Unexpected Threats to a Well-Planned Retirement Part V

How to Stay On-Track When Unforeseen Challenges Arise

It’s a scary feeling. You’ve planned carefully, saved appropriately, invested thoughtfully and are on track to retire. Then you are met with a significant and unexpected financial challenge. How do you stay on track?

Many families rely on the crucial years before retirement – a time when peak earnings can be socked away to fund retirement and eliminate any remaining debt. What happens when a major life event or financial hardship interrupts your plans?

Following are five unexpected events that can all be made easier by having the framework of a financial plan in place. We’ll look at the potential impact of each, and offer steps to minimize the damage and get back on track to meet your retirement goals.

Last month we looked at Threat #4, this month we look at Threat #5.

Threat No. 5: Being Too Generous

Almost 40% of Millennials are still living with their parents, the highest percentage measured in 75 years.1 This may not come as a surprise when you consider that many in this generation entered the work force during the great recession and are saddled with significant student loan debt. Yet parents who continue to support an adult child long term can experience financial and lifestyle ramifications, and this is especially true for those approaching or in retirement.

Clearly, teaching kids good financial habits when they’re young can set them on the path to making better choices when they’re older.2 When asked to help support adult children who are struggling, it is important to evaluate your own plan, determine how much support you can provide and for how long, and be clear about what you can and can’t do. Use the opportunity to help your adult children create their own financial plans to pay down debt and save for their own independence.

In general, being too generous with family and friends can undermine a successful retirement. Amassing a sizable nest egg to support a long retirement can spur some to offer to take friends on expensive trips, or agree to pay private school or college tuition for grandchildren when it seems like you will have more than enough. It’s important to keep in mind that you could easily need 100% of the income your portfolio generates, so be careful not to give too much away too soon. If being generous is important to you, then be sure to build this into your retirement-spending budget. Generosity may be rewarding, but if you run into financial hardship of your own, you may not be able to count on others to step forward to repay your kindness.

The common thread to all of these scenarios is the importance of developing a financial plan that can help mitigate the damage of any of these threats. While you can’t plan for every contingency, you’ll sleep better knowing you have a solid plan in place that can adjusted when life throws you an unexpected curveball.

Maintaining an emergency reserve and staying flexible as you approach retirement and beyond will also serve you well.

©2017 Robert W. Baird & Co. Incorporated. Member NYSE & SIPC. Robert W. Baird 3/2017