4 Scenarios: What Can Happen If You Don’t Plan
Financial planning is not a one-time exercise. A good financial plan should allow you to reach your goals and have a comfortable retirement. To really understand how important it is to have a good financial plan, you only have to think of what could happen if you don’t plan. These 4 scenarios can be all too real if you don’t have a comprehensive financial plan.
Scenario #1: You Need To Work Longer
More and more Americans over the age of 65 are still working. Nearly 19 percent of this age group are currently working. That represents a roughly 50 percent jump compared to the number of folks 65 and older who worked in 2000. Not only that, but an increasing number of older people are working full-time – today, almost two-thirds of older Americans who work are pursuing their work full time, while in 2000, that figure was 54 percent.
For some, it’s a genuine choice, stemming from a desire to remain engaged with their careers or develop an alternative career. But for others, it’s needed just to pay the bills. If you hit “retirement age” and don’t have sufficient money saved in your retirement accounts to support you financially, you may end up having to work longer than planned. If you do not really love your work, that can be an unpleasant reality.
This trend is not expected to change any time soon either. When Americans under retirement age were surveyed, 64 percent said they expect to be working after the age of 65 – and sadly, for almost half of them, it will be out of financial necessity, not desire.
Why is this happening? About 15 percent of all Americans have nothing saved for retirement; 22 percent have just $5,000 saved for retirement.
The best action you can take to avoid this scenario is to discuss your plans with a financial advisor and decide how much you will need to retire on, taking into account both the when and where of your plans. A financial advisory firm can help you draw up budgets, savings and other plans to help make sure you reach your goals and that you can make good decisions likely to get results.
Scenario #2: You Never Reach Your Goal/Dream of Retirement
Most people have a vision of what their ideal retirement lifestyle will look like. It could be playing rounds of golf every morning, not just on Saturday. It could be sitting on the front porch overlooking the garden. Or it could be traveling the world, sky-diving or learning the art of French cooking. Maybe it is just having unrestricted time to spend with extended family or the grandkids.
While most people can define a vision of the ideal lifestyle, a full 56 percent of Americans don’t know how much they will need to retire comfortably. Goals and dreams need active planning to be achieved. The achievement of most dreams requires money. Travel certainly does. But even wanting to stay in your own home or keep your pre-retirement lifestyle may not be achievable if you haven’t planned.
Folks who haven’t planned often find they don’t have enough money to retire the way they had hoped. Many find they need to tap the equity in their home, or sell the home and downsize to stay afloat financially.
It’s never too early to think about what your goal or dream of retirement is – and then work with a financial advisory firm to actively plan so that you reach it.
Scenario #3: Your Assets Aren’t Left to Your Loved Ones After You Pass Away
It’s common to think of financial planning as pertaining only to goal-achievement and retirement. But a comprehensive financial plan should also include estate planning. Estate planning is just what the term implies: It’s a blueprint for where you want your assets to go after you pass away. A will specifying who should inherit your assets should be just as much of a financial plan as a 401(k).
If you don’t make a will, the disposition of your assets will be determined by state law. State laws about who receives assets from an estate vary. Don’t assume that it will be to the loved one you want! Most states start with the spouse, but even that isn’t guaranteed. Plus, if you have a long-term partner and have not married, that person could be left with nothing if you don’t make a will. (Find out what you can expect if retiring in Texas.)
The same if true if you have particular assets you want going to a family member or organization. Do you want to pass your jazz collection on to a nephew or make sure a favorite organization receives your assets to carry on its mission? The chances that your wishes will be carried out are slim to none if you don’t have a properly drafted will.
Another scenario we see with people who don’t have a will when they pass away is any loved ones who do receive their assets likely wait much longer than they would if a will existed. Dying without a will often kicks off a long and sometimes intricate legal process.
When you do have an estate plan in place, you are able to set forth who you want to inherit your assets and how much. The process of settling your affairs can be much more efficient and family-friendly.
Scenario #4: Your Kids Have To Support You
The number of older people moving into homes with their adult children is growing. Currently, 14 percent of adults who live in someone else’s house live with adult children, versus 7 percent in 1995. For many, such a move is a financial necessity dictated by the need for cutting down on their living expenses. Living with adult children may be fulfilling but a loss of independence is not pleasant for many older Americans.
Sometimes, this is a mutually beneficial scenario. But few senior citizens want to feel that their kids must support them economically because the parents are no longer able to do it. Plus, moving in with your kids can raise emotional issues that are hard to deal with, such as loss of a beloved home or limited personal space.
Even if you retain your own living space but need financial support from your adult children, the issues can be complicated. A number of factors, such as the rising cost of real estate, the widespread nature of student loan debt and child care costs, are squeezing the income of adults across the country. Relying on your children for economic support may be emotionally fraught – or even become financially impossible for them.
Don’t waste any more time. Contact Linscomb & Williams to see if we can help. Whether you meet with us or not, sit down with a qualified fiduciary financial advisor and renew or reinvent your estate planning. There is no better time than now.