Whilst many investors consider the most ominous threats to their retirement savings to be unpredictable market forces and failing economies, the truth is that some of the greatest threats to one’s retirement can be latent and unassuming. Even the most bullet-proof retirement plan can be disrupted by seemingly innocuous reasons, and it’s worth exploring some softer, more personal choices that can blind-side one’s retirement dreams.
Although most couples in their 40s and 50s probably don’t anticipate divorce, the numbers are somewhat unnerving. Regardless of the scale of a couple’s wealth or the amiability of the separation, a divorce can have catastrophic effects on one’s retirement planning; and any couple would be naive to believe they can unravel their marriage without severely compromising their retirement plans in the process. A divorce later on in life is bound to not only disrupt one’s financial independence, but also force a number of lifestyle changes to be made by both parties. What was once a jointly conceived retirement plan comprising of a single retirement home, joint overseas travel, appropriately timed vehicle upgrades and a retirement income sufficient to support a combined lifestyle would need to be cast aside and recalculated for each individual. Other than in a case of substantial wealth, both parties need to be prepared to compromise on lifestyle.
Buying a second home while both spouses are still working may often seem both affordable and practical, especially if the bond on the primary residence has been settled. While one’s children are at school, a second home is often the family’s holiday hub and a vacation bastion for friends and extended family. The thrill of owning a second home is, however, often replaced by anxiety once the reality of funding a second home from a reduced retirement income sets in. Added to the financial pressure of financing the second home, the upkeep of the second property often becomes an arduous duty rather than one of retirement’s anticipated pleasures. In addition, if the equity in the second home is needed to supplement other retirement investments, the timing of the sale of a second home can be instrumental to secure one’s retirement cashflow. Being forced to sell a second property at an inopportune time can result in your nest egg being compromised. The timing of a future sale, together with the emotional consequences of selling the family’s holiday home, are factors that need to be taken into account at the outset.
One of the single biggest threats to a couple’s retirement funding is adult children who continually ask to borrow money from their parent’s nest egg. Helping one’s adult children with the purchase of their first property or assisting them financially when embarking on a new business venture are both notable and natural acts of any parent anxious to give their child a stronger financial footing. The problem, however, arises when financial assistance happens so often that it becomes a form of annuity income for the adult child who, in most instances, is completely oblivious to his parent’s dwindling resources. Financially dependent adult children present two major complexities: the parents are often too wracked with guilt to withdraw the funding from their child, who will naturally suffer the consequences of the taps being turned off; and the adult child, being both emotionally and financially dependent on this parents, makes the dangerous assumption that his parents keep lending him money because they have a surplus of funds.
Starting a business
Retired executives with an entrepreneurial itch often find the temptation to start a business irresistible, but doing so can dig dangerously into much-needed retirement capital. As enticing as it may be to dabble in an exciting new business venture or try one’s hand at innovation, the truth is that very few earn what they would have earned if they’d simply kept their funds invested. It would be wiser to consider alternative outlets to channel one’s entrepreneurial energies rather than disinvesting one’s lifetime assets in the hopes of satisfying an entrepreneurial whim.
As investors, we are often so focused on the obvious threats to our investments that we neglect to take cognisance of the not-so-obvious dangers that we may encounter on the path to building wealth. Even the best-laid retirement plans are capable of being derailed by seemingly innocuous decisions, giving truth to the words of George R. R. Martin in A Clash of Kings, “the unseen enemy is always the most fearsome.”
With warm regards
Categories: Financial Planning