.
Unfortunately, even if you’re responsible, things can happen that can put your retirement at risk. If any of these things happen to you, don’t feel guilty or ashamed. These are things that can happen to the best of us. Instead, get help to course correct as quickly as possible.
If you need help with your investments and retirement savings, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.
As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.