What do we expect to happen as we age, and how do our ideas about retirement planning change? New research on post-retirement risks by the Society of Actuaries identifies where the knowledge gaps and how we can do better.
Important changes as we age include the following:
(Usually) Anticipated change – for instance:
- Marriage, divorce, or family members moving in or out
- Moving to a new dwelling or city (including senior housing, retirement community, or to be with family)
Less-anticipated changes can be due to:
- Gradual physical and mental decline
- Onset of chronic disease
- Erosion of assets through inflation
- Family illness
Sudden unplanned shocks are also important – for instance:
- Job loss
- Investment losses or fraud
- Huge unexpected expenses
- Family emergencies
- Catastrophic illness
- Loss of a family member
All too often we tend to forget, or minimize, results from the last two categories of age-related changes. And things do not happen as planned.
For this reason, it pays to start early, identifying these gaps and deciding what to do about them. Our research shows that the following seven gaps are worth thinking about and discussing with family members and advisors, before it’s too late.
- Most people with defined contribution pension plans lack disability insurance coverage, though this is critical to protect retirement savings if they become disabled. A related trap is that some people must dip into their retirement accounts during periods of disability. To do better: make sure you have adequate disability income coverage, and don’t draw on retirement savings early, if possible. An individual disability insurance policy can be used to supplement employer-sponsored disability to help you preserve retirement funds if you become disabled at an early age.
- Some retirees and near-retirees do not plan at all, and of those who do, they tend to look ahead 10 years or less. They also tend to think only about current or regular expenses. To do better: consider the longer term, taking into account risk and the potential for the unexpected. In other words, your plan should focus on managing resources over the long term.
- Many people think they will retire much later than they actually do. A recent risk survey showed that pre-retirees expected to retire at a median age of 65, whereas the already-retired left their primary occupations at a median age of 58. The reality is that many people are “pushed” into retirement by job loss, poor health, family needs, or an unpleasant work environment. To do better: develop and implement a contingency plan, in the event of earlier than expected retirement.
- Households often fail to plan for the death of the first spouse. In fact, only 23% of pre-retirees and 31% of retirees had planned for the loss of a spouse, in the same survey. In fact, it costs a single person about three-quarters of what it cost the couples to live, but Social Security benefits can fall by more. To do better: Survivor planning must address both financial and non-financial issues. The financial ones might require getting an advisor to sort out, but the non-financial concerns can be even more important. This includes building a support network, having activities that continue, finding suitable housing, and being near family, even if it involves a move.