After 40 years of hard work, retiring shines like a beacon of joy for many people. However, even the most thoroughly planned retirement can be derailed by a disastrous or unexpected event. Planning for the unexpected is essential to ensure you retire on time and get the retirement you deserve.
1. Long-term illness or disability
One million workers a year find themselves unable to work due to a serious illness or injury. Medical expenses and long periods off work can eat into your savings and prolong your working years. No one plans to get ill or become disabled, so the expense can come as a shock. It’s important to take precautions to protect yourself in case the worst happens.
One tragic accident or illness could force you to take a long period of time off work. You could have to pursue a lower-paid role to accommodate your medical needs, or even find yourself unable to work at all. The effect on your financial situation could put the brakes on your retirement plans.
Prolonged unemployment can cause a gap in your pension savings, setting you back in terms of your retirement savings goals. It can also leave you needing to dip into your retirement funds for your current living expenses. This could mean that, once you get back into the workplace, you need to stay there beyond retirement age to ensure a comfortable retirement.
The uncertainty of life means that protecting your income is a necessity. Income protection insurance pays a percentage of your income (about 70%) until you return to work, giving you peace of mind and mitigating the effects of a medical setback to your career.
There’s nothing like a divorce later in life to knock two retirement plans sideways.
Divorce can be expensive, and if there’s property or children involved, you can expect the costs to increase; and nobody goes into marriage with a divorce fund at the ready. The nature of the situation is that the cost is unexpected and unprepared for, and it may have to come from your savings if you don’t have enough elsewhere.
Unless you have a prenuptial agreement, divorce could mean splitting or sharing your pension and property value. On top of that, there will be extra costs associated with splitting households: new furniture and essentials, plus the cost of rent or a new property of your own.
You will need to recalculate your retirement finances. Separate households cost more, and you may need to rebuild your pension. This could mean working beyond your desired retirement age to rebuild your savings.
A divorce in your early career shouldn't have a huge effect, as you have time to recover. If you divorce later in life, though, take care. Your pension is often your biggest financial asset, and you need to protect it from the impact of a divorce.
In divorce settlements the pension can be offset by other assets like property. This comes with pros and cons to consider. For more information about splitting your assets, read The 3 biggest financial mistakes to avoid when getting divorced.
3. Redundancy after age 50
A long-term loss of income due to a redundancy and an unexpected job search can have a huge impact on your financial situation. It’s hard to pay the bills with no salary coming in, and many people need to dip into savings. This creates a sizable gap between how much you need to retire and how much you have saved.
Saving six months’ worth of expenses into an emergency fund means if you find yourself unemployed you won’t have to eat into your pensions and savings right away. You can make those reserves last longer by downsizing your lifestyle while you are job hunting.
You can’t prevent a disastrous life event. However, you can prepare for and manage them, to ensure they have minimal effect on your retirement. If you would like help to create your contingency plan for life’s unexpected events, contact us today to speak to a financial advisor.