AUTHOR: R Quinn on 9/09/2024
A 2021 Society of Actuaries study on retirement risk looked at retiree vulnerability to unexpected financial shocks. Forty percent of retirees reported experiencing some form of financial shock.
They reported that 11% of retirees reported financial shock that reduced their assets by more than 25%. Thirty-two percent of retirees said they could not spend $10,000 without it affecting their retirement security.
I think about financial “what ifs” all the time. I try to anticipate where money might come from to handle even something major like long-term care. My homeowners insurance on Cape Cod has a $35,000 hurricane damage deductible, that would be a (not insurmountable) shock, but still a shock.
I can’t conceive of an event that would reduce our assets by 25% except a major market crash – unless Connie gets tired of me after 56 years, then we are talking more like 50% and the Cape house is the first to go.
Those survey numbers are shocking to me. Think about it, a $10,000 financial emergency may affect retirement security. That is living pretty close to the edge in my opinion. It would be interesting to know the total financial picture for these retirees. Did they retire too early? How much income replacement did they begin retirement with?
Is it fair to judge? Were they fully prepared for retirement or is such a financial situation more typical than we may realize?
We will never know, but 32% with very limited resources is not good IMO.
Obviously, income and asset levels are important factors, but given the relatively high reported level of shock events – an admittedly relative term – have you contemplated your ability to deal with such situations?
Can you think of a financial shock not covered by insurance or cash reserves that would jeopardize your or a survivors retirement?
This article appears in The Forum in HumbleDollar.com Take a look at the discussion.
QUINNSCOMMENTARY 
Well a good test would be the year 2008 to March 9, 2009 collapse which saw markets fall in excess of 50% from top to bottom–real estate was in the wipe out mode–unemployment at 10%–the economic system in danger of imploding–how many folks had brown underwear then?
I carry a lot of cash as a buffer and have done so for more than 15-years–for a long time it earned next to nothing but Mr. Market was not going to dictate my financial life. With three tax-free bond funds sending me monthly income–2 Social Security checks–one pension with inflation protection we should be fine. Only equity money that comes our way is RMD dollars.
Don’t think a 50% implosion in the markets is not going to happen again and when it does there will be no warning just like 9/11–real estate in 2008-09–and covid.
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It’s not surprising since Docial Security points every year to people who either exist entirely on Social Security or more than half their income is Social Security.
If someone is on that level, then 10k might be most of their cash. I question the amount as threatening their retirement security because how much could 10k do for you and for how long if that is all or most of what you have?
I’m fortunate enough to not live on that level so I can’t offer any advice except to encourage younger people to be careful with their money and prepare for the time they can no longer work.
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