It would be naïve to assume that, once you retire, everything will be rosy and sublime. You should plan for financial crises in retirement, just as you planned for them during your working life. This article identifies types of financial crises that can wipe out your assets, and provides planning tips to prepare for these emergencies. To truly safeguard everything that you worked a lifetime to earn, you need prudent crisis planning for senior asset protection.
Anticipate potential causes of financial crisis
Although you are retired, you may be working in a part-time job or have a second career. If you lose your job unexpectedly, you may find yourself in a financial meltdown. Massive medical bills or disability can throw a wrench into your finances. Becoming disabled might require you to move into a nursing home, which can cost as much as $100,000 a year. If your spouse, who is the primary breadwinner, suddenly dies or divorces you, your finances can go into a tailspin.
How to protect yourself against a future financial crisis
- Carry as little debt as possible as you approach retirement age. Less debt equals more cash that can keep your head above water in a financial pinch.
- Resist the temptation of making a quick buck in risky investments. You should make prudent investments, but remember the adage: “If it sounds too good to be true, it probably is.”
- Save as much money as you can, preferably in a tax-deferred retirement account. Make the most of any matching funds from your employer. Have a separate savings account with enough funds to last three to six months without any income.
- The closer you get to retirement, the more careful you should be about the ratio of stocks, bonds and other types of investments in your portfolio. If your investments are too conservative, they might not earn enough money over the long haul. On the other hand, if they are too risky, you could lose your shirt.
- Do not count on your investments always having their current return. People who saved and invested for their retirement during the 1980s and 1990s bought into financial products that had a decent rate of return at the time, only to have earnings plummet to less than one percent. You may want to consider having some of your portfolio in financial products that provide a guaranteed rate of return.
- Stay marketable. Keep your skills up to date and embrace technological developments in your field. You will then be ready, if you need to re-enter the job market or generate some income through freelancing or consulting.
- Explore the possibility of long-term care insurance. Few people can afford the exorbitant costs of long-term care. Comparison shop, and make sure that you look at reputable companies. You do not want to pay premiums for years, only to have the insurance company go bankrupt.
How to survive a financial crisis when retired
The best way to survive a financial setback when retired is the same advice as for any age. Slash your expenses and cut out luxuries and non-essential goods and services until you get through the quicksand. Satellite or cable television, cell phones and eating out can drain your resources. Depending on how dire your circumstances are, you may need to:
- Sell your vehicle and use public transportation
- Sell your house and buy a smaller house, move to an apartment or move in with a relative
- Temporarily stop making new investments
Good advice is vital when you are planning for or facing a financial crisis. Every state has different laws, so please consider talking to an elder law attorney in your area.
Money. “The Retirement Crisis Nobody Talks About: Long-term Care.” (accessed August 8, 2017) http://time.com/money/2901647/the-retirement-crisis-nobody-talks-about-long-term-care/
Harvard Business Review. “The Crisis in Retirement Planning.” (accessed August 8, 2017) https://hbr.org/2014/07/the-crisis-in-retirement-planning
National Endowment for Financial Education. “Preparing for Financial Crisis in Retirement.” (accessed August 8, 2017) http://www.myretirementpaycheck.org/Navigating-Retirement-Crises/Preparing-for-Financial-Crisis-in-Retirement