Why Clients Fail at Retirement
A recent article in Financial Advisor magazine cited the top reasons “Why Clients Fail @ Retirement,” and it has little or nothing to do with overall investment performance. The reasons include: divorce, the purchase of second homes, adult children who “fail to launch” and remain dependent upon parents and family for their financial support, starting a business, extraordinary health care expenses, overspending, and finally, elder fraud. All of these are significant – and common – financial problems among individuals and families today. To this list I would add two other, unfortunately too common, problems: single-parent households and substance abuse.
Divorce is a common, but often unavoidable, financial stressor for many people. It’s no secret that it often costs two people more to live independently than it does for them to live together. And divorce can wreak havoc on a couple’s financial resources, including retirement and other investment accounts that are split up in the process of a property settlement. This can be a particular problem for the more vulnerable of the two in the settlement – often a stay-at-home mom without earnings or assets of her own. Single-parent households present a similar problem, inasmuch as it is generally more costly for a single parent to manage his or her work and home life balance with their income and resources.
Dependent older children present a special problem: many – if not most – parents, understandably, find it difficult to watch their children struggle with their own financial burdens and are motivated by love for their children to help them, when able to. Problems arise when the children fail to take control of their circumstances and remain dependent on their parents’ support – indefinitely. This is what Thomas J. Stanley and William D. Danko, authors of The Millionaire Next Doorrefer to as “economic outpatient care.”
The “overspending habit,” the Financial Advisor article tells us, “is very hard to break,” especially once you’ve set a certain spending level in retirement. Overspending – or more specifically, avoiding overspending – is typically a problem that can be solved or avoided however through effective and rational financial planning, whereas the financial problems associated with divorce, single-parent households and dependent older children often involve complex psychological aspects that don’t lend themselves to rational “nuts-and-bolts” solutions.
Among the most insidious of the aforementioned threats to one’s retirement security is the increase in elder fraud. According to the article, “A survey of 2,600 financial advisors conducted in August 2012 by the CFP Board of Standards estimated that the average senior victim of financial abuse lost an average of $140,500” – a statistic reinforced recently with the arrest of a local financial advisor who allegedly defrauded a Wheatland woman out of $345,000 of her life savings.
Formal financial planning helps people to prepare for the challenges of retirement and can be an effective way to mitigate or eliminate the risks of “failing at retirement,” but individuals and families need to be aware of – and remain vigilant against – these other, often overlooked, reasons for failure.