Retirement planning is often a significant driver of advisory services' finance lead generation, and many Americans rely on professionals to help them build wealth, manage their assets and reach targeted goals. The wealth accumulation phase of retirement preparation is essential to consumers who want to maintain a certain lifestyle during their golden years and ensure their needs are met. However, a common threat to a comfortable retirement is failing to take into account "unplanned shocks" that can diminish savings and lead to harmful shortfalls in income.
The Society of Actuaries recently released a report, entitled "Measures of Retirement Benefit Adequacy: Which, Why, for Whom, and How Much?," which analyzes some of the risks facing future retirees. One of the most common threats the study highlighted was a lack of preparation for unforeseen costs, such as healthcare spending, mortgages and other expenses that may drain a person's lifelong savings. In addition to these unexpected events, retirement health also depends largely on the players who impact a person's ability to build wealth, including employers, financial advisors and plan sponsors.
"Many of the next generation retirees are facing a big drop in their standard of living when they retire and individuals need to be aware that attempts to over-simplify the retirement planning process can be very dangerous if used for personal decision making," said Anna Rappaport , actuary and report co-author. "Planning for so-called shock events, such as expensive health shocks or ill-timed financial market downturns, must be taken into consideration since they are more likely to derail an individual's retirement plan, especially at lower income levels. Less than one third of median households will have positive wealth at death."
Urge clients to plan for the unexpected
Several analysts and financial professionals have spoken about the need for pre-retirees to build separate funds from their savings and investments that are specifically designed for emergencies. However, many studies show that an inadequate number of Americans have an emergency fund for unexpected events, which leaves them with little financial recourse in the face of a sudden crisis. Encouraging clients to focus heavily on amassing additional funds for these purposes may help them better protect their nest eggs. The same is true when it comes to other types of financial insurance, such as long-term care and sufficient health insurance. Medical costs become more frequent as retirees age, and failing to maintain sufficient insurance coverage can directly threaten a retiree's savings.
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