Many Americans see retirement first as a process of saving enough money and, when that goal is met, finally settling into rest and relaxation in their later years.
But several challenges often threaten to derail that plan, a new survey found.
Roughly half of today’s retirees (48%) say their retirement has involved even more surprises and challenges than expected, according to a recent Edward Jones survey of over 12,000 North American adults across five generations.
Five situations retirees often face that can majorly disrupt their retirement wellbeing — including their finances — are the death of a family member or close friend, personal health issues, a partner or spouse’s health challenges, financial setbacks, and retirement itself.
Anticipating those challenges may help those planning for retirement also include preparations for those common setbacks — at least financially.
"We've said, 'OK, we are going to really dive in and understand what retirement means to people today," Lena Haas, head of wealth management advice and solutions at Edward Jones, told Yahoo Finance. "How do they feel overall? What derails them? What helps them be successful?'"
Here are the big takeaways.
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Having a family member or close friend die
The most common disruption is having a family member or close friend die, cited by 42% of people in the study. For those who lost their spouse/partner, 77% said it was an extremely disruptive event.
That's not surprising, Haas said.
Many couples often plan for retirement together to optimize their savings, she said. The death of a spouse can also take a toll on income, she noted, especially if the spouse is still working at the time.
"You're suddenly faced with a situation where your income is oftentimes not what you have anticipated whereas your expenses often stay the same, or even higher," Haas said. "So if you have a house, if you have a mortgage, that doesn't change when somebody passes away."
Financial course correction: Retirees should consider working with a financial advisor to help plan for the possibility of such an event. According to the study, "27% of retirees and 30% of pre-retirees currently work with financial advisors, and 94% of them are confident in their ability to handle financial changes in retirement."
Retirees facing the death of a spouse or partner can also turn to government and social services programs to improve their financial security. But few do this currently. Only 16% of retirees have gone to these services. Of those who do, 88% say it improved their well-being in retirement.
Personal health issues
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The second most common challenge retirees face is personal health issues. Three in 10 respondents experienced such challenges, with 45% describing them as extremely disruptive.
Haas noted that as the longevity of the population has increased, there has also been an increased incidence of long-term illnesses. Not only do these diminish a retiree’s everyday quality of life, health issues can dramatically increase medical expenses and one’s ability to earn income.
"There are a number of those diseases that are basically chronic diseases that require very meaningful maintenance, that have a really outsized impact on people's not just physical well being…but also overall financial wellbeing and wellbeing with their families," Haas said.
"It forces people to become less physically active, it forces people oftentimes to reduce or step away from their jobs, it forces people to increase their medical spending."
Haas encouraged retirees to acquire supplemental medical insurance, noting the toll that health issues can take on retirees.
Financial course correction:
According to the study, 45% of retirees have secured supplemental health insurance to cap out-of-pocket medical costs. Of that group, 42% said the move had significantly improved their lives.
A spouse’s or partner’s health issues
Similarly, a spouse or partner’s health issues can add up financially and potentially interrupt the other partner’s ability to earn income. Just over 1 in 5 (21%) cited this common disruption, but 42% said it was extremely disruptive.
"What oftentimes happens is that healthcare expenses balloon if somebody experiences prolonged illness," Haas said. "And also maybe the other spouse has been forced to step away from their job completely or partially to become the caretaker. And so you see a direct connection to how it affects the whole financial picture."
Women tend to pick up a disproportionate amount of this load, which can also hurt their odds of retiring on time. The study showed that while 56% of women have had to adjust their lifestyle in retirement due to being financially constrained, only 41% of men reported doing the same.
"Oftentimes, women step up to become caretakers for family members, spouses, or parents, or maybe an aunt and uncle who experience a health situation," Haas said. "Women take time more often from their careers to be the caregiver for a prolonged period of time. And so it affects both their career trajectory [and] how fast they're able to have an increase in compensation."
Financial course correction:
Investing in long-term care insurance — which covers in-home care, community services like adult day care and transportation, and ongoing care in a nursing home or assisted living residence — can ease the financial burden and allow relatives to depend on professionals for care-taking. But few get this coverage, according to the study. Only 15% of retirees and 12% of pre-retirees reported they obtained it.
Significant financial setbacks
Customers shop at a grocery store in Mount Prospect, Ill., Friday, April 1, 2022. USDA says food inflation rate to soar, highest since 2008. (AP Photo/Nam Y. Huh) ·ASSOCIATED PRESS
One in 5 retirees have faced a significant financial setback, according to the study, with inflation and the rising cost of living proving to be the most significant shocks. That was followed by medical or dental expenses, home expenses or repairs, decline in the value of investments, and financial assistance provided to family members or friends.
Consequently, roughly half of retirees have reduced their everyday spending, according to the report, while three-quarters of Americans have cut back.
"They also kind of emphasize in an interesting way how they're being frugal and associate frugality with being really smart and deliberate in their choices versus kind of the old definition of being cheap," Haas said.
Financial course correction: The study showed retirees can mitigate financial challenges by reducing debt and increasing savings. Around half of retirees said that they have reduced their mortgages or debt. Roughly 60% of those retirees say doing so has significantly improved their retirement years.
Unexpected retirement
For some retirees, retirement itself can prove a major challenge, the report said. For instance, the study notes 30% of retirees said they were forced to retire unexpectedly. Reasons included health issues, job loss, and family responsibilities, including caregiving.
This can become quite the financial setback if you planned to have more working years to save enough for retirement.
Financial course correction: Haas advised prospective retirees to factor unexpected retirement into their financial planning.
"It is really important to scenario and say, 'well, I am looking to work until a certain age. I think I will work later.' But what we see in the data is that there's quite a strong possibility that something might happen that forces you to retire earlier. So therefore, what [are] other adjustments that you would make?'"
