Does Your Retirement Strategy Give You Financial Resilience?

Your financial retirement plan may work great if everything goes accordingly. But, if there’s one great certainty about life, it’s that nothing is certain. Stuff happens—stuff we didn’t expect or prepare for.

That’s why resilience is so important. Simply put, resilience is the ability to recover from adversity. It’s important in every aspect of life, including your finances – and especially during retirement. While you can’t control all the circumstances that might compromise your financial stability, you can take steps to make sure you have a financial strategy that gives you the resiliency you need in today’s uncertain world.

Why Resilience is So Important

Before we talk about those steps, let’s look at a few of the biggest reasons why resiliency is so important for retirees.

Healthcare: Topping the list are healthcare costs and medical emergencies. It’s no secret that as you get older, your healthcare needs increase. What some people don’t realize is that healthcare inflation outpaces the general inflation rate by a huge margin. What’s more, if a major medical emergency hits you during retirement, it can rapidly drain your savings by hundreds of thousands of dollars. If you’re not prepared, you may end up recovering physically, but not financially.

Family: Another common cause of financial stress during retirement is family. An emergency involving a grown child or aging parent can quickly undercut your financial stability when you need it most.

Poor Planning: Other issues that can test your resilience involve poor planning around things like Social Security and Required Minimum Distributions. Also, a financial emergency could hit you in retirement if you haven’t protected your assets legally through proper estate planning.

How to Start Building Resilience

The good news is there’s no reason to wait until you’re retired to start improving your financial resilience. There are, in fact, steps you can take at any age, such as the following:

1. Track your spending: Knowing where your money is going is the first key to making sure you’ll have enough of it when a crisis hits.
2. Reduce your spending: If you’re not expecting a pay raise or a windfall, the next best way to prepare for a financial emergency is to spend less and save more.
3. Eliminate debt: Start with your high-interest credit card debt, then work your way toward eliminating the rest, or at least greatly reducing it.
4. Create an emergency fund: This can be the perfect goal to work toward once you’re tracking and cutting your spending. Funnel that extra money into a fund that’s ultimately large enough to cover at least six months of living expenses.
5. Increase your income: If you’re not expecting a raise, you can explore other options for generating additional income, including through passive income streams. There are a variety of strategies, both business-based and investment-based. And the more you learn about passive income streams before retirement, the better prepared you’ll be to create a solid income strategy for retirement that gives you resilience.

How to Ensure Resilience in Retirement

Expounding on that last point, let’s talk about two additional steps you can take just before retirement to better ensure your long-term financial resilience.

1. Identify and strengthen your weaknesses: For example, does your current retirement plan do all it should to protect you from the potential drain of rising healthcare costs? Or from the financial toll of a major medical event? Or from the danger of spending down your principal? If you’re within ten years of retirement and the answer to any of those questions is “no” or “I’m not sure,” then those are weak spots that can undermine your resilience. The sooner you find the right advisor to help you strengthen them, the better.
2. Make sure you’re working with the right advisor: For most people, an advisor who specializes in Retirement Income is best qualified to help you create a financial strategy with resilience baked in. Why?

Well, just ask yourself, when are you financially most vulnerable? Is it:
A) When you have little or no savings?
B) When you’re carrying a lot of debt?
C) When you have little or no income?

The obvious answer is C. But, of course, you don’t need just income to be resilient in retirement. You need enough income, and you need the right strategies in place to generate that income for as long as you need it and regardless of market conditions.

Those are exactly the goals an Income Specialist specializes in helping you achieve, better ensuring that you have a retirement strategy that is reliable, right for you, and resilient!