A recent paper from The Center for Retirement Research at Boston College called out risks that people likely will encounter as they retire. The paper addresses five risks that may affect the lifecycle of a typical retiree household. Learning about options to offset these risk are basic to planning for extended or long-term care.
Longevity Risk – The risk of living longer than expected
exhausting financial resources
negative impact on family/friend caregivers
Health Risk – Retirees can face:
unexpected medical expenses
long-term care needs and expenses since as one ages out-of-pocket expenses rise quickly.
Market Risk – Risks include:
market volatility, such as selling during a downturn
housing market volatility and accessibility. Most retirees want to age in place but may need to downsize or remodel their home
Family Risk – This can include:
divorce or death of a spouse
children becoming ill or unemployed
family members becoming caught in the ‘sandwich generation’
Policy Risk –
social security is the primary income source for many retirees. According to the Boston College paper, the program’s trust fund reserves are projected to be depleted by 2035 and people may experience a 20-25% benefit reduction after that.
Many retirees depend on Medicare, Medicaid, Veterans Benefits, Supplements, or other government programs which are expected to undergo modifications
For most families, it takes a scary, sad, or upsetting experience to push everyone into action. By then, unfortunately, it’s often too late to avoid some of the worst consequences of the family’s delayed action. That’s why it is so important to stay ahead of the curve. Without a plan, your family risks the following:
Negative impacts on family members’ lifestyles. What if a parent must move in with you or if you must move in with a parent in need of care?
Diminished Social Security benefits and investment savings as the family caregiver devotes time to caregiving instead of earning income.
Depletion of retirement savings.
Delays in education funding for younger generations.
On-the-job stress or employment absences due to caregiving requirements and emergencies.
Decreased cash flow, leading to limited care options.
Diminished assets values resulting from a fire sale situation.
Compelled asset liquidation when the market timing isn’t good, resulting in unwanted taxation.
Limited potential future investment growth due to diminished invested funds.
Retirees and pre-retirees unable to preserve the money they have worked so hard to save for their legacy.
Feeling guilty because you didn’t have the conversation with your parents or spouse, and their choices are now less attractive or not possible because of poor or no planning.
-Excerpt from "How Not to Tear Your Family Apart