Top 10 things that can derail your retirement

  • 90 percent of pre-retired and retired Americans who responded to our survey experienced major obstacles that impacted their retirement accounts or ability to save.
  • More than one-third (37%) of respondents report experiencing five or more retirement derailers in their lives.
  • These events have cost the surveyed households $117,000 on average.

When thinking about the future, Americans are irrepressibly optimistic. This is evidenced in the 2013 Ameriprise Financial Retirement DerailersSM survey: Two out of three respondents say the road to retirement has been "smooth," despite the market and economic turbulence of the last five years.

It's human nature to think bad things only happen to other people. "Our brains seek out relative stability, consistency and certainty," says David DiSalvo, author of What Makes Your Brain Happy and Why You Should Do the Opposite. "When we attain a stable place in our lives, and we live there for a while, inertia sets in. Without even questioning why, we assume everything will continue at that level."

Yet, experience seems to show otherwise. In the Retirement Derailers study, 90 percent of those surveyed — Americans aged 50 to 70 with $100,000 or more in investable assets, including 401(k) and similar plans — say specific circumstances have had a serious impact on their retirement plans or reduced their retirement savings.

“The derailers we discovered in this study could throw a wrench into anyone’s retirement plans,” says Suzanna de Baca, vice president of Wealth Strategies at Ameriprise Financial. “Unfortunately, the chance of being hit by at least one of these risks is extremely high.”

The most obvious retirement derailers are those that have affected most people in the past five years — lower interest rates, the recession and plummeting home equity due to the housing crisis. There are also unique retirement risks that people experience in their personal lives. These issues can add up over time and deplete years of retirement savings.

The top 10 retirement derailers

Beyond recession-related derailers, the study addresses a wide range of risks that have impacted Americans’ retirement savings. Ten of them stand out as the most prevalent — and damaging:

  1. Supporting one or more grown children or grandchildren
    Every parent wants to do what they can to support their children, but when this results in the need to dip into your nest egg, it could jeopardize your retirement future.
  2. Receiving pension benefits that are lower than expected, or not getting an anticipated pension at all
    While the traditional pension plan is becoming a perk of the past, many who are in or nearing retirement are still counting on this benefit. Unfortunately, most pensions have been affected by market volatility and the low-rate environment, while others have been discontinued by employers. This has forced many retirees to pull from their other retirement reserves to help make up for their pension’s shortcomings.
  3. Losing some retirement savings because of unsuccessful investments
    Even the most financially savvy consumer can experience failed investments. This is why financial advisors consistently promote the importance of maintaining a diverse portfolio, rebalancing regularly and applying other key investing strategies. But some investors allow their emotions to get the best of them, sometimes selling investments at their low point, or keeping their money on the sidelines while the markets recover. These factors contribute to lost savings for many investors.
  4. Taking Social Security benefits before reaching full retirement age
    Today’s retirees can start collecting Social Security benefits as early as age 62, but it may come at a cost. When you start collecting benefits before your full retirement age, you may lock in a lower monthly payment amount for the rest of your life. And that means you may need to rely more on your other retirement savings, potentially depleting them faster than you had planned.
  5. Experiencing a job loss
    Losing a job is devastating on its own, but can be especially harmful to your retirement plan if you need to pull money from your retirement savings to make ends meet. Plus, although you get to keep the vested amount of any 401(k) plan your former employer offered, you will no longer be able to make contributions or get a company match — factors that could significantly impact your long-term goals.
  6. Not getting an anticipated inheritance
    The study underscores one important lesson: You won’t always get what you expect. An inheritance could be smaller than expected, or may not happen at all. By failing to plan ahead for this potential, many Americans have found out too late that they don’t have enough saved for retirement.
  7. Having to spend a lot of money on home repairs
    Unfortunately, not everyone has sufficiently planned for unexpected expenses. If home repairs aren’t factored into your financial plan, they could end up derailing your retirement savings goals — especially if you don’t have a cash reserve to cover unexpected expenses and end up turning to your retirement savings to foot the bill.
  8. Taking care of an aging parent or other family member
    People are living longer than ever, which means that many Americans will be able to enjoy more time with their parents — even after they enter their own golden years. But as elderly parents continue to age, their health may decline. This can lead to expensive long-term care needs, such as a nursing home or other assisted-living arrangement. According to our survey, these expenses often fall on the shoulders of the adult children, seriously risking their retirement savings.
  9. Paying for significant medical bills that aren’t covered by insurance
    We all know medical bills can gobble up an income — especially when they aren’t covered by insurance. But, according to our study, these costs can be particularly detrimental to retirement savings. Pulling money from retirement accounts to pay medical bills could derail plans for the future.
  10. Using retirement savings to pay the bills
    This is perhaps the worst-case scenario: Having to take money from retirement savings to cover regular expenses. Unfortunately, this is not uncommon, according to our survey, and is one of the top 10 derailers that could keep you from reaching your retirement goals.

"The fact that most Americans will experience at least one of these derailers — and more than one-third of the population will be struck by five or more — is astounding,” says de Baca. “Clearly, we all need to be thinking about how we can prevent these risks from jeopardizing our retirement savings.”

How much is at stake? On average, Americans reported losing $117,000 of retirement savings due to these derailers. That loss was even higher — an average of $144,000 — for those who experienced five or more of these obstacles.

Fortunately, there is hope. “The good news is that anticipating these events gives people a better idea of how much they really need to save and helps them take measures to protect what they already have," says de Baca.

But saving more and putting protections in place to address these potential risks isn’t easy. "Our brains aren't wired for long-term thinking — they’re wired to capitalize on immediate gains to reap instant rewards," says DiSalvo.

“This is where a financial advisor comes in,” says de Baca. “When people think they need to go it alone to solve for all of these risks, it can feel overwhelming, even causing them to not do anything at all. But taking the first step — even if it means just picking up the phone to call an advisor and discuss their concerns — can at least get the process started,” she says.

Ultimately, the goal is to feel more confident about the future, even when you encounter a derailer.

The Retirement DerailersSM survey was commissioned by Ameriprise Financial, Inc. and conducted by telephone by Koski Research in February 2013. Respondents included 1,000 employed and retired Americans age 50-70 with $100,000 or more in investable assets, including employer retirement plans.

David DiSalvo is not affiliated with Ameriprise Financial.

Diversification does not assure a profit or protect against loss in declining markets.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.