If you think your retirement is going to look like your parents’ or grandparents’ retirement, think again. Here are 3 things you should be considering:
- The Bank of Mom and Dad won’t always be open. There are two sides to this. If you’re currently supporting your adult children, you’re not alone. According to a BMO Wealth Institute study, 81% of parents say they have provided their adult children with some financial support. However, you’ll want to evaluate if that’s possible to sustain in the long-term. Ask yourself: Will helping my adult child (buy a house, afford a vacation, transition to a new job…) put my own financial future in jeopardy?
If you answer, “No, it won’t harm my financial well-being” then it’s OK to continue your support, as long as you have the assets to back it up and your financial position doesn’t deteriorate in the future. But if you realize that continuing to support your children means financial sacrifices on your part and lowering your own standard of living, then you need to have a frank conversation with them.
Now, the other side of this. If you are on the receiving end of money from your parents, just know that the escalating costs of health care in retirement, market volatility and other factors, may shut down your parents’ largesse, or potentially wipe out any inheritance they might have liked to pass along, whether you or they like it or not. Fewer than half of the BMO study respondents said they would sacrifice their own financial well-being to financially support their children. Bottom line: Relying on your parents is not a solid financial plan.
- Health care costs are going to be a major factor in retirement. This year the premiums for Medicare went up significantly, while Social Security benefits went down for anyone who is making more than a specific, although limited, amount of money. Most people have not planned for the rapidly escalating cost of medical care in retirement. A person’s future medical expenses are going to be the great unknown. But here is a figure that can help you put things into perspective. Fidelity’s Retirement Health Care Cost Estimate shows that a couple, both aged 65 and retiring this year, can now expect to spend an estimated $245,000 on health care throughout retirement. Are you prepared for this?
- You may – or may not – need life insurance. If you have enough assets, and are not looking to replace them if you or your spouse or partner were to die, you may not need as much life insurance as you once had. But when looking at the direction of the economy, you’ll need to ask yourself, “If something happens to me, will my spouse or partner have to change their lifestyle due to insufficient assets?” If so, keeping your life insurance may make sense. Think of it this way: by having the life insurance it puts you in the position of “being the bank” instead of “having to go to the bank” when the need for money arises.
The bottom line is that as you approach retirement, you need to look at the future with clear eyes, considering all the “what ifs.” Then be sure to sit down with an advisor or agent who can help you mitigate those what ifs with the proper type and amount of insurance and planning.