5 retirement derailers and how to avoid them
Retirement is often called our “golden years”, the time we can enjoy the fruits of our working lives. Not everything goes to plan, and five particular issues can derail even the best laid retirement plans – regardless of whether they hit before or post retirement. Avoiding the worst effects involves preparing for the worst and hoping for the best.
Remember that good retirement planning involves impartial advice to identify risks, and strategies to address them, that you may not have considered. So, check in with your financial adviser, accountant and family lawyer to ensure you have all your bases covered.
#1. Relationship breakdowns
Separations and divorces see you shift from two incomes to one, joint assets are split (potentially even sold), and acrimonious splits result in costly legal battles. Furthermore, elder abuse affects one in six older Australians, the Australian Institute of Health and Welfare notes. Adult children, siblings and close friends are among the perpetrators. This could involve financial, physical, emotional or other forms of abuse and control.
Solution: Maintain financial independence. Not everything has to be shared – it is good to have your own income, savings, superannuation and investments in addition to joint assets. A prenuptial agreement helps by outlining what each partner came into the relationship with.
Open communication is crucial, as is active participation in financial decisions – two pairs of eyes are better than one. Keep super beneficiaries updated. I’ve seen people unwittingly gift their ex their super, leaving their current partner with nothing, because these details weren’t updated post-separation.
#2. Partner’s premature death
Sudden deaths from an accident, illness, natural disaster, crime or other unforeseen cause not only take someone before their time, but can cripple those left behind. This is especially true where the departed was the primary or sole breadwinner, often forcing their partner to retire much later.
Solution: Don’t stick your head in the sand. Expect the unexpected and plan accordingly. Life insurance is perhaps the most obvious form of protection here. It can be taken out within your super, so it needn’t touch your everyday finances.Ensure everyone’s wills and estate planning are up-to-date and accessible, saving valuable time to finalise estate transfers and financial access for surviving beneficiaries.
#3. Chronic health problem
Whether it’s cancer, dementia (especially early on-set), or any other chronic condition, the problem here (over and above your health) is two-fold: healthcare costs suddenly soar, while ability to earn an income ceases – temporarily or permanently. You may even be forced into early retirement, draining your nest egg earlier than planned – doubly so if your partner also must retire to care for you.
Solution: Have a plan B. Fallback options are invaluable, such as health insurance to offset medical costs and an emergency fund for paying bills while undergoing treatment. Don’t sell investments unless you absolutely have to – they can generate passive income now while offering longer-term capital growth.
#4. Major financial setback
Financial setbacks have numerous causes – natural disasters, scams, business failures, investment losses, gambling addictions. However. the results are often the same – financial stress and delayed retirement.
Solution: Act quickly. Of course, prevention is best, but not everything is preventable. If you do suffer a major setback, fast and decisive action is crucial – both to stem the losses and put your recovery into action ASAP. See what can be recovered. Banks can put a stop on withdrawals and cards. Revisit protections, such as insurances and back-up plans.
Emergency grants and assistance are offered by governments and charities during disasters. Get support – financial setbacks are stressful. Don’t compound the pain by letting your mental and physical health slide.
#5. Insecure housing
We all know the rental market is tight. It’s even harder for those in retirement: landlords prioritise tenants in paid employment; rents consume a larger share of retirement income than home ownership. Then there are ownership considerations: joint tenants versus tenants in common. If your partner dies, will you automatically inherit ownership or be forced to move?
Solution: Do your best to get on the property ladder. That may require some creative thinking. Consider cheaper markets from where you live; entry-level “renovator’s delights” to improve over time; pooling funds to buy jointly with trusted family or friends. Even if you rent out the property, you have the option to move in should you find yourself otherwise homeless.
Plus, you have a stable investment over and above your super. Also, consider ongoing maintenance costs and tax implications. Owning or inheriting a property is counterproductive if you can’t afford its upkeep or mortgage repayments.
Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: The Essential Guide to Financial Independence for all Women. Helen is among the 1% of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au
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