It doesn’t take much to send a solid retirement plan off the rails. Fortunately, the likely causes of retirement failures are well-known and often avoidable. When you know the most frequent causes, you’re more likely to avoid losing your financial independence and security.
Helping too much. People often dip too far into their retirement funds to help loved ones.
Many parents don’t like to turn down requests for help or see their children deprived. Some are too proud to tell their children they can’t afford to help. Most grandparents, of course, like to spoil their grandchildren. Though children and grandchildren are the most common beneficiaries, pleas for help sometimes come from others.
Your retirement spending plan can include gifts to loved ones. But you have to know the limits of what you can afford to give and adhere to those limits. Taking care of yourself and ensuring your financial independence isn’t endangered comes first. Point out to your children that if you provide help now, in a few years you’re likely to be turning to them to help you get through retirement.
When you don’t want to give the hard truth to children or others who seek your help, one solution is to have a financial advisor explain the facts to those requesting help.
Second homes. A second home is part of the stereotypical retirement. But the costs of a second home can be surprising and consume a significant part of a nest egg.
Most people focus on the predictable, fixed expenses when considering whether they can afford a second home. They don’t leave a sufficient cushion for the surprise expenses that arise. Especially critical are the maintenance costs that can increase a few years into ownership. Your spending plan must allow for a lot of unexpected expenses.
The usual response from people is they’ll rent or sell the second home if it becomes a burden. Unfortunately, there’s no guarantee that when you need the money the home can be rented or sold at the price you need.
A second home also ties up a lot of your capital that could have been invested.
Taking on debt. It used to be routine to be debt-free in retirement. More recently, many financial advisers have urged people to maintain debt, especially at the recent low interest rates, in retirement. The data show that more people 65 and older are carrying debt than in the past.
Debt can be a valuable financial tool, but it also reduces your financial flexibility. I recommend that people have enough guaranteed income to meet their regular living expenses, including debt payments.
Some people take on debt …….