Retirement Planning’s ‘Stealth’ Risks

In retirement planning people often fail to take into account what I call ‘stealth risks’.  Stealth risks are those risks that you don’t think of…risks that seem to pop up out of nowhere.  But the truth is you should be able to anticipate a number of these situations.

  • Parents’ ill health. As we save for our own retirement, we often lose sight of how well (or poorly) our parents have planned for theirs.  What happens if a parent falls ill and needs sitters, nurses, in-home or nursing home care?  Will their assets be sufficient to cover the costs?  One thing that I’ve noticed is that most elderly people want to remain in their home when they become ill.  In one case we had both parents living at home and both requiring twenty-four-by-seven in-home care costing about $240,000 per year!  Average nursing care costs exceed $80,000 per year.  If your parents don’t have the money or run out of money can you afford to step in with financial support?
  • Children returning home. I have been surprised over the past half dozen years at the number of adult children who have returned home to live with their parents.  What started out as a short-term situation morphed into the equivalent of squatter’s rights!  And it’s not just room and board.  I find parents paying for car insurance, cell phones, travel and purchasing cars.  To ‘evict’ children from their homes, some parents are buying the children homes of their own only to find out they need financial help with insurance premiums, property taxes and maintenance.  The fallout is often under-saving for retirement or financial strain during retirement years.
  • Healthcare costs. Mostly we save for retirement assuming we will be healthy.  If our health deteriorates, we assume Medicare and other government benefits will cover the costs.  What’s actually happening is that healthcare costs are rising rapidly and much of it is not covered by insurance.  One study suggested that you plan for an additional $300,000 of out-of-pocket healthcare expenses when you are planning for your retirement.
  • Forced early retirement. More and more people today are planning on working longer to help fund their retirement savings shortfall.  But what’s your plan if you must retire early due to illness or losing your job?

How best to prepare

There’s an old saying used by lifeguards, “The first rule of rescuing is don’t become the second victim”.    Too often people simply put their head in the sand and hope that things will work out.  There’s often a sense of guilt if you don’t do everything within your (financial) power to aid your loved one.  A better strategy is to develop a well thought out plan that considers these possible outcomes way in advance.

Find out about your parents financial circumstances.  If it’s likely their assets will run out, have a frank conversation with them regarding their options and shop around for different car, house and life insurance using Utility Saving Expert to get the best price. Any savings could make a big difference. Often children will ask me about having elderly parents transfer their assets to the children so that the parents will qualify for Medicaid nursing home benefits.  The law requires a five-year ‘look-back’ and claws back any assets transferred during that time.  At a minimum, you’ll want to consider spending their money, not yours to fund out-of-pocket expenses.

Adult children who keep fluttering back to the nest present a special challenge.  After thirty-plus years observing literally hundreds of families, I’ve come to two conclusions:

  1. Children whose parents cut the financial cord quickly after graduation become the strongest, most independent and productive citizens.
  2. If you throw an adult child a financial lifeline they will grab it and hold on as long as you allow. As a result, they rarely fully find their wings.

Regarding healthcare costs during retirement, realize that you likely need to save more than expected to cover what appears to be ever rising costs and assume that the government will pay less than you expect.  One possibility is to consider purchasing a long-term care insurance policy.  Get with an insurance agent who specializes in this coverage and review your options.

Think of how likely a forced early retirement is for you.  If it is job-loss related, develop an alternative job plan.  Do you have a hobby that could produce income should you lose your job?  If it is health related, make sure you have adequate disability income insurance.

What’s most important is to spend time thinking about your retirement.  Most people will spend almost one-third of their life in retirement so plan ahead and make it among the best time of your life!