Can your retirement survive a financial shock? It seems many can’t. Have you thought about it?

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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.  

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?