Life is nothing if not full of uncertainty and being prepared for life's curveballs is even more important during retirement. Here are five retirement shocks to prepare for (just in case).
Life is nothing if not full of uncertainty, it’s the reason why we have insurance and (should have) emergency funds set aside. After all, surprises can be expensive, whether it’s a car accident or a sudden medical issue or legal trouble.
Constantly, one of the biggest fears people have regarding retirement is that they don’t have enough money. They could outlive their savings; they could become sicker than anticipated; they could have miscalculated some factor or forgot entirely to consider one.
Just because you’ve reached retirement age, doesn’t mean that you no longer need an emergency fund. Social Security and your IRA aren’t necessarily enough. This emergency fund needs to be separate from your retirement plan and savings so that any sudden shocks you face won’t hurt your retirement.
Here are the five nastiest retirement surprises, according to USA Today.
Unexpected medical expenses
Along with outliving savings, many retirees and soon-to-be retirees fret over health care. A recent retirement study by the Transamerica Center for Retirement Studies on women’s preparedness revealed that although half (52%) of women factored health care costs into their retirement saving strategy, only 24% considered long-term care insurance.
Loss of benefits
The final stretch before retirement can be nerve-wracking. You can see the end in sight, but what if something trips you up? If you lose your job just a few years out from retirement, does that mean you’ve lost medical coverage entirely?
One financial planner told USA Today that people might be shocked to realize that something that once cost just a few hundred dollars a month is now a few thousand without medical insurance. If there’s even the slightest possibility that you could lose health coverage, then you should be sure that you’re saving enough money to allow for that increased monthly cost.
For any number of unexpected reasons, people in or near retirement could find themselves raising children again — their grandchildren. Being financially responsible for a child for 18 years is expensive (as grandparents likely remember) and can mean day care costs and school tuition. Now, your savings to last two people needs to cover three or more. And depending on where you live in the country, the costs will be much higher.
Even if they aren’t responsible for raising grandchildren, a report at the end of 2012 from MetLife Mature Market Institute revealed that 62% of grandparents have provided financial support or monetary gifts for grandchildren over the last five years. These weren’t small gifts — the average amount was $8,289.
Family moves in
The anticipated empty nest might not be so empty for some. The economy is still struggling and retirees might find their houses full of family members who might have fallen on hard times. It’s fine to agree to help, but if you’re no longer working then you need to keep an eye on your finances. Particularly there should be ground rules for all people living under the same roof.
Several advisors suggested to USA Today that all adults need to agree on cost sharing and length of stay.
The market drops
This one, as we all know from the financial crisis in 2008, is very much a reality and can really hurt retirement savings. The best defense is having a diversified portfolio. Diversification can help protect your money from the market’s volatility. Typically, the long-held belief has been that the closer you get to retirement, the less you should have in risky assets, that way if something does happen, your savings won’t be too damaged.