4 Retirement Planning Gaps That Could Cost Americans Later
Saving for retirement is only one part of the equation. A recent Lincoln Financial report found that many Americans have not planned for some of the biggest financial decisions they may face later in life, including healthcare costs, leaving assets to heirs, life insurance coverage and turning savings into reliable income.
Here's why failing to plan for each scenario can be costly, and what Americans can do to be prepared.
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Age-Related Healthcare Costs
The report found that 68% of consumers have no plan for covering age-related healthcare costs — one of the largest and most unpredictable expenses in retirement.
For many Americans, in-home care is the goal — but it often comes with a steep price tag.
"Nobody's first choice is to go to a full-skilled home," said Jared Nepa, senior vice president and head of Life and MoneyGuard distribution at Lincoln Financial. "Folks want to have someone come into their home to take care of them, and they're not necessarily prepared for the cost of that."
A common misconception is that government programs will fully cover these expenses.
"I think they're miseducated on what Medicare and Medicaid actually covers," Nepa said.
There are several ways to plan for these costs:
Self-insure with dedicated savings: However, that money “typically doesn’t stretch as long as you’d like,” Nepa said.
Explore standalone long-term care products: These can include traditional or hybrid asset-based products “designed specifically to provide leverage and tax efficiency to cover that cost,” Nepa said.
Consider life insurance with a long-term care rider: Policyholders can “pay an additional fee ... to use some portion of your benefit to cover long-term care costs,” Nepa said.
Leaving Money and Assets Behind
Many Americans hope to leave a financial legacy, but 68% have no formal plan in place to do so.
"If you do not have any kind of written plan in place via a will, or ideally a trust, assets that you own as an individual that do not have a designated beneficiary, oftentimes can go to probate ... which could be misaligned with the owner of the asset's original intent," Nepa said.
That's why it's so important to sit down with a financial professional and establish a will or trust to clearly outline asset distribution, and assign beneficiaries to accounts wherever possible.
"Having a specific trust to identify who within your lineage is eligible for what type of asset ... not only gives people more comfort ... but also makes the process a lot smoother and faster for the beneficiaries," Nepa said.
Life Insurance Coverage
More than half of Americans (56%) report having no life insurance coverage, a gap that can create financial strain for surviving family members. Without proper planning, heirs may face taxes or liquidity challenges when settling an estate.
"The government will decide, ultimately, what's taxable upon your estate at any given point in time," Nepa said.
Life insurance can play multiple roles in a broader financial plan, from protecting dependents to facilitating wealth transfer.
Term policies can provide affordable protection during key earning years.
"[This is] your lowest cost option ... to have a benefit to meet the specific need of maybe covering costs upon an early accident," Nepa said.
Permanent policies may offer tax-efficient ways to pass on wealth, and some policies also allow for cash accumulation over time.
"Overfunding a life insurance policy gives you tax-advantaged growth, and affords you the opportunity for tax-free distributions or loans against the policy, while still maintaining a tax-efficient death benefit," Nepa said.
Retirement Income Planning
Having a plan for how you will withdraw retirement income is just as vital as building up your nest egg, yet 54% of consumers have no plan.
"Everybody has a plan to retire, but a lot of people don't have a plan for how to distribute whatever target number they're getting to," Nepa said.
In addition, many have failed to plan strategically about the timing of their retirement.
"Your timing in retirement is just as important as how much you take out," Nepa said. "If you are retiring into a market correction ... you have to be prepared to adjust that 4% [withdrawal rate] to the new value."
To ensure you are financially secure in retirement, Nepa recommended the following money moves:
Build a layered income strategy, starting with Social Security.
Identify the gap between guaranteed income and essential expenses.
Consider products, like annuities, that provide predictable income alongside market-based investments.
Retirement planning requires preparing for healthcare needs, income decisions, protection strategies and how assets will be passed on. Addressing these gaps earlier can help reduce uncertainty and give retirees more flexibility when it matters most.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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