Financial Risks in Retirement – Everyone should have a retirement plan in place to ensure that they have explicitly considered, and have strategies in place to address any or all of the issues listed below. When you review the list, you may feel that some of these may not be ever an issue for you. That’s fine, set those aside, and focus on those that you are concerned about. If you have time and/or the inclination come back to the others and address them. At least you will have a plan to deal with those issues that concern you the most.
The main Financial Risks in Retirement which may occur during retirement:
Outlive your money: Many people are living longer than their ancestors and their parents these days and as a result, must plan for a longer life. Running out of money can make retirement very uncomfortable and even miserable. Take stock of your assets and plan withdrawals from your savings in such a manner that they will last beyond your anticipated demise.
- Ensure a reasonable plan is in place: expense level, income sources, asset draw
- Develop a plan at least five years before retirement, and review it annually
A temporary loss in value of investment assets, resulting in less income: the stock market, the housing market, etc appears to take corrections every decade. When this occurs will this impact your living standard and will you be able to sustain your living standard? What plans can you put in place that will sustain your income and allow you to sleep at night without worrying about whether your assets will be available or not?
- Is this a major proportion of retirement income?
- Are the investments balanced for regular income, versus growth?
- Structure portfolio to ensure no income is available for at least a five-year horizon
- Are guarantees needed to lock in a portion of this income?
Other Risks that Consumers do not Like to Consider
Death of a spouse, and resulting reduction, up to 50%, pension income: we have seen it over and over again. One spouse will die and the company pension plan is halved or eliminated as a result leaving the other spouse without the funds to live comfortably in their remaining years. Decide before you retire if a survivor option should be added to your retirement plan?
- Is this a major proportion of retirement income?
- Is life insurance required?
The need for long-term care, resulting in the depletion of assets:
What is the probability that you will need long-term care? Long-term care is extremely expensive and all of your assets can and will be consumed if you spend any significant time in long-term care. Can your spouse look after you? Will your spouse look after you?
- Disability for one, or both, spouses. Others close wishes to retain or live in the home
- Other assets that can be sold to provide additional funds?
- Do a long-term insurance analysis.
Continuing elderly parent or disabled child support: who will look after your disabled child when you are gone? How will you work and look after your elderly parents and your disabled child?
- Is this a large proportion of the expenses?
- Are RRSPs, and Henson trust in the will.
Inability to handle your financial affairs: this can happen slowly over several years providing you with time to prepare wills etc., or you can be suddenly smitten with a stroke or heart attack leaving you unable to look after your own affairs. What do you do in a situation like this? What does your spouse or family do in situations like this?
- Ensure that wills and POA’s are in place in advance.
- Create a complete estate plan: beneficiaries, testamentary trusts, funeral costs.
Is joint insurance required to cover: estate capital gains and RRIF taxes? - Large legacies or charitable gifts?
- Special circumstances or considerations e.g. business owner?
Summary
We may not have covered all of the situations that we all must deal with in retirement and as we age. However, these appear to be the main issues and if nothing else we hope that it will get you thinking about your personal situation and making some plans with regards to those issues. Doing nothing is really not an option although many people do just that and then have to live with the consequences.
Don’t be one of those people. Take control of your life and make sure that you can live the life you want for yourself and do not become a burden for your family. In the end, no one wants to be a burden. We all want to be independent as much as we possibly can even if we are incapacitated.
For more information about retirement risk, click here.