There are no guarantees in life – or retirement. We all know that there are certain risks that come with stepping away from work. Inflation, healthcare expenses, taxes, and market risk are a few. However, many of these risks are out of our control. The best we can do is make an informed decision with the information we have and move forward.
However, there are some risks in retirement that are completely within our control. If we’ve worked hard to set ourselves up for a comfortable retirement, there’s no need to make things harder than they already are. Here are ten risks in retirement that we can all easily avoid.
1. Not Taking Care of Yourself
Taking care of yourself physically, mentally, and emotionally, while not necessarily easy, is perhaps the number one gift you can give yourself in retirement. While this one may seem obvious, the pandemic has helped fuel plenty of unhealthy habits – whether it be poor food choices, too much alcohol, lack of exercise, or neglecting our annual doctor visits.
If you’re planning on stepping away from work (or have done so already), taking care of yourself should be a priority to ensure that you’re able to enjoy these years you’ve worked so hard to achieve. Now that you have the free time to do what you want, make sure you’re healthy enough to actually do those things. Meditate, pray, exercise, eat right, and see your doctor.
2. Not Having Something to Challenge Your Mind
Over and above simply taking good care of your body, mind, and soul, the retirees that I’ve seen flourish the most have had some sort of activity that challenged their minds. Having a complicated problem to solve or a meaningful cause to pursue are the kinds of challenges that can be rewarding and keep us excited to get out of bed in the morning.
For those who want to give back to their communities, charities and non-profits are popular ways to make a contribution. Of course, it’s not necessary to want to change the world. I’ve seen several people get into woodworking in a major way – it was a hobby that challenged and excited them. I’d include creative pursuits in this category, and some people have different types of creativity than others. For some, it may be tactile. For others, it may be visual.
No matter what you choose, I believe that having a challenge that keeps us learning and growing is one key element of a happy retirement.
These days, I work to limit the amount of news I consume, especially in the morning. Why? Because it stresses me out. While there’s a certain amount of concern that’s healthy and can motivate us to take action, continuing to worry beyond then is pointless.
There are a thousand reasons to stress in retirement. You can worry about the stock market, taxes, inflation, deflation, or the price of Coors Light, but no amount of worry will change these things. As long as we’ve made the best decision we can with the information we have, there’s no reason to worry about things beyond our control.
Parts of your retirement will go as planned. Others? Well, not so much. Things change. That’s why creating a financial plan is key to reducing stress and worry. As Eisenhower said, “Plans are worthless, but planning is everything.”
4. Having Too Much / Not Enough Risk
Having too much (or not enough) risk in your investments is a risk in retirement that we can all avoid. Of course, in order to make sure your investments outpace inflation, some of us need to maybe take a little more risk than we’d like. Remember, risk and return are related. However, if you’re chasing too much return, especially during a bull market such as the one we’ve seen recently, you bring big risk into play. As soon as the market turns from bull to bear, you may find that your risk tolerance changes!
The flip side of this is not taking enough risk. Sometimes, there are people who have saved enough that they don’t have to take on a lot of risk in their investments and still have their retirement prospects look rosy. However, most people will need to avoid taking too little risk for too long and see inflation leave their investments in the dust.
5. Changing Your Investment Strategy at the Wrong Time
One of the big risks in retirement is making strategy changes at exactly the wrong time. This doesn’t just mean bailing on your strategy at the bottom of a bear market. It can also look like pushing all your chips in when the market is red hot and looks like it’ll never go down again. I’m certainly not saying that you can’t adjust your strategy at all during retirement. However, this kind of change is something that should be considered based upon some metric or measurement.
In March of 2009, there were many people who chose to sell and go to cash until things were “safe”. Unfortunately, this only locked in their declines. Our hardwired human instincts often push us to take the exact opposite actions during these types of events. Putting your emotions aside and acting logically isn’t easy, but it’s one of the risks in retirement we can all avoid.
6. Failure to Launch
Ah, kids. We love them, don’t we? (Well, I don’t have kids, but I love my nephew, so I get it.) Unfortunately, one of the biggest risks in retirement I’ve seen is a “failure to launch” scenario. Adult children can hang around and stay on the payroll, even if the retirement nest egg isn’t big enough to support three.
This is a tough one to work through. You want to do everything you can to help your kids. Often, help can easily morph into enabling for even disciplinarian parents. If you find yourself in a failure to launch situation, it’s essential to define boundaries. It can help to see a counselor (for yourself) in order to assist you in figuring out the best, most compassionate way to draw these boundaries.
Showing some tough love could end up being a lifesaver for everyone.
7. Consumer Debt
While low (or no) interest car loans aren’t too bad, any type of high-interest consumer debt in retirement can put stress on any retiree’s finances. Credit cards are the biggest culprits. Even on the low end, credit card interest can be in the high teens.
There’s nothing wrong with using a credit card if you can pay it off every month. I run most of my expenses through a card so I can use the points. But if you find yourself carrying a credit card balance in retirement, stop using it! That’s the point where you need to take a serious look at your budget and make changes.
There’s a simple way to think about consumer debt in retirement: if you can’t pay for it today with cash – don’t buy it.
If you’ve done everything right, you’re living an easy, relaxed retirement! Unfortunately, when you’re relaxed, you can also let your guard down. This is precisely what sets many retirees up to become targets for 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.
Phishing, cyber threats, and other electronic fraud are common scams these days. When it comes to your online accounts, especially your bank and investment accounts, be sure to set up two-factor authentication. Always be suspicious of any emails that ask you to log into your accounts. And never send personal information over email.
9. Underestimating Healthcare and Long-Term Care Costs
Over the years, I’ve had more than one client ask me to make a plan for them where they “bounce their last check”. That sure is cutting retirement close, right? Sounds like a great idea, but there’s no cushion for any unexpected expenses, especially long-term healthcare costs.
It’s hard to predict your long-term care costs, especially when you hope they’re way, way out into the future! So, it’s a good idea to add a few years of these expenses to your financial plan, just in case. Long-term care policies are extremely expensive these days, but they’re worth looking into. Even if you have to plan to use your home equity to pay the bills, be sure to have a plan for these expenses ahead of time.
10. The Things You Know That Just Ain’t So
As Mark Twain said, “It ain’t what you know that gets you into trouble. It’s what you know for sure that just ain’t so.” This applies to retirement every bit as much as any other part of life.
Years ago in a planning meeting, I asked a couple if they’d ever thought about downsizing their home. They paused, looked at one another, and answered in turn. Each sheepishly admitted they wanted to downsize and leave the big city, but never brought it up with each other.
Each of them assumed that the other wouldn’t want to leave. After all, it was the house where they raised their kids.
Who knows how long they would have lived there, each wanting to move somewhere warmer, without even broaching the subject? All because they assumed they knew something they didn’t.
This phenomenon doesn’t require two participants. Quite often, we can go about our lives assuming we can’t go on that vacation, upgrade the kitchen, or even take those piano lessons.
Life is short, and often the most powerful question we can ask is, “Why not?”
If you need help minimizing your risks in retirement, 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.