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Feb 17, 201608:10 PMOpen Mic

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Retirees: Expect the unexpected

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“Let our advance worrying become advance thinking and planning “ — Winston Churchill

One thing we’ve learned is that a lot of mental energy is spent worrying about the future. But thinking ahead about what can go wrong and having a plan is the best antidote for this mental anguish.

Retirees can be thrust into financial turmoil when the unexpected occurs, such as unanticipated illness and medical costs, the death of a spouse, a market downturn, or the need for in-home or nursing home care.

The goal is to create a nest egg that can last a lifetime at your desired lifestyle and can withstand any unexpected shocks.

Most pre-retirees and retirees worry a lot about the future. A 2013 study by the Society of Actuaries (SOA) found that both pre-retirees and retirees expressed significant levels of concern over inflation (77% of pre-retirees and 58% of retirees), being able to afford adequate health care (73% and 46%), and being able to afford long-term care (68% and 52%). Both groups also expressed a high level of concern about depleting their savings (66% and 41%) and maintaining a reasonable standard of living (65% and 41%).i

Many people also worry about outliving their savings. A 2014 Wells Fargo/Gallup survey of investors found that nearly half (46%) are “very” or “somewhat” worried about outliving their savings, including 50% of pre-retirees and 36% of retirees.ii

Having a comprehensive financial plan well in advance of retirement can be your road map to preparing for unexpected costs and life events. A financial plan considers both anticipated income and the expenses. The income side of the plan includes income from all sources, such as company retirement plans or pensions, 401(k)s, IRAs, or other retirement accounts; insurance; investment accounts; cash reserves; and possible inheritances. The expense side will look at normal expenses for mortgage, food, cars, vacations, clothing, entertainment, and similar items. The plan then projects whether your nest egg — based on your projected income, expenses, and life expectancy — will last.

Preparing for the unexpected involves imagining anything that could go wrong as part of that plan. These are the worst-case scenarios. And we suggest explicitly planning for how you will deal with it to make sure your nest egg will weather the challenge.

We have found that having plans for worst-case scenarios also can provide peace of mind and guidance at a time when you also are dealing with the emotion surrounding a death, illness, financial downturn, or other misfortune.


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