One challenge of retirement planning is trying to predict events that could happen many decades in the future. Your lifestyle, work ethic, and prudent habits may offer you a lot of control over your health, income, and savings; however, they don’t give you any guarantees. Even if they did, you probably do not have a lot of power over the stock market or even the future cost of fuel or food. You also can’t control what will happen to people in your family. That’s why good retirement planning includes a plan for unexpected – but common – retirement events.
Which Unexpected Events Can Disrupt Retirement Plans?
How can you plan for events that you can’t predict? You might learn from the experiences of other retirees to see what events have derailed their carefully laid plans. Even though you can’t predict exactly what unexpected events might occur during retirement, most folks can group them into two broad categories:
1. Unexpected expenses: The same kinds of expenses that tend to disrupt budgets during working years can have a worse impact when people have to live on a fixed income during retirement. You should consider ways to handle big-ticket items that could include replacing a car or an air conditioner. If the cost of maintaining your current family home is too high, you could consider downsizing.
2. Health issues: Lots of people say that they plan to work forever; however, eventually, you will probably get to a point where your health or age makes it impossible to keep up the same pace you enjoyed as a younger adult. This may occur gradually, but sad to say, you could also experience a sudden health issue that will force you into retirement. Also, you can’t rely upon Medicare to cover all of your medical expenses. This makes it critical to review your current health and financial health before retirement. Here’s a quick checklist to get you started:
3. Market downturns: Finally, markets run in cycles, and nobody who lived through the recent Great Recession can forget that. What if your investment value drops by 30 percent the year that you plan to retire? You will have a harder time making that up than you would if it occurs several years into your retirement. Failure to plan for market cycles also might make you sell in a panic and regret it later.
1. Kids move back home or need help: Most parents hope their kids will have finished their educations and stopped needing allowances by the time they retire. At the same time, more kids have been moving back home because of housing costs or tight job markets. When they do, they’ll still eat your groceries and use hot water. According to a CBS report, about 40 percent of younger adults still live with their parents.
2. Elderly parents who need help: According to a recent survey, almost 30 percent of Baby Boomers say that they need to help support and care for their own elderly parents. Think about extra expenses incurred and the time it will take away from work. For serious health issues, you may have your retirement plans irrevocably altered.
3. Divorces shortly before or after retirement: Sadly, Pew Research found that the rate of divorces between Baby Boomers has doubled in the last couple of decades. Improved lifespans and a reduced stigma for divorcing may have contributed to this trend, but it can also be a financial catastrophe.
Top Retirement Planning Tips to Prepare for the Unexpected
No, you can’t anticipate everything that may happen until and during retirement. But you can consider some sensible strategies that will prepare you for almost any contingency.
1. Have Access to an Emergency Fund
While you’re working, most financial advisors will suggest having access to money that can tide you over for at least three to six months. By the time you retire, you’ll do better if you can double that. An emergency fund will help you handle unexpected expenses without having to rely upon high-interest credit. If your investments suffer from a sudden downturn, you also won’t feel tempted to sell in a panic. If you still own your home, you may also rely upon home equity that you can tap in case of an urgent financial issue.
2. Diversify Investments
When you’re younger, have more time to recover, and are still earning an income, you may choose a riskier investment strategy. During retirement, you will probably find that it’s more prudent not to rely only upon stocks in your old company, real estate, or another single strategy. Take a look at these suggested retirement income streams to learn how you can properly diversity the investments for your retirement.
3. Insure Your Retirement
Judging by the past, it’s fair to predict that medical costs will continue to rise. Medicare only pays a portion of covered medical costs, and you will still need extra medical benefits to protect yourself. To learn more about extra Medicare insurance and other retirement benefits, you can download our free Guide to Social Security and Medicare Benefits at any time.
Also, prepare for the fact that neither Medicare nor supplemental Medicare policies will cover long-term care. Too many seniors end up spending all of their savings and relying upon Medicaid in the United States when they need home health care, assisted living, or nursing care. Purchase coverage that helps pay these bills either as a stand-alone long-term care insurance policy or as a long-term-care rider in life insurance.
Making Retirement Adjustments
You may have to adjust your lifestyle somewhat in order to stretch your retirement budget and protect your future security. You may choose to start making these adjustments before you fully retiree in order to smoothly transition into a retirement lifestyle.
Do You Need to Change the Way You Get an Income?
Sadly, the job market is unkind to older folks who have been laid off or simply need to supplement their income. While you may have a tough time finding a permanent job, you may find it’s a great time for you to use your experience to begin a new career as an independent contractor or consultant. You can find self-employment opportunities for almost any trade or profession, from plumbing or data entry to accounting and engineering.
Also, spend some time researching the pros and cons of tapping into retirement funds as soon as possible vs. taking your Social Security Income earlier. Depending upon your situation, the best choice could help you earn hundreds of thousands more in your lifetime. Get some tips from our “When to Take Social Security” post.
Make Budgeting for Value a Retirement Hobby
If and when you do face unexpected events during retirement, your emergency fund, diversified portfolio, and insurance can give you peace of mind. At the same time, many retirees find that they have some extra time to devote to figuring out how to spend their money on those things that matter and not things that don’t.
- You may find it easy to reduce the frequency of eating out since you don’t have to commute to work.
- If you love movies but don’t find yourself watching network TV very much, go ahead and ask the grandkids how to cut the cord and watch TV online.
- Also, be sure to take advantage of any senior discounts you can find, such as through AARP and local businesses.
Work With a Good Retirement Planning Partner
In a perfect world, hard work and a sensible lifestyle should allow you to enjoy the kind of retirement that you hope for. You will also need the right mix of savings, investments, insurance, and income tactics to prepare you for the unexpected. Sadly, a lack of planning usually leads to a lack of resources to handle the unexpected, and it’s impossible to know what to expect several decades in the future.
Don’t worry if you don’t know where to begin right now. No matter where you are in the retirement planning process, you can work with an experienced professional. Simply send us an email to let us know where you are and what you expect out of retirement, and we’ll show you exactly how we’ve helped people in similar situations achieve their retirement goals.