4 Ways Wealthy Retirees Become Poor in Retirement.

I extend my gratitude to Cynthia Meason from GoBanking.com for incorporating my insights on how the lack of planning for a Long-Term Care event can lead to severe financial repercussions for retirees. Charles

More than half of American households are at risk of not being able to cover their essential expenses in retirement, according to Fidelity’s latest Retirement Savings Assessment. But wealthy retirees don’t have to worry about that — or do they?

Retiring wealthy can allow you to continue on the path of financial success. But if you don’t plan carefully, the money you’ve amassed over the years can slip through your fingers. Find out how wealthy retirees can lose their money in retirement and what they should be doing before they retire to avoid potential financial woes. Here are the ways retirees who are wealthy can lose their money in retirement.

Allowing Their Lifestyle To Get Out of Control

“Retirement can be an exciting time for wealthy individuals,” said Sherman Standberry, a licensed CPA and managing partner at My CPA Coach. “After years of hard work, they finally have the financial freedom to do as they please. However, this newfound freedom can lead to overspending and living way beyond their means.”

Standberry explained that reckless spending can quickly deplete retirement savings, resulting in a financial crisis. “Even if they have a significant amount, they should still be mindful of their spending and create a budget to ensure that their retirement savings last for the rest of their lives,” he said.

Steven Neeley, CFP with Fortress Capital Advisors, said that when wealthy retirees invest too conservatively, it makes them highly susceptible to inflation and a reduced standard of living.“Finding the right balance is key, since retirees don’t want to be invested too aggressively if they are drawing from their portfolios,” he said.

“But what I see a lot is the other extreme — people holding on to their money too tightly in order to avoid losses. They don’t realize that missing out on gains is also a type of loss, especially if it means they might run out of money toward the end of their lives.” Investing Blindly On the other hand, throwing caution to the winds altogether is a bad idea, too.“Even if a person has so much wealth, they still need to be cautious when it comes to investing,” said Standberry.

“Blindly investing in risky ventures without proper research and understanding can lead to significant financial losses and even bankruptcy.” Standberry said that even if retirees have a considerable amount of wealth, they should still seek professional advice and diversify their investments to minimize the risk. “Moreover, they should also keep an eye on their investments and make necessary adjustments as needed,” he said.

Not Planning for Long-Term Care Issues

Charles C. Scott, accredited investment fiduciary and president of Pelleton Capital Management, said that his firm focuses on healthcare issues for retirees and often shares the Fidelity report that retirees will spend around $350,000 for a couple over their lifetime.

“When you throw in the cost of a long-term care event, if it were to occur, that number multiplies several times over,” Scott said. “If you look at the extremes of care costs, the longest care time we’ve seen was 16 plus years, and that cost was in the neighborhood of $2,250,000. Thank goodness she had a long-term care insurance policy that paid for it all.”

Scott said that there’s nothing more devastating to a family than when they’ve not planned for long-term care expenses. “We have witnessed a lifetime of working and saving being wiped out by such events,” he said.

“As an investment advisory firm, we make sure to have a conversation with all of our clients, so they are aware of the issue.” Scott explained that there are new and innovative solutions available that will allow the dollars invested in the long-term care policy to pass on to designated beneficiaries if it’s never needed.“It doesn’t have to be a use-it-or-lose-it proposition anymore,” he said.

What Should Wealthy People Do To Prepare Before They Retire?

Before retiring, wealthy people should do the following to ensure that they are able to preserve their wealth in retirement.

Speak With a Financial Advisor, Standberry said that the most important thing wealthy individuals should do when preparing to retire soon is to seek advice from a financial advisor.

“A professional can help them create a solid financial plan and make sound investment decisions to ensure their wealth lasts throughout retirement,” he said. “They can also assist with tax planning, estate planning and creating a budget that aligns with their retirement goals.”

Diversify investments, Standberry said that no matter how large a retiree’s source of income is, it’s risky to only rely on a single source.

“This is why it’s important for wealthy individuals to diversify their investments,” he said. “When they spread out their investments across different industries and asset classes, they minimize the risk of losing everything in case one market crashes. They should also regularly review and adjust their investment portfolio to ensure it aligns with their current financial goals.”

Source: Cynthia Measom, GoBanking.com March 18, 2024

For a deeper understanding of how Long-Term Care insurance can seamlessly integrate into your retirement planning, don't hesitate to reach out. Give me a call at (480) 513-1830 or book a spot on my calendar, to explore your options.

Warmly, Charles

Charles C. Scott AIF®, CDP®
ACCREDITED INVESTMENT FIDUCIARY® / CERTIFIED DEMENTIA PRACTITIONER®

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