Three Retirement Backup Plans You Need to Have
Planning for retirement can be challenging, and every day brings you closer to the point where you may have to rely on your savings and investments to cover your bills. Even then, most of us aren’t confident that our savings will be enough (assuming we have any at all ). And while money is important, there’s much more to consider when planning for retirement, from how you’ll spend your time to where you’ll live to how you’ll afford health insurance.
In other words, you need more than just a 401K or an IRA—you need a fully formed retirement plan . But even if you’ve thought a lot about retirement, if you only have one plan for your golden years, it may not be enough because you also need to have a backup plan. Several backup plans, actually. You need to be prepared for anything because every assumption you make about your life after retirement may turn out to be wrong or may change at some point in the future.
Here are three retirement backup plans you should consider if you want to prepare for any eventuality.
Term Plan (aka Surprise Early Retirement)
Any retirement plan makes one important assumption: when you will retire. About a third of Americans count Social Security benefits as a “major” part of their retirement income , so it makes sense that people plan to work until at least full retirement age, which is age 66 or 67, depending on when you were born. But what happens if you retire unexpectedly early? After all, more than half of Americans retire by age 61 . What if you lose your job and can’t find a new one, or have health problems that force you to leave your job before you’re ready?
If this happens, you’ll need a backup pension plan to switch to – one that offers a much lower income and a much longer retirement period. You’ll need to know what your reduced Social Security benefit will be and make some assumptions about how much income you can expect from other sources if you have to stop contributing and start accessing it a few years earlier than expected. . Think about side hustles you could monetize and how you can change your lifestyle and other expectations in retirement. It’s better to do all this now—calmly and rationally—than to panic when your situation changes dramatically.
Reduced plan (in case your retirement income falls or expenses rise)
Even if you retire on the exact day you always planned, and until then everything goes as expected, you may encounter unexpected bumps in the road. Expenses like property taxes or insurance premiums can rise unexpectedly , inflation or market forces can cause your monthly expenses to increase, and unexpected medical bills can have a significant impact on your retirement savings.
In other words, you need a “shortened” retirement plan that you can switch to if you find yourself with less money than you thought you would have in your golden years. It might just be a “lean” budget that you can switch to that will cut a lot of unnecessary expenses, or you might need to do something more drastic to increase your income, like selling your home or taking out a reverse mortgage.
You may want to consider making a retirement plan and returning to work to build up more savings if you need to. Since you can’t guarantee that your money will last as long as you need it, it’s best to have a plan in place.
Moving plan (where you will go if you need to move)
One of the important questions for people planning for retirement is where they will live. For some people, it’s all about the weather. For others, it’s being close to family. Some people fall in love with the places they visit and want to have those experiences all year round. Other people simply want to stay in the house and city they have lived in for many years.
In any of these scenarios, of course, it’s assumed that nothing will change: your warm-weather paradise won’t be destroyed by climate change, your sleepy, charming town won’t be taken over by money-grabbing intruders, overdevelopment won’t be disrupted. Unless you create traffic snarls and raise property taxes, your family members won’t decide to move. For example, when we got married, my wife was determined to retire and move to the small town where she grew up, which is a charming place. But the population has doubled in the last decade or so, and she admits it’s not the same town she remembers.
So, think about a backup plan for retirement. If your chosen location loses its charm, becomes too expensive, or otherwise no longer works for you, having an idea of where you can pivot, as well as the logistics involved, such as selling or renting your home, will save you a lot of time and stress .