The purpose of our website is to help you achieve your financial goals in retirement. Unfortunately, there are several situations that may cause some households to fail to meet their goals. In a recent article, 7 Ways Clients Can Fail in Retirement, Financial Advisor writer Jacqueline Sergeant outlines some of the reasons for failure discussed by veteran advisor and author Greg Sullivan in a recent book he has written. This post will discuss these reasons and how you can use the Actuarial Approach and Recommended Financial Planning Process discussed in this website to try to avoid them.
The reasons for failure (other than poor investing and inadequate retirement preparation) discussed in the article include:
- Divorce
- Adult Children
- Second and Third Homes
- Underliving Wealth
- Healthcare
- Starting a New Business, and
- Elder Fraud
Divorce
We encourage couples to sit down together annually and perform an “actuarial valuation” of their financial condition as part of their annual budgeting process. In addition to performing “what if analysis” assuming that one member of the couple may die in the next year, the couple should also look at what may happen if the marriage otherwise breaks up and plan accordingly.
Adult Children
Couples with adult children should periodically determine how much of the assets allocated to their Upside Portfolio (the Portfolio used to fund discretionary expenses) may be available to fund emergency expenses (or other expenses) of thir adult children in addition to their own discretionary expense spending.
Second and Third Homes
Second and third homes will involve expected and unexpected recurring and non-recurring discretionary and essential expenses. These expenses should be carefully considered when deciding on whether to purchase another home. See our post of October 6, 2020, “Should I Buy It?” for discussion of the suggested process to use when deciding whether to purchase large expense items. And while vacation homes may be sold (or rented) in the future if income is needed, the market for such homes may be more volatile than the market for primary residences.
Underliving Wealth
Underspending can be a real problem, particularly, as noted in the article, in situations where spouses don’t agree on discretionary spending. We agree with the article suggestion that spouses periodically sit down and determine how much of their Upside Portfolio they are comfortable spending in the upcoming year and include that amount in their spending budget.
Healthcare
We believe healthcare expenses will most likely be classified by households as recurring essential expenses. When using our Actuarial Budget Calculator to build the household Floor Portfolio (the portfolio used to fund essential expenses), we recommend that households assume future healthcare expenses will likely increase at a faster pace than other essential expenses. We also believe the household retirement plan should include an estimate of the present value of the household’s future long-term care expenses.
Starting a New Business
We agree that retirees can quickly get sucked down a rabbit hole when starting a new business. We suggest that the assets for this purpose only come from the Upside Portfolio and household members agree in advance on the new business spending limit from this portfolio.
Elder Fraud
Elder fraud and its close cousin, cognitive decline, are also real issues that can damage the best laid household retirement plans. We fully admit that the Actuarial Approach does not provide exclusive answers to this issue and suggest you read this fine report jointly prepared by the Stanford Center on Longevity and the Society of Actuaries about transitioning financial decision-making and money management responsibilities to children or other agents.
Summary
There are many things that can derail a household retirement plan. The Financial Advisor article discusses seven of these reasons/situations. We believe that following the Actuarial Approach and Recommended Financial Planning Process can be helpful in dealing with most of these potential “fail” situations and can therefore leave you in a better position to achieve your financial goals.
