Whenever we help a prospective client test their current plan for success, we also make sure to test two potential risks as well.
The first tests a retirement plan in the event of a premature death of the spouse and loss of pension or Social Security income associated with that spouse. If the loss of this income is not sufficiently offset by the reduction of the expenses of the surviving spouse, it will cause an increase in the required distributions from investments to maintain the lifestyle for the surviving spouse and may lead to portfolio ruin.
The second test of a retirement plan is the potential for a period of long-term care expenses. The distributions that must occur from investments to pay for these expenses need to be tested in order to determine the longevity of the portfolio and if it can withstand it. We generally use an $80,000 per year cost for five years as a baseline.
If the longevity of the investment portfolio fails for either of these two tests, a plan needs to be developed to mitigate these risks through proper planning and potential insurance coverage..
If you have any questions please feel free to contact me.
