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Three unexpected reasons your retirement plan could fail

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Women spend a third more on health care than men do over their lifetimes.
photo/khamidulin Women spend a third more on health care than men do over their lifetimes.

We all aspire to have a secure retirement when we can focus on our passions and family without having to worry about money.

But according to the Employee Benefits Research Institute, only 22 percent of Americans are confident that they will have enough resources for a comfortable retirement. The statistics are even more alarming for women, with only 10 percent very confident about their long-term financial situation.

Why is the retirement outlook for women so dire, especially since many women these days are better educated and have more career opportunities? It’s often because we face so many obstacles on our journey to financial freedom, such as lower pay and less time in the workforce because of raising children or caring for other family members.

Look at these three common yet unexpected reasons your retirement plan could fail and take proactive steps to protect your future.

(1) FORCED EARLY RETIREMENT

As you accumulate wealth and build retirement savings, there is always a risk that your career could end prematurely because of poor health, disability, job loss or the responsibility of caring for a family member. Early retirement can destroy even the most well-structured retirement plans.

According to the Transamerica Center for Retirement Studies, 40 percent of women plan to retire after 65 and half of women plan to work in some way, shape or form after officially retiring.

Considering that 47 percent of retirees stopped working sooner than they had planned, these numbers show that many women may have to adjust their plans.

Unfortunately, the data gathered show that only 19 percent of women have created a backup plan if forced to retire early.

DISABILITY INSURANCE

Working fewer years than expected also can decrease Social Security benefits during retirement.

To protect yourself from this risk, plan for the unexpected. Make sure you have adequate disability insurance to safeguard income in the event of an illness or disability.

You also can work with an adviser to project what your savings and income would look like if forced to retire early.

(2) PREMATURE LOSS OF A SPOUSE

Losing a spouse is devastating, whether or not the spouse is near his or her life expectancy.

But losing a spouse during the final years of his or her career can be dangerous for the survivor’s financial plan. Furthermore, retirement and long-term care costs may increase without a spouse to share costs and provide care.

Women face this risk more than men since women have longer life expectancies and men tend to marry younger women, making widowhood a very real issue for many women.

The Census Bureau reports that 39.9 percent of women 65 and older are widowed, compared to just 12.7 percent of men. Among women 75 and older, 56.9 percent are widowed (compared to 21.2 percent of men).

SURVIVING SPOUSE BENEFITS

Often, a husband plans to work until retirement and both spouses intend to live from his company pension and Social Security benefits.

However, the husband’s pension may not pay out in the event of his death. This also could decrease the spousal Social Security benefits the wife receives, leaving her with little income.

It’s critical to involve both spouses in planning and to consider benefits for the surviving spouse.

COVERING INCOME GAPS

Examine multiple scenarios and make sure you will be cared for no matter what happens. Evaluate where you stand financially if you lost your spouse.

How would your lifestyle change? What income would you need to make up financially for this loss?

Life insurance is one option for covering income or wealth gaps and is a way for your significant other to help prevent your financial situation from crumbling.

To assess risk and evaluate your life insurance needs, consult with a financial adviser or use an online life insurance needs calculator.

(3) HEALTH CARE COSTS

THAT DRAIN YOUR NEST EGG

According to the Employee Benefits Research Institute, the average couple at age 65 will need $157,000 to $392,000 in health care costs for the remainder of their lives.

Because women live longer than men, they are at a greater likelihood of suffering chronic illnesses resulting in greater medical costs.

In fact, women spend a third more on health care than men do over their lifetimes and, until the Affordable Care Act, many companies charged women higher health insurance premiums.

CONTINGENCY FUND

As we age, illnesses and health concerns only multiply, but be proactive and start taking care of your health now to prevent future problems.

Also, consider working a contingency fund into retirement planning so when costs arise, you aren’t forced to forgo other necessary expenses to pay for health care.

Finally, when selecting health insurance for retirement, work with an experienced professional to choose the plan that’s best for your needs. Understanding all Medicare options and supplements will help evaluate your choices.

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Retirement planning can seem overwhelming, but it is an essential part of your journey to financial independence.

Despite hurdles along the way, you can create and stick to a plan that will provide confidence and peace of mind.

Lisa Strohm is founder and CEO of The Athena Network, a financial and life management firm based in Upper Saucon Township, providing investment advice and financial planning offered through Good Life Advisors LLC, a registered investment adviser. (The Athena Network and Good Life Advisors are separate entities.) She provides fee-based financial planning and investment management for women, their spouses and extended families. She can be reached at 484-224-3439 or lisa.strohm@the-athena-network.com.

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