While none of us can predict the future, we can do a lot to lessen the shock that can arise from unexpected events and emergencies at any time of life. For retirees relying on investments for day-to-day living, having a contingency plan means you’ll be prepared for any surprises that could derail your financial security and lifestyle goals.
Your financial plan has you on the right foot, but it can be a good idea to make sure you have a sufficient safety net to protect your retirement income, and other long-term investments, from one-off or cascading personal life events that can crop up at any time, which especially affect people at or after retirement. Examples include sudden illness, an accident or disability, the death of a spouse, or those same events affecting close family members such as children, siblings or aging parents. It’s also not unusual for changes to superannuation benefits or pensions to affect retiree expenses.
Other surprise expenditures that can interrupt your income stream might be emergency repairs to your home and investment properties due to everyday wear and tear or a severe weather event; maintaining the family car; or if a beloved pet racks up a large bill from the veterinarian. Having a savings safety net can also come in handy should you need to help out a relative, such as a son or daughter losing a job, or suffering unexpected health or life costs.
Your financial plan may already include a savings safety net – if so, that’s great news. However if you set your plan in place some time ago, you may want to consider talking to your financial planner to ensure that you have enough flexibility in case of a rainy day. Insurance provides another form of safety net, helping you to deal with unexpected losses.
From general insurance covering fire, flood and theft of property and vehicles to life insurance that provides important financial support to a family, many of us take a set and forget approach to our policies. But take the time to review your protection, checking that values are still up to date, perhaps organising for new quotes on policies, and making sure that you are covered for the events of concern to you.
Mind the gap
Preparing for events that may never happen can be overwhelming, but it’s really a matter of managing the gap between enough funds to cover your retirement goals, and a safety net of savings to protect those funds. That’s the ideal scenario, but many retirees and those approaching retirement are carrying more debt than ever before. Average mortgages and other property loans held by people approaching age 65 have more than doubled since 2002, and credit card debt is up 70 per cent, according to a report by Kellyresearch. 1
The report also shows that “increases in wealth through rising asset values, easy credit, and higher earnings” have led to a higher standard of living for working households.2 But a higher standard of living based on debt is unsustainable. That’s why retirees need to be careful about debt liability and having a focus on building up superannuation to the detriment of other forms of saving, because both approaches lock up funds that may need to be accessed quickly. That’s where contingency planning comes in.
1. Household savings and retirement: Where has all my super gone? A report on superannuation and retirement for CPA Australia by KELLYresearch, October 2012.
SOURCE: Colonial First State Investments Limited