Losing Your Nest Egg Could Kill You: Here's How to Prevent It

By Carrie Kirby on 7 May 2018 0 comments

When experiencing a financial setback, people often say, "At least we still have our health."

Disturbingly, a new study reveals that losing wealth can lead to losing health as well.

A paper recently published in the Journal of the American Medical Association found that people over 50 who experienced a "negative wealth shock," such as an investment portfolio that goes south or a business failure, had a higher risk of death from all causes than folks whose finances did better. In fact, those who lost three quarters of their net worth or more over a two-year period were 50 percent more likely to die during the study than people whose finances did better. In an editorial, a Harvard doctor compared the loss of wealth to a diagnosis of heart disease in terms of predicting an early demise.

How is it that losing money could lead to losing your life? Further research is needed to determine how one thing leads to another, the paper's authors said. However, one perhaps unsurprising connection the study revealed was that people who lose a significant portion of their wealth are more likely to experience "depressive symptoms." The authors also suggest that people who are short on money don't seek all the health care they need, because they worry they won't be able to afford it.

Health care in retirement is likely to cost more than most of us realize, other research shows. You will probably spend most of your Social Security benefits on health care in the form of copays, supplemental insurance premiums, and prescription drugs.

No one builds up a nest egg with the plan to lose 75 percent of it. Yet, this is exactly what happened to a startling 28 percent of subjects in the study. How can you avoid a potentially fatal late-life wealth shock?

Use target-date index funds

These funds, offered by Vanguard and other investment banks, offer a low-cost way to keep your assets at the appropriate level of risk for your age. You simply punch in the year you expect to retire, and you get the right mix of stocks, bonds, and other investment assets. As years pass, the fund managers will rebalance the assets to keep the level of risk appropriate. (See also: Start Planning Now for When Your Target-Date Fund Ends)

Meet with a financial planner to assess your situation

Some people think they have saved adequately for retirement or that their investments are age-appropriate, only to be in for an unpleasant shock down the road. If you haven't done so before, your 50th birthday is a great time to sit down with a planner, assess your retirement savings, and make a plan for protecting it against a negative wealth shock.

Fee-only planners rather than commission-based advisers are great, because you want someone who will recommend the best solutions without any incentive to sell you products that pay them a commission. (See also: 3 Reasons to Be Picky When Hiring a Financial Planner)

Consider long-term care insurance

A common way for older people to lose their wealth is an unexpected long illness or disability. Medicare will only pay for a limited amount of nursing home care. If you are worried that you will lose your nest egg to a lengthy nursing home stay for you or your spouse, it may be worth looking at long-term care insurance.

Beware scams targeted at seniors

They often start with a phone call. Familiarize yourself with the most common scams targeted at retirees, such as Medicare scams, fake retirement investment plans, funeral scams, reverse mortgage scams, and the insidious call from a fake grandchild. (See also: How to Protect Elderly Loved Ones From Financial Scams)

Avoid risky investments

Collectibles, startup companies, and businesses you know little about are all generally outside of the recommended retirement savings plan. Inappropriate investments can be particularly tempting if a family member or other close friend wants you to invest. If you think an investment is really worth consideration, sit down with a planner who has experience in that specific type of investment before committing.

Make sure you have enough liability insurance

Another misfortune that could decimate your retirement savings is an accident that leads to a lawsuit. Check with your insurance agent to make sure you have adequate liability insurance. Agents often advise that you add an umbrella policy, which takes over after you hit the liability limit of your auto or homeowner's policy, at least equaling your net worth. A million-dollar umbrella policy costs about $200 a year. (See also: Beware: Your Insurance May Not Cover These 8 Losses)

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