Updated May 2017 — No matter how carefully you plan for retirement, you can’t predict the future. Just as you leave the work force, a colleague might propose a tempting business investment. On the other side of the spectrum, your spouse could end up needing expensive long-term care or a natural disaster could severely damage your home. Can your wealth plan for retirement survive these kinds of unexpected hits?
It should — as long as you build in contingencies, communicate well with family and colleagues, and use insurance when appropriate, says Carl Whaley CFP®, Senior Wealth Planner for Abbot Downing, a Wells Fargo business.
Here are strategies he suggests to help cope with some common retirement “detours”:
Challenge 1: A volatile stock market
This one actually shouldn’t surprise anyone these days, notes Whaley. “We’ve seen significant volatility in recent years and many advisors do not expect it to go away in the near future,” he says.
Recommended strategy: Keep your investments well diversified during retirement. You generally want some money in typically stable options that you can tap in a down market — such as cash or money-market accounts. But to help your money last as long as you live, you may also want some investments, such as equities that have the ability to grow and earn dividends, suggests Whaley. Meet regularly with your investment advisor to evaluate whether your retirement investments are allocated properly to match your personal tolerance for risk.
Challenge 2: An unexpected relocation
Maybe you decide to leave your long-time hometown to move closer to your grandchildren. Or perhaps your health deteriorates and you must move into an assisted living facility. Don’t assume you’ll be in your current home forever. Work with your financial team to plan for various options.
Recommended strategy: Whaley says you may need to evaluate the ideal time to sell your home — both to maximize potential profits and to manage any taxes you may end up paying on real estate gains. Keep in mind that if you live in a modestly priced part of the country and then decide to move somewhere with a higher cost of living, you may either have to pay more for a home or make do with a smaller house that matches your budget. It’s smart to factor possible impacts a change of location may create into your retirement planning.
Your financial plan for retirement should survive unexpected hits — as long as you build in contingencies, communicate well with family and colleagues, and use insurance when appropriate.
Challenge 3: A partner who needs long-term care or dies suddenly
No one wants to anticipate this kind of crushing loss. Planning for a variety of events, however, can save you from significant stress and financial headaches if the unthinkable happens.
Recommended strategy: Well before you retire, review and update your estate planning documents, including your will and/or trust, financial power of attorney, and power of attorney for health care. Also, communicate regularly with your spouse or partner about your preferences if either of you were to become seriously ill or die. Be sure you both know how to locate important financial accounts, online passwords and logins, contact information for your legal and financial professionals, and more. Have a discussion with your financial team to decide whether long-term care insurance would be right for you.
Challenge 4: The loss of your home
A natural disaster like a severe storm or fire could destroy the house you expected to live in during your golden years. Emotionally, that’s devastating enough. From a financial perspective, it could be even worse.
Recommended strategy: “Mitigate your risk now as much as possible,” suggests Whaley. Review and consider updating your homeowners insurance if your needs have changed. Be sure you understand your deductibles, coverage limits, and any policy exclusions. For instance, is water damage included or do you need extra coverage? Do you need separate natural disaster insurance, or can you afford to rebuild your home without it? Take the time to address any maintenance issues or upgrades that might make your home safer — such as a new roof, updated sump pump, or a better fire alarm and sprinkler system.
Challenge 5: A new business opportunity
After you leave the workforce, a long-time colleague might ask you to step into an interim position or even invest in his or her company. This could be a positive financial move — but it does change your retirement plan a bit, notes Whaley.
Recommended strategy: Think about what postponing your retirement by re-entering the workforce may mean to you and those important to you, from a financial and personal standpoint. Will the work interfere with travel or family plans? Will it affect your decision about when to start collecting Social Security? How will your spouse feel if you return to work?
If the business opportunity involves investing money into a company, carefully consider the risk. “Only invest as much money as you can afford to lose if things don’t go well,” advises Whaley. After all, you don’t have as much time to make up financial losses once you hit retirement age. Be sure to get any business agreements in writing and clear them with your financial and legal professionals. If the business venture opens you up to any kind of liability, talk to your insurance professional about whether buying liability insurance might make sense. “You don’t want the business opportunity to expose you to a possible loss due to a lawsuit,” Whaley adds.
If you do decide to move forward, “Talk with your employer or business partner upfront about how and when you might fully retire again, if you choose to do so,” says Whaley. “It doesn’t make sense to lose a long-term friendship over a business misunderstanding. Be sure you both clearly define your expectations in advance.”