While many investors consider the greatest threats to their retirement savings to be volatile markets, poor returns and stagnant economies, the truth is that some of the largest threats to one’s retirement can be somewhat latent. Even the most bullet-proof retirement plan can be disrupted by seemingly innocuous reasons such as the following:
Although most couples in their 40s and 50s probably don’t anticipate divorce, the numbers are somewhat unnerving. Regardless of the scale of a couple’s wealth or the amiability of the separation, a divorce can have catastrophic effects on one’s retirement planning; and any couple would be naive to believe they can unravel their marriage without severely compromising their retirement plans in the process.
A divorce later on in life is bound to not only disrupt one’s financial independence, but also force a number of lifestyle changes to be made by both parties. What was once a jointly-conceived retirement plan comprising of a single retirement home, mutual travel plans, appropriately timed vehicle upgrades and a retirement income sufficient to support a combined lifestyle would need to be cast aside and recalculated for each individual. Other than in a case of substantial wealth, both parties need to be prepared to compromise on lifestyle.
Buying a second home while both spouses are still working may often seem both affordable and practical, especially if the bond on the primary residence has been settled. While one’s children are at school, a second home is often the family’s holiday hub and a vacation bastion for friends and extended family. The thrill of owning a second home is, however, often replaced by anxiety once the reality of funding a second home from a reduced retirement income sets in.
Added to the financial pressure of financing the second home, the upkeep of the second property often becomes an arduous duty rather than a weekend pleasure. In addition, if the equity in the second home is needed to supplement other retirement investments, the timing of the sale of a second home can be instrumental to secure one’s retirement cashflow. Being forced to sell a second property at an inopportune time can result in your nest egg being compromised. The timing of a future sale, together with the emotional consequences of selling the family’s holiday home, are factors that need to be taken into account at the outset.
One of the single biggest threats to a couple’s retirement funding is adult children who continually ask to borrow money from their parent’s nest egg. Helping one’s adult children with the purchase of their first property or assisting them financially when embarking on a new business venture is something that many parents do as a means of assisting their child gain a stronger financial footing. The problem, however, arises when financial assistance happens so often that it becomes a form of annuity income for the adult child who, in most instances, is completely oblivious to his parent’s dwindling resources.
Financially dependent adult children present two major complexities: the parents are often too wracked with guilt to withdraw the funding from their child as they know he will suffer if the taps are turned off; and the adult child, being financially dependent on this parents, makes the dangerous assumption that his parents continue lending him money because they have a surplus of funds.
Starting a business
Retirees with an entrepreneurial itch often find the temptation to start a business irresistible, but doing so can dig dangerously into much-needed retirement capital. As enticing as it may be to start a new business venture or try one’s hand at innovation, the truth is that very few earn what they would have earned if they’d simply kept their funds invested. It would be wiser to consider alternative outlets to channel one’s entrepreneurial energies rather than disinvesting one’s lifetime assets in the hopes of satisfying an entrepreneurial whim.