Prepare for unexpected events

Key Points

  • Unexpected life events can significantly impact your retirement finances.
  • Common events include inheritances, illness, divorce and loss of a spouse.
  • Contingency planning may help protect your financial security.

While you can't predict the future, you can help protect yourself by learning about unexpected events that retirees commonly face and planning for retirement surprises accordingly.

How can you prepare? Discuss your plans for dealing with life-changing issues with your spouse, domestic partner or family members. A financial advisor can also help you prepare by helping you establish a cash reserve, review your beneficiaries, evaluate your insurance and develop other strategies.

Consider the following to ensure you plan accordingly – no matter what comes your way. 

Developing 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 financial contingency plan should include strategies for adjustment in the event of job loss, reduction of retiree benefits or changes to Social Security and Medicare.

Building 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.

Managing an inheritance

Receiving a sudden inheritance may create new opportunities, but it can also add some financial stress. Fortunately, there are ways to decide how to handle your new inheritance. Start by asking yourself:

  • Would you like to change your retirement lifestyle?
  • Do you plan to pay for a family member's education?
  • Have you considered helping out loved ones or contributing to a favorite charity?

In addition to answering these important questions, you may also need to manage new income and estate taxes. This is an ideal time to seek the advice of a tax professional as well as a financial advisor.

Understanding the financial impact of a serious health condition

If you or your spouse or partner suffers a serious illness or disability, it can quickly deplete your savings. Ongoing prescription drug costs and routine medical services can also add up over time. It's important to have the right insurance and cash reserves to cover medical costs.

Re-examining your retirement plans following a divorce

After a divorce, you'll need to re-examine your long-term goals and create a strategy for the future while also addressing your daily needs. Some issues to consider:

  • Do you have enough income to support yourself and any dependents? Should you consider paying or receiving spousal support?
  • Which assets do you really want? Which are you willing to let your spouse keep?
  • Will you have enough money to pay outstanding debt on the assets you keep?
  • Will you be able to meet your goals for retirement?

As you consider these topics, keep in mind that the time following a divorce can be financially challenging. Access to a cash reserve that covers several months of your expenses can provide both needed income and confidence that you have the money you need until a new financial plan is in place.

Coping with the loss of a spouse or domestic partner

The loss of a spouse or partner can be emotionally exhausting for you and your family. Handling financial matters during this difficult time can be particularly overwhelming.

Generally it makes sense to delay big changes like moving from your current home until you know that you're making decisions based on reason, rather than emotion. Also, think about the goals you and your spouse or partner shared and decide how your goals as an individual may change:

  • Is your income adequate for your needs?
  • Do you need to make changes to your spouse's accounts or other assets?

As you consider how you would handle the loss of a spouse, think about what you can do now to prepare them in the event something happens to you. Discussing your wishes, organizing your accounts and reviewing your life insurance can help your spouse or partner get back on their feet after you're gone and help them fulfill the goals you shared.

Working with your Ameriprise financial advisor, you can prepare for the most common challenges retirees face with a flexible financial plan that protects you as much as possible from unexpected events and retirement surprises.