While everyone should have a retirement plan to help them ensure they will have sufficient funds to see them comfortably through retirement. They should also assess that plan from a risk perspective to ensure that their plan will withstand any curve balls that life throws at them. This is part of the risk analysis that every one of us should be doing to ensure that we and our families have a comfortable life in retirement. We have put together a list of 7 items to consider (there are probably more) that a proper plan should consider. Manage financial risks in retirement to increase the odds of a satisfying retirement. If you have these at least considered and have taken mitigation steps then you are well on the way to making sure that you will be ok.
We assume of course that you already have a financial plan in place. If not the first step is to build one and then consider these issues from a risk assessment perspective.
Manage Financial Risks in Retirement
Here is our summary and we discuss each one in a little more detail later in this post.
- Outlive your money
- A temporary loss in value of your investments, resulting in decreased income
- The death of a spouse decreased pension income
- Long-term care requirements
- Elderly parent support or disabled child support
- Inability to handle your financial affairs
- Special circumstances not in the above such as a business owner
Manage Financial Risks in Retirement – Outlive your money
This is probably everyone’s worse nightmare. No one can predict how long you live other than considering actuarial tables, and statistics, and looking at your own older relatives. We are all healthier now than our parents were and we are living longer. chances are that you will live at least 5 years or maybe even 10 years more than your parents did. Tack on another 10 years to your financial plan to see what impact that has on your assets. You may find that you either have to save more, live on less, or keep working!
A temporary loss in value of your investments, resulting in decreased income
If you depend on your assets for income and they go down with the stock market, what will the impact be on your plans? This happens all of the time as we have seen over the past 30 years. What is the impact on your income with a 20 % decline in your asset value? What do you need to do to make your assets less prone to this kind of income drop?
The death of a spouse decreased pension income
Many spouses depend on each other’s income to have enough money to live on as well as share expenses. Some pensions drop by half when a spouse dies and at the very least government pensions will stop for the spouse that passed away. Can you deal with a 50% drop, or do you need additional income sources to protect yourself and your spouse in this kind of situation?
Long-term care requirements
Sometimes we live a long time, but this does not always mean we have our mobility or our mental faculties with us. Long-term care is expensive and you either need to have sufficient funds to cover the expenses or you should have long-term care insurance. Evaluate the impact of one or both of you requiring long-term care.
Elderly parent support or disabled child support
If this is a concern for you and you are near retirement, you may want to assess your parent’s assets as well as your own and whether you have sufficient funds to pay and provide elderly parent support.
Manage Financial Risks in Retirement – Inability to handle your financial affairs
A stroke or an accident, or some of the other major diseases can rob you of your ability to make your own decisions. Is your will up to date as well as your power of attorney? Does the person you have designated know what to do and what your requirements are? Avoid a stranger making these decisions, by having an up-to-date power of attorney in place.
Special circumstances not in the above such as a business owner
There are thousands of special circumstances that we have not mentioned. Some will come as a complete surprise, while others will not be much of a surprise based on your family’s situation. Take a moment to evaluate those and decide if you need to do some risk analysis to help you deal with these situations.
This is a start, every one of us should be doing this sort of risk analysis prior to retirement and after retirement to assess if anything in your savings plans, your retirement age, or your lifestyle needs to change!