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The Early Retirement Your Clients Didn’t Plan For

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There are countless articles on retiring early, I’ve even written some of them. It’s a goal many Americans dream of, work towards, and aggressively save for.

However, according to the Center for Retirement Research, 37% of retirees had to stop working sooner than expected. A forced early retirement might sound like an oxymoron, like “too long of a vacation,” but, for many. the reality is far from rosy.

(Related: How Long Will $1 Million Last Your Clients in Retirement?)

The most common reasons cited for exiting the workforce prematurely are health issues, followed by employment problems (i.e. being laid off), and, lastly familial, difficulties. I would posit that the last concern may soon begin to weigh far more heavily on your working-age clients in their peak earning years.

The State of Family Caregiving

Demographic changes may occur in slow-motion, but their momentum is inevitable. According to the Urban Institute, over the next 50 years the number of older Americans with disabilities is expected to increase by 2.5 times. The bulk of this increase is expected to occur amongst the “oldest old”, those over the age of 80. Medicine is helping prolong the quantity of life, not always the quality. Simultaneously, the birth rate in developing nations is declining. This combination of more folks needing care and less available to offer it can have far-reaching effects.

Who Are the Caregivers?

In 2016, the National Alliance for Caregiving showed that roughly one in six Americans are taking care of a disabled family member, the average caregiver is 49 years-old, and 60% of those caregivers are female. Relatives who step up to the responsibility often realize relocation, house reconfiguration, additional expenses, and of course work interruption.

How a Caregiver Can Prepare

Caregiving can offer newfound stressors and rewards. For the grateful it could feel like the ultimate repayment to Mom or Dad for all those years of child rearing and support. However, some level of stress in this breaking of routine is unavoidable.

The steps to prepare for this unwanted early retirement often involve the same retirement strategies you’ve heard, just doing more and earlier. Liquidity in the 50s may become critical for financial support of the disabled as well as your own family. This is where savings inside of non-qualified accounts, Roth IRAs (contributions available tax and penalty-free at any time), or cash value life Insurance can avail funds sooner than originally planned.

Passive income generated from investment portfolios or rental properties can alleviate any lost income from the workplace. The argument for life insurance on a non-income producing homemaker (i.e. replacing a father’s lost income or hiring help in an attempt to fulfill the endless duties of Mom) can be reiterated in this “Phase 2” should a daughter have to care for her ailing mother.

How a Care Receiver Can Prepare

There are ultimately three solutions for those who may require care, but who want to never be a burden on their loved ones.

The first is to personally fund care using a third party. That could include spending down assets, using long-term care insurance, relying on Medicaid, or coming up with other resources that can pay for assisted living and the like.

Some people concerned about the need for care, but who have the desire to stay at home and be surrounded by family, plan ahead for a stipend to be paid to the related caregiver. Although, granted, many sons and daughters may feel guilty about accepting any sort of financial reimbursement for caring for their parents.

The third approach involves an equalization in estate planning, with the choice being to leave greater assets behind to a child who retired early to take care of a parent. This approach can most efficiently be solved via permanent life insurance, which can provide an income-tax-free inheritance to replenish any lost wages and savings the caregiver missed out on.

So, will your clients or their loved ones need to prepare for the responsibility of caregiving? No one has a crystal ball, but demographics are showing this great responsibility to become more common by the day.

Proactive financial planning that addresses such concerns can provide risk mitigation and potentially greater retirement success in the forced retirement.

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Bryan Kuderna (Photo: BK)

Bryan Kuderna, CFP, RICP, LUTCF, is the founder of Kuderna Financial and the author of Millennial Millionaire  A Guide to Become a Millionaire by 30. He is a member of the Million Dollar Round Table. He also hosts The Kuderna Podcast.


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