3 Hidden Retirement Risks You Should Know: Long-Term Care, Supporting Adult Children, and Gray Divorce

When planning for retirement, it’s natural to worry about how your investments will perform. But what about other risks, the ones people don’t talk about as much? Some of these can have a huge impact on your retirement. Today, we’ll look at three major risks: long-term care costs, financial support for adult children, and the growing trend of “gray divorce” among people aged 50 and older. Each of these can create financial stress in ways you might not expect. Let’s break down these risks and some important stats to help you better understand each one.

Watch Now: 3 Hidden Retirement Risks You Should Know:  Long-Term Care, Supporting Adult Children, and Gray Divorce

1. Long-Term Care Costs: Planning for the Unexpected

One of the biggest financial risks retirees face is the cost of long-term care. Long-term care includes things like nursing home stays or in-home care if you’re unable to care for yourself due to illness or disability. Many people think they’ll never need it, but the statistics show otherwise:

• 75% of people turning 65 will need some type of long-term care during their lives.
• 48% of those people will need paid long-term care.
• 24% will require paid care for at least two years.
• 15% will need paid nursing home care for more than two years.

Source:  100 Must-Know Statistics about Long-Term Care

The cost of care can be shockingly high. In 2021, the average cost of a nursing home in the United States was around $108,000 per year. Local costs may vary, ranging anywhere from $69,600 to $120,000 per year. For in-home care (at about 44 hours per week), the cost is around $62,000 annually.

These expenses can be a major drain on retirement savings, especially in cases where the surviving spouse needs to cover these costs alone. Although long-term care insurance exists, it’s often very expensive. For example:

• For a 55-year-old male, a policy with $165,000 in benefits might cost around $2,200 per year.
• For a 55-year-old female, the same coverage could be $3,700 per year.

The costs only increase if you wait until your 60s or 70s to buy insurance. Because of this “sticker shock,” many people choose not to purchase long-term care insurance. However, it’s important to weigh these costs against the financial risk of paying for care out of pocket.

2. Financial Support for Adult Children: A Tough Choice

Supporting adult children financially is another big challenge for many retirees. Helping out with living expenses, education, or unexpected emergencies may seem like the right thing to do, but it can take a toll on your retirement resources. This type of support isn’t just about small gifts or occasional help; it often involves ongoing expenses that can put significant stress on a retiree’s finances.

The effects of financially supporting adult children can include:

• Reduced retirement savings: If you’re constantly helping your children, you may have less money to save for your own retirement.
• Delayed retirement: Financial support for your children may mean working a few extra years before you can retire comfortably.
• Reduced enjoyment of retirement: If you’re already retired, continuous support can strain your savings and create stress over finances.

Parents often find it hard to say “no” when their kids need help, but ongoing financial support can make it difficult for you to enjoy your retirement fully. It’s important to consider the long-term effects of this support on both your retirement goals and your financial well-being.

3. Gray Divorce: Rising Rates of Divorce Among Older Adults

Divorce among older adults, sometimes called “gray divorce,” has become increasingly common. Since 1990, divorce rates for people aged 50 and older have doubled, and for those aged 65 and older, they’ve tripled. Now, about 1 in 4 divorces in the U.S. involves a couple aged 50 or older.

The financial effects of divorce in retirement can be serious:

• Lower net worth: Divorce often leads to a split of assets, reducing both individuals' net worth.
• Lower standard of living: Couples may find it harder to maintain their standard of living after dividing their resources.
• Reduced Social Security benefits: Some spouses rely on their partner’s Social Security benefits, especially if they were a stay-at-home parent or had lower earnings.
• Loss of health insurance: In some cases, one partner may lose access to health insurance after a divorce.
• Housing challenges: Divorce may lead to the need for renting or paying for a new mortgage, which can strain retirement savings.

Divorce at any stage of life is emotionally challenging, but it can be particularly difficult for older adults who were planning to retire with a specific financial plan. It’s a situation that nobody plans for, but it’s essential to be aware of the impact it could have on your retirement security.

Taking Steps to Protect Your Retirement

These three retirement risks – long-term care costs, supporting adult children, and gray divorce – are difficult to talk about but can have major consequences. Here are some steps you can take to plan for these risks:

1. Consider Long-Term Care Insurance Early: If long-term care insurance fits your budget, consider purchasing it while you’re younger, ideally in your 50s, before the premiums increase significantly.
2. Plan Ahead for Adult Children Support: If you anticipate that your adult children may need financial help, set boundaries and make a plan that won’t impact your retirement security. Consider saving a small amount specifically for this purpose to protect your primary retirement savings.
3. If a Divorce Might Happen, Take a Close Look at Your Money: No one expects to get divorced, but if it seems possible, it’s helpful to know how it could affect your finances. Make sure you know where all the money is. Check on what you’ll get from Social Security and any pension benefits, and think about how things might change if you go through with the divorce.

How Our Team Can Help

Planning for retirement can feel overwhelming, especially when it comes to understanding and managing risks. Our team is here to give you advice tailored to your unique situation, so you can make smart decisions. Here are some ways we can support you:

• Planning for Long-Term Care Needs: We can help you understand how long-term care costs might impact your retirement savings and explore ways to prepare for these expenses.
• Setting Financial Boundaries for Family Support: We offer a practical, fact-based perspective on providing financial support to family members. We can help you see how this support could affect your retirement finances.
• Providing Support During Difficult Times: If you’re going through a divorce, we can guide you in understanding how to use your resources wisely and plan for the changes ahead.

Conclusion

Retirement planning is about more than just managing investments. It’s also about preparing for life’s unexpected events, whether it’s long-term care, supporting adult children, or dealing with a divorce. Each of these scenarios can create financial challenges that impact your ability to enjoy retirement. By understanding these risks and planning ahead, you can take steps to protect your financial future and give yourself peace of mind.

If you’re ready to take the next steps, consider reaching out one of our advisors. They can help you make sense of these complex issues, create a solid financial plan, and guide you in making choices that support your long-term retirement goals.