Now that 2015 bonus checks have been issued and stock grants have vested, thousands of executives will retire from their companies on March 31. After working for decades, they are ready to enjoy life with few worries, thanks to solid financial planning.
But for some, the financial plan they’ve taken years to craft may be disrupted by unexpected events. If that happens, your financial plan, expectations of travel abroad and lifestyle choices may need a major overhaul.
Having helped hundreds of corporate executives plan for retirement over the past 16 years, I can share a list of the three biggest surprises that can upend a retirement plan — and some recommendations on how to cope with them.
Surprise No. 1: Ailing parents. One or both parents of the retiree need nursing or assisted living care and don’t have the money to pay for it. In most cases, new retirees need to determine how much they can afford to pitch in and how it will impact their own financial future.
Unfortunately, elder care is not cheap. While costs vary by state, long-term care insurer Genworth estimates that the median annual cost of a private room in a nursing home is more than $90,000.
Another option is to determine if it makes more sense for the new retiree to become the caregiver. Providing daily care will lessen the financial impact on the new retiree’s nest egg, but it will also cause a major lifestyle change.
This situation can often lead to difficult conversations with siblings who may not have as much personal time or the financial resources as the new retiree.
To make certain this scenario doesn’t disrupt a person’s retirement plans, I ask my clients this question: “Is there anyone else in your life that you may need to support financially one day?” If the answer is yes, funds need to be set aside to cover these costs.
“Parents always want to help their children out of trouble. But … it helps to know how much money you can afford to give before it wreaks havoc on your retirement plans.”
Surprise No. 2: The unused vacation dream home. Planning to spend weekends and summers near the beach or the mountains, the retiree also envisions the vacation home as the ideal location to host adult children and grandchildren for holidays and other big events. Unfortunately, this plan doesn’t always pan out.
Several years ago, one of my clients purchased a vacation home in the mountains of Tennessee for this very reason. But after his adult child moved north as part of a job promotion, the retirees ended up traveling there to see their grandchildren and rarely used the vacation home.
In addition, the Tennessee property didn’t appreciate much over time, so the main reasons for buying the home were nullified. The retiree and his spouse sold the home, but the proceeds were barely enough to cover the mortgage, meaning they had little to reinvest.
While this particular scenario was difficult to predict, anyone caught in a similar situation needs to determine if they want to keep their property and, if not, the best way to get rid of it. For example, if the home was purchased before the Great Recession of 2008 and has declined in value, the new retiree will need to explore whether it makes sense to sell the property at a loss.
Surprise No. 3: An adult child falls on hard times. The cause of the child’s need for a cash infusion will likely be a job loss, an unexpected long-term illness, poor investment or other bad financial decision.
Unfortunately, they often look to their newly retired parents to provide a safety net.
Parents always want to help their children out of trouble. But in this case, it helps to know how much money you can afford to give before it wreaks havoc on your retirement plans.
Before making any decisions, determine how long you can provide any financial assistance and make it clear to the child up front that your financial aid can only last for a certain period.
— By Lisa Brown, partner and wealth advisor at Brightworth