- Many life events can't be predicted or controlled.
- A minimum of a three to six month cash reserve can help provide a cushion.
- Contingency planning can help protect your financial security.
Life can be unpredictable. Without contingency planning, unexpected events can erode your financial security in retirement.
Develop a contingency plan
Disability, long-term illness, the death of a spouse and the special needs of children or aging parents — these are the kinds of personal life events that can affect your financial security and well-being.
In addition, external sources of income or safety nets can change without warning. Your plans should include contingencies in the event of job loss, reduction of retiree benefits or changes to Social Security and Medicare.
Build a cash reserve
If an unexpected life event occurs, it's likely to increase current expenses or interrupt your income. The goal is to have a cash reserve built up to provide a cushion against the interruption, and prevent the need to tap into long-term investments.
During your working years, the cash reserve should be enough to cover at least three to six months of living expenses. As you get closer to retirement, you may want to shift your portfolio towards more income-generating investments and a larger cash reserve. Once you're no longer earning a paycheck, it's wise to have ready access to your money.
Additional tips for preparing for unexpected life events
- Maintain a cash reserve that covers at least three to six months of expenses.
- Make sure the beneficiaries on all of your accounts are up-to-date.
- Provide your beneficiaries with the information necessary to access your accounts, and contact information for your lawyer and financial advisor.
- Look into long-term care insurance and disability income insurance as early as possible — typically, the younger and healthier you are, the lower the cost.
Knowing that you have a plan in place to handle unforeseen events can give you confidence and peace of mind. An Ameriprise financial advisor can help you prepare a financial plan to help you get through the unexpected.