When you think of the term “retirement planning,” what comes to mind?
For most Americans, financial planning is what comes to mind. In our country, retirement planning is synonymous with financial planning.
Don’t believe me? Google the term “retirement planning” and see what comes up.
When I Googled the term recently, I got 594 million hits. Though I only looked at the first few pages, nearly every website in the search results was about how to invest and manage money or invest in financial or insurance products.
I would even go as far as to say that the financial planning industry has hijacked the term “retirement planning.” Thanks to clever and persistent marketing, nearly all Americans think that retirement planning is exclusively about saving and investing money for the future.
That’s how the experts define it, too. Let’s look at a few examples:
- Motley Fool: Retirement planning is a broad term that refers to learning about and choosing financial strategies that will enable you to be comfortable and secure in your retirement years. A good retirement plan, executed smartly, can provide you with enough money to cover all of your later-year living expenses[i].
- Investopedia: Retirement planning refers to financial strategies of saving, investments, and ultimately distributing money meant to sustain oneself during retirement[ii].
- Merriam-Webster Dictionary: Retirement planning is a system for saving money for use during retirement[iii].
If retirement planning and financial planning are synonyms, what does the term “financial planning” really mean?
Financial planning the way it’s done today answers three primary questions:
- Where is your money invested?
- How much risk can you tolerate?
- How are your assets allocated?
With this focus, financial planning is investment planning. It’s all about buying the right products and getting the right rate of return on your investments.
Everything revolves around wealth. The financial planning industry’s solution to helping you plan for retirement revolves around helping you accumulate wealth and buying products. That’s how they make their money, and they do that without asking what I believe is the most important question of all:
What assurance do you have that on the day you fall ill, your children and your named agents will know what to do with your money or your products (e.g. a long-term care insurance policy) so your life turns out the way you want it to, not the way a hospital discharge planner thinks it should?
This question is never even asked, and this has led to a national epidemic of retirement plan failure.
In the end, what is clear to me is that it’s not the size of your financial portfolio that matters most. What is even more important is the plan you’ve made in advance to use that money after you fall ill. You do that by having a plan that includes a very clear definition of what you will want your agents and your family to do when the time comes.
The problem is that most people don’t do this in advance. They don’t know they can, they don’t know they should, and they don’t know how. It’s the black hole of financial planning.
Retirement Planning Requires Planning for Incapacity
Money isn’t the complete solution that so many people think it is.
The retirement planning industry is selling a dream. If you save enough money and do everything right, your retirement can be like what you see on the pages of glossy brochures selling investment products. You can travel the world, bike in Tuscany, paraglide in Antarctica, and take your grandkids on a safari.
Retirement is your time, the brochures say.
There’s no doubt about it that money can fund your retirement dreams, no matter how big or small they are.
You may live your retirement dream for a while—maybe even a long while—but those years of adventure won’t last forever. If you stay healthy , living your dreams is easy. The problems start when your health fails and you are no longer able to live independently. That’s when the retirement nightmare begins. Read what happened to Susie.
If you think you’ll be one of the lucky ones to die in your sleep, let me remind you that you’re probably going to get sick first. In fact, 70 percent of people over 65 will need long-term care at some point in their lives[iv].
No one likes to think about this. And just about no one effectively plans around it.
Don’t depend on money alone to give you the kind of retirement you hope for after your health fails. Money is just one of many factors in the retirement planning equation. Other factors, such as health, housing , legal, and family issues, are equally important, especially when you’re sick—yet the traditional financial-centric approach doesn’t address them.
Money alone is not enough to keep you out of the nursing home. Money alone isn’t enough to keep you from being a burden on your family. Money alone isn’t even enough to keep you from going broke.
Money is no guarantee.
Retirement Planning Requires Thinking about Money in a Different Way
Over the last 22 years, I’ve helped thousands of people create retirement plans. When these clients first come to me, they are almost always confident that they have done a good job planning for their retirement, usually meaning that they have made all the right financial moves. What they want from me are legal documents . They want a Die-Die-Die plan, but they don’t look at it that way. They view getting Die-Die-Die legal documents as the right thing to do because that is what their neighbor did, what the people whose advice they respect told them to do, or what their research told them they needed to do.
This kind of planning ignores the most important questions, those that will determine whether you end up broke, a burden, and forced into a nursing home.
If you are still working, the more important financial questions should be these:
- When should I retire?
- When should I start Social Security?
- How do I know I have enough money to retire with, even if I live to be over 100?
- Should I invest money into a long-term care insurance policy?
- Should I convert my money from IRAs to Roth IRAs?
- After I’m retired, how much money can I spend every month to maintain my quality of life without going broke?
- How will I know if I’m overspending?
- Do I have enough money to see my children benefit while I’m still living?
- How much money can I gift to my children?
- How much money can I give to charity?
If you are no longer working or you have already retired, the most important financial questions should be these:
- How do I know I have enough money to maintain my retirement, even if I live to be over 100?
- Should I invest money into a long-term care insurance policy?
- Should I convert my money from IRAs to Roth IRAs?
- How much money can I spend every month to maintain my quality of life without going broke?
- How will I know that I’m overspending?
- Do I have enough money to see my children benefit while I’m still living?
- How much money can I gift to my children?
- How much money can I give to charity?
These are important questions that are almost never asked. The issue is not simply spending money on cruises, bigger homes, or toys for yourself. The issue is leaving money to your children, but never seeing them benefit from your bequest. The issue is never seeing the plaque with your name on it hanging on the benefactors’ wall of your favorite charity.
Would it not be better to see your kids pay off their home and enjoy the money now? Or see the charity use the money so you know how it is benefiting humanity, animals, or whatever cause you care about most?
To properly plan your retirement, you need to be thinking about more than just your investments.
The belief that money is the answer creates unique problems for people with mid-sized estates, those in the range of $1 million to $5 million. I’ve seen this time and time again with my clients. Though they have lived responsibly and accumulated a reasonable nest egg, they are terrified. They are afraid they will outlive their assets.
One aspect is living with the fear of overspending. Life can be miserable when you have millions in the bank, yet you’re pinching every penny. Whatever dreams you had for your retirement—travel, new hobbies, adventures with grandkids—are put on hold and eventually abandoned as you hunker down out of fear of overspending.
This is one reason why people with mid-sized estates end up leaving large inheritances to their children, at the cost of seeing the money work for them while they are still alive. The kids may appreciate the inheritance, but it’s a windfall created by people too fearful to spend the money for their own needs or enjoyment. That fear can create tremendous burdens for family members.
If you are afraid to spend money on the help you need because you’re convinced that you’ll run out of it, you’re creating burdens for your family, whether you realize it or not. If you have kids, they can see what’s happening and they’re worried about you. They would rather see you safe and enjoying your retirement. But since your definition of success is a bank balance of $XX.XX, and since you tell yourself that you can’t spend money because you don’t know whether you have enough, you end up spending nothing.
This is how people with mid-sized estates end up broke, a burden on their families, and forced into institutions.
Wealth is No Protection for These Retirement Planning Traps
The belief that money is the most important thing also causes problems for wealthy people, which I define as anyone with an estate valued at more than $5 million.
While people with smaller estates are worried about outliving their money, the wealthy are often overconfident. Many assume that money will solve every problem.
I have watched the following scenario unfold countless times. A wealthy older adult develops dementia. As his or her health declines, the family doesn’t know how to proceed, so they do what the system tells them to do: move their loved one into a long-term care facility.
If you’re thinking they just didn’t have enough money, I have a question for you:
How big does a fortune have to be to keep you from being forced into institutional care?
Is $15 million enough? That’s how much singer Glen Campbell was worth when he developed dementia and was moved to a nursing home.
Is $50 million enough? That’s how much actor/comedian Tim Conway had when he developed dementia. He died in a nursing home with his wife and daughter fighting over which facility was more appropriate to care for him. Why was the question not the following: how many people need to be hired to allow Tim Conway to be able to live his life in his own home?
Is $80 million enough? That’s how much American Top 40 host Casey Kasem had when he developed Lewy body dementia and ended up in not just one facility, but several, igniting a highly publicized family conflict along the way. Kasem’s wife and children argued over his care, with the bedridden Kasem dragged from California through Oregon to die in a hospital in Gig Harbor, Washington.
Is $185 million enough? That was the value of Brooke Astor’s estate during her final days.
Is $500 million enough? That’s how much heiress Huguette Clark was worth. When she died at age 104, she had been hidden away in a hospital room for 22 years.
These people were all rich. They lived in mansions and drove expensive cars; they had the best money could buy. But when they got old, frail, and demented, everything fell apart. Their families fought, and their privilege fell away. They ended up like everyone else, forced into institutions such as hospitals or nursing homes, even though they had more than enough money to have care delivered to them at home in private. They were unable to realize the most basic hopes we have in life about aging—to be able to take our last breath at home surrounded by loved ones.
I share these stories to burst the bubble on one common belief: if you have enough money, you can avoid the retirement nightmares. Many Americans—rich and not so rich—believe that enough money can keep you out of the nursing home, keep you from going broke, and keep you from becoming a burden. That’s not true.
I see three truths about the role money plays in helping people avoid the retirement nightmare: being forced into institutional care, going broke, and becoming a burden on others.
- Money isn’t a panacea for older adults’ most common fears. People of wealth might not need to worry about where the money will come from to pay for care, but they worry about everything else. They worry about diminishing mental and physical capacity as they age, losing control over their own destinies, being institutionalized, and becoming a burden on others. Money doesn’t prevent these worries. It can’t, and assuming it can is sheer arrogance.
- Money is one factor in a plan to avoid the retirement nightmare, but it is certainly not the most important. Money on its own wouldn’t have been enough to keep Bill out of the nursing home. If Bill and Vivian had amassed a large fortune and had developed a plan to use that fortune to keep them from ending up broke, a burden, and in the nursing home, Bill may have had a chance.
- If you have the right plan, you need less money than you think to avoid the nursing home without going broke or becoming a burden on your family. That’s why Vivian was able to draw her last breath at home. Vivian didn’t have much money, but what she had was a family who was determined to keep her at home. We had a plan.
In the end, it is not the amount of money you have that will matter, but rather the plan you have put in place to make use of that money. The solution is to create a retirement plan that coordinates your plans for health, housing, financial, legal, and family issues throughout your retirement years. I call this kind of retirement plan a LifePlan.
Learn how to create your own LifePlan at AgingOptions.
[i] Matthew Frankel, “Retirement Planning: How to Map Out Your Financial Success,” Motley Fool, updated June 8, 2022, https://www.fool.com/retirement/.
[ii] Julia Kagan, “Retirement Planning,” Personal Finance, Investopedia, updated November 21, 2021, https://www.investopedia.com/terms/r/retirement-planning.asp.
[iii] Merriam-Webster, s.v. “retirement plan (n.),” accessed August 17, 2022, https://www.merriam-webster.com/dictionary/retirement%20plan.
[iv] Richard W. Johnson, “What is the Lifetime Risk of Needing and Receiving Long-Term Services and Supports?”, ASPE Research Brief, April 2019, 4, https://aspe.hhs.gov/reports/what-lifetime-risk-needing-receiving-long-term-services-supports-0.
From Your Retirement: Dream or Disaster? by Rajiv Nagaich, published by Hasmark Publishing. Copyright© by Rajiv Nagaich 2023.