Retirement Risks That Could Alter Your Financial Plan
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One of the few things we can be sure of in life is that unexpected events will happen.
Others can be delightful, such as being offered a chance to travel or discovering a new favourite restaurant, book, or movie by chance. On the other hand, some unexpected events can be quite challenging. In fact, certain life setbacks can pose retirement risks, thus potentially derailing your retirement strategy.
Key Retirement Risks That Can Affect Your Retirement Strategy
Some unexpected life events can impact and potentially derail retirement plans. Here are some key examples:
Job loss
As of the December 2024 quarter, New Zealand’s unemployment rate stood at 5.1%, up from 4.8% in the previous quarter and 4.0% in December 2023. Losing a job before planned retirement can severely impact retirement plans. This can happen due to layoffs, health issues, or other unforeseen circumstances. Having a contingency plan, such as an emergency fund and diversified income streams, can help minimise the financial impact of unexpected job loss.
Spending shocks
Spending shocks are unforeseen expenses that often arise from major home repairs, dental expenses, or family care responsibilities, such as caring for a spouse or children. These responsibilities, since often unpredicted, can add financial burdens, potentially straining your planned retirement budget.
Health issues
The medical bills from a sudden accident, unexpected diagnosis, emergency surgery, or other health-related emergencies can be financially damaging. These expenses can lead to withdrawals from retirement savings, which not only depletes the funds but also disrupts the long-term growth of these savings. Furthermore, ongoing health issues may require long-term care, adding to the financial strain.
Consider having health insurance, emergency funds, and long-term care insurance to reduce health-related financial problems and protect your retirement savings.
Relationship-related shocks
Relationship-related shocks, such as divorce, can also derail retirement plans. This event can lead to changes in income, expenses, and tax status, potentially increasing financial stress. It is beneficial to work with a divorce attorney and a financial analyst to ensure a legal and fair distribution of assets.
Are You Retirement Ready?
A recent study by Massey University, released in January, indicates that couples seeking a comfortable retirement in urban areas may need approximately $1.1 million in savings, whereas those in rural areas require around $446,000, in addition to their NZ Super payments. This outlines the importance of tailored financial planning, taking into account regional differences, lifestyle choices, and the retirement risks mentioned above.
By doing so, individuals can tackle retirement with confidence and live a life that perfectly aligns with their personal goals and financial circumstances.
