3 Financial Torpedoes That May Sink Your Retirement Plans

Many people have lofty ambitions for retirement. Maybe you’ve watched your retirement funds grow as you make regular contributions and investments. However, there is still the possibility of a potential disruption that cannot be anticipated or prevented.

Even the best retirement plans need a built-in contingency plan. Would you be prepared if something unexpected and unwanted should hit?

Prepare for Illness or Disability

If you were forced to stop working for an extended period of time, your first order of business—after taking care of your health—would be taking care of expenses like housing, groceries, utilities, transportation and medical costs.

Long-term disability insurance can help with this, as can government programs like Social Security disability benefits. But if your monthly income from these sources is only covering basic needs and you have added expenses like medical bills, it may be hard to set aside the same amount of money you were saving before for retirement.

Also, if your retirement funds are centered on a Roth IRA or 401(k) plan through work, you won’t be able to make any more contributions since you’ll no longer be an employee. Any matching contributions you were getting from your company are off the table, too. There are insurance products that can be included as part of your planning to provide protection and even continued growth for your retirement nest egg while you cannot work.

The Death of Your Spouse

For people who face the devastating trauma of losing their spouse prematurely, the furthest thing from their mind for a while will be finances. That’s understandable. Sooner or later, however, the practical realities of moving on with life have to be faced. The loss of a partner will not only have an emotional toll, but it may also have negative financial ramifications. (For related information, see: How Your Spouse Affects Retirement Planning.)

If your retirement plans assumed you would both be working and contributing to the nest egg for a certain number of years, that is no longer going to be possible. And depending on your stage of life, there may also be the need for additional childcare costs now.

Proper estate and retirement planning will consider all the eventualities under multiple scenarios, including the unexpected loss of either partner. It will provide adequate life and/or term life insurance coverage and ensure the necessary estate documents are in place (will, living will, power of attorney, etc.).

Again, if you pay close attention to the possibilities ahead of time, no matter how unlikely they may seem, you’ll be able to include provisions that meet the changed circumstances.

Excessive Debt

Sometimes debt is the result of an unexpected life event, such as a failed business venture, a prolonged season of unemployment or a legal battle. Regardless of how the debt was incurred, the result is the same: It has the potential to dramatically impact your retirement savings. A complete financial plan, therefore, needs to realistically provide for getting out of existing debt as soon as possible, avoiding taking on any new unsecured debt, and adequately insuring against the emergencies that would drive you into debt just to live.

Planning for retirement cannot just include what you expect your expenses to be when you stop working, it also has to take into account the unexpected events that could drastically reduce your income.

Thomas, Humphrey
Brownsville, TX
www.hgthomas.com