Probably the most common goal financial planners work on with their clients is how to (financially) retire comfortably. So once that plan is crafted, implemented, monitored and adjusted along the way, what can cause it to fail?
The first answer most readers would likely give is "investment performance." Yet, most seasoned financial planners will say they've never seen a good retirement plan fail because of poor portfolio returns. So if that's not the cause, what is?
Here are some circumstances that can ruin even the best retirement plan:
1. Adult children still "on the payroll." This isn't the occasional gift or short-term loan. It's the adult child who has come to expect a monthly "allowance" from parents for the majority of their support. If the adult child bleeds "The First National Bank of Mom and Dad" dry, their retirement plan will fail.
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2. Divorce. Divorces split the assets and increase the living expenses. When it happens to couples over 50, it's harder to stretch a retirement dollar. While I'm not advocating couples stay together if they're truly miserable, it bears noting that the financial "grass" likely won't be "greener" on the other side of divorce. Money spent on counseling to resolve differences may be a good investment.
3. Overspending. If you've had a good income while working, and are used to spending it, that's a hard habit to break once you're retired. In fact, new retirees in the first few years rarely spend less than when they were working because they feel they can finally take that special vacation, buy their dream car, etc. However, if spending habits aren't in line with the retirement plan forecast, the chance of it failing greatly increases.
4. Vacation home. Buying that second home is often the "American dream." (For Floridians: does a cabin in North Carolina sound familiar?) But second homes can become a huge drain on a retirement budget -- especially if they aren't being rented when not occupied, or it's time for big repairs. Expensive second homes may also be harder to sell when necessary.
5. New business venture. Many successful business owners retire and then go crazy because they don't have enough to do. Their solution? Start a business. But if starting a new company requires a significant investment that comes from the retirement port
folio, that could threaten the retirement plan.
6. Health care risks. The biggest unknown for any retiree is how health issues may impact their lives -- and their finances. An extended battle with cancer, lifestyle adjustments due to Alzheimer's or other health concerns -- and associated treatment costs -- can absolutely erode a good retirement plan over time. Evaluate potential future health problems by looking at family history. A good financial plan can help address some of this risk, but likely not all of it.
7. Senior abuse. A 2012 survey by the CFP Board of Standards found that senior victims of financial fraud lost an average of $140,500. Many seniors make an easy target for fraudsters, and it's estimated that 20 to 35 percent of senior fraud victims knew their abuser. To protect and preserve a good retirement plan, it's important more than ever for retirees -- and their trusted advisers -- to be alert to these dangers.
While even the best retirement plan can't eliminate the risks noted above, some can still be planned for and mitigated. Keeping a good retirement plan on track takes frequent communication between planner and client -- and a willingness on both sides to do what's necessary to keep it that way.
Karin Grablin, CPA, is with SRQ Wealth Management, 1819 Main St., Suite 905 in Sarasota (941-556-9004) firstname.lastname@example.org and is a registered representative and investment advisory representative with, and securities are offered through, LPL Financial, Member FINRA/SIPC. This information is not intended to be a substitute for specific, individualized tax, legal or investment planning advice.