Retirement Age: Risks You Can’t Control

By Modern Wealth Management

January 24, 2020

We regularly talk about controlling risk where you can. However, today I want to address some issues with retirement age and risks that you can’t control. There are lots of risks that you can’t control, not just in retirement, but in life. The only thing we can do about those risks is to ask the question “what-if?” Then make a plan to address that potential outcome. The risk is still there, but if you’ve made a contingency plan for its possible occurrence. By doing so you’ve mitigated its effect on you and/or your family.

It may be a challenging exercise to identify those risks you can’t control. Nevertheless, knowing you’ve done the work and made the contingency plan can help provide peace of mind that’s truly priceless. If that’s something you think you could use, we’ll tell you how to get started at this article’s end. Use the following list of 10 retirement age risks you can’t control as a starting point for your list, and we’ll help you with the rest. 

  1. Your Year of Birth
  2. Layoff Prior to Retirement
  3. Unplanned Early Retirement
  4. Incapacity of You or Your Spouse
  5. Premature Death
  6. Living too Long (Outliving Your Money)
  7. The Stock Market
  8. Interest Rates
  9. The Economy (Recession)
  10. Political/Geopolitical Risk

Retirement Age: Risks You Can’t Control

Your Year of Birth 

The number one retirement age risk you can’t control is the very first thing that ever happens to you…being born. Your year of birth controls, in large part, your investment experience in retirement. And you can’t do anything about it, except plan. 

Consider the ten-year experiences of two different retirees born ten years apart. Retiree one officially retired in 1990, and retiree number two retired in the year 2000. Both retired with $1,000,000 in their 401K’s, both rolled their money into IRA’s invested in a broad portfolio of stocks mimicking the S&P500. Retiree one, if he took no withdrawals from his account, would have ended the year in 1999 with $3,621,000. Retiree two, if he took no withdrawals from his account, would’ve completed the year 2009 with $562,100 with NO withdrawals! All because investor two was born ten years later and retired at the beginning of a ten-year period where the markets dropped precipitously…twice. That was a retirement age risk entirely out of his control. 

Sadly, this happened to a large number of people. These people weren’t as lucky as our retirees in this example and needed to take withdrawals from their portfolio. Those people eventually wound up back at work. The fact that these events occur, even if historically infrequently, requires a plan that asks the question “what-if?”

All too frequently, people are blissfully ignorant of, or willfully blind to, the fact these things DO happen, and consequently, they are emotionally and financially unprepared when they do. Don’t let that be you.  

I’m Never Going to Retire 

Maybe you know this person. Perhaps you are this person. I can assure you; I’ve met this person repeatedly. They’re convinced that they get to make the rules, never thinking that retirement age risks they can’t control may come up and change the rules in the blink of an eye. And when it happens, they’re almost always unprepared.  

We’re talking about the possibility of a Layoff before retirement, and unplanned early retirement or the incapacity of you or your spouse (#’s 2, 3, & 4 from the list above). All of these are retirement age risks you can’t control, but you can’t ignore the possibility that they may happen to you…just because you don’t like to think about them.

Sometimes It Isn’t a Choice to Retire

This topic reminds me of the TD Ameritrade commercial where the guy is telling the “advisor” with him he just likes working, and he doesn’t want to retire. The advisor tells him, “So, let’s not create a retirement plan. Let’s create a plan for what’s next.” I understand the point of the commercial, and I’m not bagging on TD Ameritrade (they are our custodial firm after all). However, I would certainly hope that, in an actual conversation that began this way, the advisor would have a serious discussion with this person and clearly lay out the risks associated with failing to consider that they may not have the choice of whether or not to retire. Seriously.  

There are countless examples, historical and current, of people unexpectedly and quite suddenly losing their jobs because the business they worked for went under or announced massive layoffs, seemingly overnight. Here are some names for you that might ring a bell Enron, Lehman Brothers, Pan Am, DeLorean, Arthur Anderson, Toys R Us, Circuit City, just to name a few. More recently, we’ve seen significant layoffs at Sprint, Ford, GM, Hallmark, and Spirit AeroSystems regionally. No matter how large or small the company you work for, things can happen that are out of your control that will affect your plan. You must consider these possibilities in your planning by asking the question, “What if?” and have contingencies in place to mitigate the damage to your financial future.  

What About Your Health?

But what if it’s not a layoff or closure that causes an unplanned retirement? What if it’s your health or your spouse’s health suddenly and catastrophically changes for the worse? I can cite you example after example of this happening to people you never would have thought would have a health issue. Then, one day, it happens. Their whole world gets turned upside down, and their plans for retirement go flying out the window. There are strokes, heart attacks, vehicle accidents, bicycle accidents (I’m not kidding), terminal cancer diagnosis, a rare genetic disorder, any one of the many physically debilitating diseases, you name it. It’s kind of like that Farmers Insurance commercial says, “We know a thing or two because we’ve seen a thing or two”!  

And no one plans on these things happening to them. In fact, no one wants to THINK about these things happening to them. But they do. So, at the risk of being repetitive, we have to ask the all-important question, “what if?” and make contingency plans just in case. Again, we can’t control these retirement age risks. However, we must prepare for the possibility that they can occur to mitigate the impact on the financial well-being of the affected person and their family. 

Premature Death 

The premature death of you or your spouse is a retirement age risk that you can’t control, and one which brings with it unimaginably painful emotional damage and financial issues which can be lasting and potentially catastrophic. Losing a spouse, especially if it happens just as you’re about to embark on your retirement journey together, changes everything. So, God forbid it happens to any of you, but if it does. What do you do?  

If you can’t even breathe due to grief, yet you have all kinds of financial decisions to make, what do you do? I’ll tell you what you do. Nothing! I can tell you from experience, and without hesitation, that the overwhelming majority of people who have suffered the loss of a spouse are in no emotional condition to make ANY financial decisions for at least 12 months…at LEAST. An unfortunate reality of our business is that we see way more than our fair share of grief-stricken people every year, and we’ve seen the devastating effects of making financial decisions in that emotional state without proper guidance.

It’s not pretty, and it often causes irreversible damage. It’s not just a tax bill that gets triggered by taking money out of the wrong accounts or failing to take a distribution from the deceased spouses IRA. Those things are bad enough by themselves, but far worse things happen. 

Family Risks

Something that we don’t always honestly assess is the risk that exists within our own families where money is concerned. That risk may be with our siblings, relatives, with our children, or with our children’s spouses. Remember, you don’t get to pick the family you’re born into, and you don’t get to pick your in-laws, especially where your kids are concerned, they choose them for you. Sadly, the motivations of some of the people in your family sphere can sometimes be less than pure. Let’s be honest; some of these people are downright devious and tragically self-centered. And you know who they are!  Well, most of the time. Sometimes it’s a Jekyll and Hyde thing, where no one knew how crappy that person would become when someone dies, and money is at stake. 

The reality is that the people I’ve just described, given the opportunity, will move heaven and earth to maneuver themselves to take full advantage of the grieving surviving spouse at their earliest convenience, and it’s sickening. I’ve seen this play out far too many times. It manifests as coercion, deception, entitlement, and threats. 

The only way to stop it before it starts is to have the conversation now.  

Estate Planning is Important

Though a premature death is a retirement age risk you can’t control, you can control the aftermath with good planning. And good planning means asking that nagging question, “what if?” addressing exactly how you and your spouse want things to play out if the unthinkable happens; and putting it all in writing…with the force of law behind it…in the form of a full-blown estate plan. Having that full-blown estate plan means you’ve covered all the bases, including the ones mentioned above. And most importantly, it allows the surviving spouse the freedom to do exactly what I said earlier, nothing except grieve their loved one. Knowing all the pieces are in place, and no one is going to be able to take advantage of them in their hour of vulnerability.  

An estate plan includes a trust, a living will, a pour-over will, powers of attorney for financial and medical, and funding and distribution assistance. And, no, they are not just for the “rich.” They are for anyone who wants to control their estate, no matter the size, and care for their families and causes even after they’ve gone. 

Living too Long

I know what you’re going to say, this is one retirement age risk that you might be able to control if things look too bleak. You’ll just pretend like you’re at Walmart and check yourself out. However, 99.997% of you who would say that wouldn’t do anything of the sort. But it’s something we can all laugh about today. I joke with my kids that if I get to the point where I don’t know who I am anymore, and I don’t know who they are, and yet my body just keeps on going; just set me on the dock or the swim platform of my boat with a 30 pack of cold beer and let nature do the rest. At least I’ll go to one of my favorite places in the world. 

Again, we laugh because I know they’ll never do that, and I’m glad because I’m no fan of a watery grave either. 

The truth is, centenarians are the fastest-growing age group in the US. Many of us are likely to be retired for more years than we worked. That’s an awesome and yet terrifying possibility. And, with the exponential advancements in medical technology today, it won’t be long before it’s normal for people to live into their 120’s or longer. Yet, when we tell people that we’re planning on at least one of a couple to live to age 100, the response is almost always “there’s no way I’ll live that long” or “I don’t WANT to live that long.” But what if you do, and you don’t exercise the Walmart solution? You need to prepare by knowing the answer to the “what if?” question.  

Address Your Need for Care

In reality, living too long entails a lot of the same risks as a premature death does on the surviving spouse. As we age, we lose mental acuity, and we’re easier to manipulate. We’re also more forgetful and eventually less able to care for ourselves. Having a plan that addresses our financial needs, our estate needs, and our care needs, monitored and administered by a team of trusted advisors, can be crucial to our well-being…mentally, physically, and financially. Even though this is a retirement age risk you won’t have to worry about for some time. You really should address it sooner rather than later.  

The Stock Market, Interest Rates, the Economy, and Politics

The Four Horsemen of the Retirement Apocalypse?

“I looked, and behold, a pale horse; and he who sat on him was death; and hell followed with him.”

This is, of course, tongue in cheek, but you’d be surprised, or not, by the number of people who look at these four retirement age risks we can’t control in just this way. They’re terrified that, at the moment they retire, these four horsemen are going to be unleashed on their portfolio through war, division, oppression, and destruction of the financial system. And though I poke a little fun at them from time to time, they certainly have a myriad of reasons for concern; most well-founded, though some they’ve created out of whole cloth in their minds. Either way, they have a strong need to know they can weather the perceived apocalypse and not have their dreams of a comfortable retirement torn apart by things they have no control over.  

I’ve combined these last four retirement age risks that we can’t control into one here because they are all inextricably linked to each other. What happens in one will undoubtedly affect the other three. History proves this time and time again.  

They’re All Interlinked

It doesn’t matter which of the four start things in motion, only that they move. For example, Politics, whether local, national or geopolitical, expands or slows the economy. Driving the stock market higher or lower, which causes bond prices to rise or fall. Or it could go this way: The economy slows naturally due to demographics, causing the stock market to fall, which causes bond yields to rise, which triggers a political response to the economy’s effect on the stock and bond markets. 

This circular response pattern either creates a virtuous or destructive cycle every time it’s triggered. The question is, what can we do about it? The answer is not quite so easy, as it’s likely different for everyone due to their financial situation at the time. However, to get the answer, we still have to go back to the question we’ve asked many times today; “what if?”

Another Financial Crisis?

What if you retire, and a runaway bull market lasts for the first ten years of your retirement? If there’s another financial crisis that sets in the day after you retire, what do you do? What if the bond market crashes? Where is my income going to come from then? What if the economy is stagnant, meaning no inflation, and therefore no cost of living adjustments to my Social Security? What if Trump is reelected? If Warren is the democrat’s nominee? What if we can’t make a deal with China? If Greta Thunberg is right? What if, what if, what if? 

The circular relationship of these four retirement age risks means we can anticipate potential outcomes and plan your retirement strategy accordingly. When we’ve asked “what if?” to the right questions and examined the answers and how they affect your ability to retire, either negatively or positively, then we know where to mitigate unnecessary risk from your plan. The solutions to your situation will almost always be different than they will be for anyone else, simply because you’re in different financial cases with various financial and personal goals to achieve with your assets over time. 

Stock market risk, interest rate risk, and recession risk can all be mitigated by allocating your assets across the appropriate asset classes, and the appropriate tax buckets. Political risk is generally a slow-moving threat that can, and should, be reevaluated regularly, and mitigated with proper tax and estate planning that is updated continuously. All of these retirement age risks can be mitigated by offloading risk to insurance companies for pennies on the dollar. These risks affect someone’s desire to leave a legacy to people or causes they care about deeply.

Talk to Someone About Risk

If you’ve picked up on a common theme today, and you’re ready to find out how to mitigate your exposure to these retirement age risks, you’re head and shoulders ahead of a good portion of the retirement age population today. Doing so is easy; all you need to do is call us at 913-393-1000 or fill out the form below. We’ll take you through our trademarked Guided Retirement System™. Doing so will show you your risk exposure, how much you have, and how to mitigate it for your future. 

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Investment advisory services offered through Modern Wealth Management, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.