With a thorough retirement plan, you can eliminate a lot of potential problems in the future. However, no matter how good your retirement plan is there are still unforeseen issues that could derail your retirement goals.
Here are the Top 4 Unforeseen Retirement Issues:
1) The Stock Market takes a big dip early in your retirement
You’ve retired and started taking a 4% withdrawal from your mutual fund portfolio and bam the market drops 30%. Suddenly, your income has dropped by 30%. If the recovery is like this year where the S&P 500 quickly dropped and then quickly recovered, then it might not be much of an issue. However, if it’s like financial crisis of 2008 where it lasted over a year and a half, your retirement plan could be in for some real problems especially since you are taking the 4% withdrawal on top of the market drop.
On the flip side, let’s say you retire in a strong stock market, one that does well for many years. Now you’ve set yourself up for success.
This is what we call the sequence of returns. The timing of your retirement plays an important role. For example, if you retired in mid-2007 prior to the financial crisis, your portfolio would have experienced a 50% drop in value. Again, if you were taking a 4% withdrawal, your income has dropped by 50% and any gains in recovery would be decreased by 4%. This makes the recovery harder. Now let’s say you retired mid-2009, on the cusp of the greatest bull market in stock market history. Now you’ve set yourself for huge financial success in retirement. Two different dates, two years apart, with two very different outcomes.
A big stock market drop early in your retirement very well could put your plan in peril with the risk of running out of money. The good news is that big extended market drops don’t come around that often but this a risk that you should be aware of.
2) Your Health
Right before you retired, you got a physical and everything checked out and you are healthy as you can be. Once in retirement, if you have a health issue come up it can affect you in two different ways. First it might be a financial issue where out-of-pocket costs eat away at your finances causing you to alter your retirement plan. Second, your health issue is such that you can no longer do the things, such as travel, that you wanted to do. Perhaps you are affected by both; financially you are set back and your lifestyle plan is no longer feasible.
If you go into retirement with lingering health issues then this might not be a big surprise. It’s the people who have always been healthy that this catches off guard. So keep in in the back of your mind.
3) Parents Moving In
You’ve just retired, and your elderly parents aren’t doing well. Perhaps you don’t want to put them in an assisted living facility, so they end up moving in with you. Now often times this doesn’t necessarily come as a financial burden because with their social security, pension and investments, they can help chip in for some of the added costs. However, if they have declining health, now you might become the caregiver which will anchor you in place. Your travel plans have now been delayed or canceled because more than likely your caregiver position has become a full-time job.
Before retirement, you may have considered that this could be a possibility, but it wasn’t confirmed until it happened. I’ve had several past clients who took care of their mom or dad later in life. In one way it was wonderful to watch as the roles reversed as the child took care of the parent. In another way, it was painful to see all of the plans that the clients had in retirement diminish as they got older. The parent eventually passed but now the client had health issues and was no longer able to do all of the traveling they wanted to do.
4) Kids Coming Back Home
With the job market being in decline right now, we’re seeing more and more kids moving back home in their 20’s. Not only that but sometimes life events such as a divorce will have children moving back home temporarily. This unexpected change is less likely to interrupt your travel plans but could make your retirement budget a little tighter.
Now the real impact might be what we call the “sandwich generation” which means that you have your parents and your kids moving in with you. This can have a big impact on your retirement plan (financial) and your lifestyle plan. In the back of your mind, you might have considered one of the scenarios playing out… but maybe not both.
We can do all the planning in the world, check all of the boxes and cross all the T’s but there are still risks that linger just outside your plans. Perhaps none of them ever happen and you accomplish everything you want to accomplish in retirement. However, be prepared to be flexible because you never know when an unforeseen issue pops up. Being mentally ready is half the battle.
Live free my friends,
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Investment Advisory Services offered through Shankland Financial Advisors, LLC, Registered Investment Advisor