Why planning for the unexpected is important in retirement

10.01.2019

During your working years, you may have actively planned for the unexpected. Perhaps you set aside some of your income each month to cover emergencies or took out a protection product to act as a safety net. However, some find as they enter retirement these good habits fall to the wayside, but it’s still important to continue to plan for the unexpected.

It’s easy to see why some retirees don’t have a plan. As you approach retirement, you hopefully thought very carefully about your plan for life after work, from how you’ll take an income to what your goals are. It’s true that life in retirement is often more settled and you may want it to follow the path you’ve already set out. But it’s still worthwhile having a plan B and some form of buffer in place.

If you need some reasons why planning for the unexpected is still important, here are five.

1. Unexpected events can still occur

Even the best-laid plans can go off course. Your retirement life may be less hectic and less likely to be influenced by outside factors when you compare it to your working life, but the fact is, unexpected events can and do still happen.

Do you know how your lifestyle would be affected if your investments were to underperform? Or whether you have access to liquid assets to cover essential house repairs if needed? Planning for the unexpected, even in retirement, can help give you peace of mind.

Not all unexpected events should be viewed negatively either. You may find that you have more disposable income than planned in retirement following an inheritance, for example.

2. Your aspirations may change

While your financial plan may have been the best option when you entered retirement, is it still? Over the years, your aspirations and goals may have changed. It can lead to some unexpected outgoings and a need to adjust the decisions you’d made.

For some retirees, the shift in focus can be unexpected in itself. Realising what this means for your finances can be challenging. Planning how changes may impact your income when you reach retirement can help give you the certainty you need to follow the path to the retirement that you want now and in the future.

3. Financial risks may still be present

How much financial risk you’re exposed to will depend on the retirement choices you made. If, for example, you used your pension savings to purchase an Annuity, you’ll be less exposed. However, if you opted to use Flexi-Access Drawdown, where your pension usually remains invested, or rely on an investment portfolio to deliver an income, it’s wise to prepare for the value of your savings fluctuating.

Over the long term, investments typically deliver better returns than alternatives such as cash. However, it does mean that your savings, and in some cases your income, will be affected by short-term volatility. If your pension decreased, could you still afford to pay for essentials and the luxuries to maintain your lifestyle?

4. You may want to offer support to loved ones

While an unexpected event may not happen to you, it’s likely your loved ones will experience one at some point. Parents and grandparents are increasingly using their retirement income to provide financial support to the younger generation. If your loved ones faced an unexpected bill or were not able to work for an extended period of time, would you be in a position to help? Having reserves can help safeguard both your future and that of those you care about.

5. The potential need for care

Rising life expectancy means more of us need some form of care as we reach our later years. For many, the burden of meeting care costs will fall to them. It’s an outgoing that can cost tens of thousands of pounds each year. If it’s not something you’ve anticipated, it can place you under financial pressure. It could mean that some of your aims are now out of reach and increase stress.

Of course, there’s often a lot of uncertainty when determining if you may need care in the future. As a result, it’s also wise to have a plan for what you’d like to happen to the money set aside for care costs if you don’t need to use it.

How does financial planning help safeguard against the unexpected?

Financial planning helps you understand your finances in relation to your aspirations and goals. It’ll help you see the steps you can take to maximise your wealth and get the most out of it, with your lifestyle in mind. However, to be effective, it also needs to look at the unexpected.

Financial planning can help you visualise how your finances may change, and, as a result, how your lifestyle would be affected should something unexpected occur. Cashflow planning can help give you a visual representation of how your money and ability to achieve goals would change. For example, if you’re worried about how your partner would cope financially should you pass away, financial planning can demonstrate the impact it will have. This puts you in a position to plan for events that are outside of your control using relevant data and information to create an accurate picture as possible.

If you’d like to discuss your retirement, please get in touch. We can help you understand how your current retirement plan protects your future, including those unexpected events.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

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