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The Top Five Financial Planning Challenges Of New Retirees

22 Aug

By: Colleen Weber

News and Updates

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As a new retiree, you are reaping the rewards of your decades of hard work and basking in your new season of life. It would be easy to think that all your years of financial planning, saving, reviewing, and strategizing are over, but that’s not the case! At Colleen Weber CPA, LLC, we specialize in serving people who are newly retired. After working with hundreds of people to prepare for and achieve their ideal retirement, we’ve discovered that, while all have unique concerns and needs, many face the same five financial planning challenges.

1. Balancing Competing Financial Priorities

Many retirees have adult children who they want to support, whether that’s through giving towards a purchase of a home, taking them on vacation, or providing a cushion if they hit hard times. But now that they are no longer accumulating money through a regular paycheck, they struggle to find the balance between meeting their own retirement needs and helping their children with life’s expenses.

When you were planning for retirement, you likely brainstormed your expenses and determined how much money you would need to live on. It’s likely that you didn’t include hundreds of dollars going to your children every month. The findings from a recent Merrill Lynch study reveal that 48% of Americans over the age of 50 are willing to overextend themselves financially to help their children out and 40% would be willing to return to work after retiring to support their kids. On average, parents give $6,800 a year to their adult children, (1) and that could put a significant dent in your retirement nest egg.

In order to overcome this challenge, some hard conversations may be necessary. Go through your budget with a fine-tooth comb to determine how much, if any, you can truly afford to give your kids without jeopardizing your later retirement years. Then, make sure everyone is on the same page. Be honest and clear with your kids, setting clear expectations so that relationships aren’t hindered down the road. There’s nothing wrong with wanting to be generous, but make sure you set limits and put your retirement first.

2. Accounting For Longevity And Inflation

It’s difficult to plan for the unknown. You could save more than you need, stay as healthy as possible, be frugal with your finances, and still not have enough due to the effects of longevity and inflation. Retirees need to secure an adequate stream of income for an unpredictable length of time and also guess at how much cost of living is going to increase over a 20-30 year period.

While you may not be able to plan down to the penny, you can get a rough idea of how these two factors will impact your savings and then find creative solutions to protect yourself against them. First, come up with a realistic estimate of life expectancy using life expectancy tables, as well as considering personal and family health history. Then, add in 5-10 extra years to add a cushion for unexpected medical costs, long-term care, and inflation.

In terms of inflation, you can look at past inflation data to get an idea of how to estimate future increases, but you can’t predict exactly how much inflation will fluctuate as the years go on. What you can do is work with an advisor who can map out various scenarios to see how far your money could stretch, if needed. For both of these challenges, there are multiple investments available that have built-in inflation protection and some other creative solutions to explore, such as investing in rental property or monetizing a hobby or passion. Be sure to work with a professional so you don’t risk losing even more money.

3. Switching From Accumulating To Withdrawing

It can be unnerving to go from earning an income and maximizing your savings to withdrawing from your nest egg with nothing going back in. This is why you need to create a withdrawal strategy based on your unique life situation. Your withdrawal strategy, or lack thereof, is a big deal and can have a major impact on how much of your hard-earned money you ultimately keep. If you blindly take your money and run, you could trigger an avalanche of higher Social Security taxes, investment surtax, capital gains taxes, and even higher Medicare premiums which will eat away at the funds that were supposed to carry you through retirement.

It’s essential to work with someone who specializes in retirement planning to come up with a withdrawal plan that is “safe” for you. This withdrawal rate should be sustainable, even in the worst-case scenarios. You also need to look at time horizon and asset allocation. The sooner you start tapping into your funds, the lower your rate should be in order to stretch your money for as long as you can.

4. Deciding On Social Security And Pension Options

When it comes to claiming your Social Security and Pension benefits, one decision could trigger an avalanche of financial implications. This is where it is critical to be armed with information. Take the time to obtain the details of your pension plan and ask plenty of questions of your human resources department and financial professionals. For Social Security, find out your personal benefits and the different payment options available based on your age to come up with a strategy to maximize your benefits. This stuff is complicated, so don’t hesitate to reach out for help. Social Security makes up an average of 40% of retirement income, (2) and if you’re lucky enough to have a pension, the average annual amount is between $9,000 and $23,000. (3) You don’t want to gamble with that kind of money!

5. Determining Your Need For Long-Term Care

No matter how healthy you are when you enter retirement, the U.S. Department of Health and Human Services estimates that an average of 63% of people turning 65 will require some form of long-term care during their lifetimes. (4) On average nationally, it costs $253 per day or $7,698 per month for a private room in a nursing home. (5)

Long-term care insurance covers the cost of services that include a variety of tasks you may need help with as you age, but figuring out what you need and how to get the right coverage isn’t easy.

The most well-known option is a standard long-term care insurance policy, where you pay a premium in exchange for the ability to receive benefits if you need them. This is a “use it or lose it” policy, so you won’t receive any benefits or receive any money back if you don’t end up needing long-term care.

If you don’t like the idea of a “use it or lose it” policy, you may consider a hybrid product, such as buying a life insurance policy with a long-term care rider. With this type of policy, you invest in a standard cash value life insurance policy and select your long-term care coverage terms in the rider. If you end up requiring long-term care, there are available funds. If you don’t need long-term care or if you don’t spend the total benefits available, your beneficiaries receive the balance upon your death.

And lastly, a third option is a fixed annuity with a long-term care rider. Similar to life insurance, when you purchase an annuity, you can select the amount of long-term care coverage you want (often two or three times the face value of the annuity), your desired length of time for coverage, and whether or not you want inflation protection.

What Do I Need To Do?

If you are nearing retirement or newly retired, you may be facing these challenges. The good news is that you don’t have to face them alone. Planning for all the intricate details of retirement is not easy, but knowing you have a plan in place to cover the unknowns will give you peace of mind that you can’t put a price on. If you want to partner with someone who will listen to your concerns, analyze your options, and create customized solutions just for you, book a free introductory meeting online today!

About Colleen

Colleen Weber is a fee-only financial advisor, CERTIFIED FINANCIAL PLANNER™ professional, and CPA with more than 15 years of financial planning experience. Providing comprehensive financial planning and wealth management, she specializes in serving clients nearing retirement, retirees, busy professionals, and women. She is passionate about developing financial plans that save clients on taxes, and investment strategies that help them pursue their goals. Learn more about Colleen by connecting with her on LinkedIn or booking a complimentary phone call meeting.


(1) https://mlaem.fs.ml.com/content/dam/ML/Registration/fir-new-challenges-new-solutions.pdf

(2) https://www.ssa.gov/planners/retire/r&m6.html

(3) https://www.newretirement.com/retirement/average-retirement-income-2018-how-do-you-compare/

(4) https://longtermcare.acl.gov/the-basics/

(5) https://longtermcare.acl.gov/costs-how-to-pay/costs-of-care.html