5 potentially major threats to your retirement
February 15, 2016 by Aubrey Cohen, NerdWallet
Even if you’ve been diligently saving for retirement and have your money socked away in the right investments for your age, unforeseen problems can disrupt your careful planning.
Threats to your retirement can come from both inside your own family and from strangers who want to take advantage of you. Here’s what you can do to protect yourself.
1. Boomerang children
One of the biggest financial risks to retirement is your own grown children, says Helen Huntley, a certified financial planner at Holifield Huntley Financial Advisers inSt. Petersburg, Fla.
Boomers who support adult children are more likely to still be working, according to a March 2015 study by Hearts & Wallets[1], an investment and retirement research firm. Only 21% are fully retired, compared with 52% of Boomer households who aren’t supporting their children, the study found.
It’s optimal to teach your children self-sufficiency in the first place, so they can avoid a financial crisis that lands them back with you, Huntley says. “Once the crisis actually happens, there isn’t an easy way out,” she says.
One way to handle this retirement-savings threat is to force financial independence: Don’t let adult children move back in. Instead, help them set a budget or find a financial planner.
2. Caring for elderly parents
Studies provide some sobering statistics about care for elderly parents:
• 11% of adult children younger than 65 provide money to parents, according to theNational Institute on Aging’s 2015 Health and Retirement Study[2].
• 25% of adult children younger than 65 help parents with things like chores and personal care, often at the expense of a paying job. In fact, people 50 and older who care for parents lose an average of $303,880 in pay, Social Security and pension benefits, according to a 2011 MetLife [3] report.
If your parents need financial support, the National Council on Aging’s benefitscheckup.org site is a good place to find assistance programs that can take some of the burden off you.
3. A spouse dying without life insurance
Life insurance is critical when you have a mortgage or debts, or if you’re supporting children. But you could also need life insurance if you’re in your final working years, when you’re in the home stretch of retirement savings.
“A lot of people are counting on saving a lot more in the years just before retirement,” Huntley says.
More than 2 in 5 Americans say they would feel a financial impact within six months of the death of a primary wage earner, according to a 2015 report from the industry group LIMRA and the non-profit group Life Happens[4]. And 30% of Americans think they don’t have enough life insurance, the report said.
Term life insurance can be timed to end with your retirement age. For example, if you’re 45, a 20-year term life insurance policy can cover those crucial working years. If you died without life insurance, your spouse might need to dip into retirement savings to cover housing costs, college tuition and other obligations.
Life insurance tips
• Don’t name minor children as beneficiaries on a life insurance policy. They won’t be able to receive the payout until they’re adults. Instead, create a life insurance trust to receive the funds. Here are some insiders’ tips for buying life insurance.
• Buying life insurance through work is a convenient, inexpensive way to get coverage. But you shouldn’t depend on it as your only source of life insurance. Here are pros and cons of group life insurance through work.
4. A medical crisis
Medical bills are the leading cause of bankruptcy in the United States. Even if you can cover your medical bills without digging into savings, an injury or chronic illness could prevent you or your spouse from working during the final years before retirement. You can protect yourself with disability insurance, which replaces a portion of your income if you can’t work.
In addition, “having a cognitive issue such as Alzheimer’s or Parkinson’s can really blow up the best of retirement plans,” says Stephen Northington, a certified financial planner and owner of Northington Investment Group in Little Rock.
Long-term-care insurance can protect your retirement savings by covering the expensive care for a spouse who needs assistance.
5. Retirement scams
Anxiety about not having enough money for retirement creates fertile ground for scammers.
A notable example: so-called 702 accounts, which are life insurance policies marketed as retirement accounts. Scammers often use free “early retirement seminars” as a way to pitch their “strategies,” reports the Financial Industry Regulatory Authority (FINRA), a non-profit watchdog[5].
FINRA advises to be wary of any scheme that promises investment returns of 12% or more, or anything promising that you could retire early or make as much in retirement as you did while working.
The bottom line
Although you can’t eliminate all the potential threats to your retirement savings, you can reduce them. If you have concerns about your retirement planning, consult a financial planner.
Aubrey Cohen is a staff writer at NerdWallet, a personal finance website. Email:acohen@nerdwallet.com.
NerdWallet is a USA TODAY content partner providing general news, commentary and coverage from around the Web. Its content is produced independently of USA TODAY.
