Many people have lofty ambitions for retirement; in fact, maybe you’ve watched your retirement funds grow as you make regular contributions and investments. I don’t wish to rain on your parade, but it would also be irresponsible of me to neglect warning you of potential disruptions.
Let’s think about some ways that plans for your retirement funds could be torpedoed by something that is beyond your ability to prevent or control.
The fact is that far too many Americans are still putting off getting started or getting serious about preparing for that inevitable time. They know they shouldn’t; but it seems too hard or too far away, so they just keep procrastinating. (If that’s you, we need to talk! Once you start to take some simple steps, you can replace the feeling of intimidation with one of relief.)
“Forewarned, forearmed; to be prepared is half the victory.” – Miguel de Cervantes
Even the best of plans, however, needs to build in contingencies for the “what-if?” factor. What if something unexpected and unwanted should hit?
Raise Your Periscope:
3 Torpedoes That Could Sink Your Retirement Ship
Torpedo #1: An 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. But if your monthly income from these sources is only covering basic needs, and if 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 that you get through your 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.
So, does a “health torpedo” have to sink the ship? NO! There are insurance products that can be included as part of your planning that will provide protection and even continued growth for your retirement nest egg while you cannot work.
Torpedo #2: 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. There is the (soaring) cost of a funeral to begin with, but that’s just the start.
If your retirement funds assumed that 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 and expensive childcare costs.
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 that the properly constructed estate documents are in place (a will, a living will, a 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.
Torpedo #3: Excessive Debt
Some may argue that this is not really a torpedo that’s fired at you, but more like a bomb you build for yourself by making unwise decisions and then have to live with.
That may be true, but it’s not always the case. Sometimes debt is the result of an unexpected life torpedo: a failed business venture, a prolonged season of unemployment, a legal battle, or others.
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 (1) getting out of existing debt as soon as possible, (2) avoiding taking on any new unsecured debt, and (3) adequately insuring against the emergencies that would drive you into debt just to live.
So, those are just 3 of the torpedoes that we’d all rather not think about but need to be prepared for just in case.
In spite of how wonderfully the hospital staff took care of me during my recent stay, I really did not want to be there. I couldn’t get home soon enough. I am glad, however, that it gave me a whole new sense of urgency about helping people to be prepared. If it means that my friends, readers and clients hear my concern and get better prepared, it will actually have been worth it.