Life is unpredictable and even the best-laid plans can go astray. If you want to improve the odds of a successful retirement, you need to consider the risks along the way. Here are four things that can derail your retirement plans.

Number 1: Health Issues

When things are going well, it’s human nature to believe everything will stay that way. Unfortunately, sometimes our bodies have other plans. Even if your job’s only physical requirement is that you sit behind a desk, health issues can prevent you from working.

A recent study found that 30% of Americans plan to work beyond age 65. If you are one of them, you need to consider the possibility that you might not be able to do that. In fact, almost half of all current retirees were forced to retire earlier than planned due to unforeseen circumstances such as health issues. 

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An unexpected end to your working days can stem from your declining health or that of your spouse or partner. Your significant other could experience health issues to the extent that you have to retire early to become their caregiver. Think about it: if your spouse or partner is forced to retire early and you quit your job to become their caregiver, that’s a financial double whammy.

Many employers offer disability insurance designed to replace some or all of your income in the event you become disabled. There is something else you can do to help mitigate this risk: stay healthy! You have tremendous influence over your health. Regular exercise and eating right goes a long way towards keeping your body fit and healthy. Avoid unhealthy lifestyle choices like overeating, inactivity, smoking, and alcohol abuse.

Number 2: Job Loss

Another life event that can derail your retirement plans is a job loss. Besides the obvious loss of income, you also stop contributing to your 401(k) and lose any employer match. If it takes a long time for you to secure another position, the bills will start piling up. You might be forced to take out a 401(k) loan, or worse, make an early withdrawal.

When you withdraw funds from a pre-tax retirement account such as a 401(k), the amount is taxed as ordinary income. In addition, if you are under 59½ years of age, a 10% penalty tax is assessed. While you are repaying the loan – which can take years – you are most likely not making any contributions or receiving any employer match. At best, it’s not helpful. At worst, it’s a knockout blow from which you will never recover.

There are two approaches to minimize your risk that a job loss will derail your retirement plans. First, have an emergency fund. Depending on how employable you are, you should have between 1- and 6-months’ salary in savings. Having those funds available can be the difference between being able to pay your bills or having to rob your retirement savings.

Second, maintain a social network. Within your chosen field make it a point to attend professional society meetings, seminars, and other networking opportunities. Develop new business relationships and keep up with old colleagues. It’s the best way to ensure that you will be able to find a new position should the need ever arise.

Number 3: Failure-To-Launch Adult Children

The biggest reason Americans fail to adequately save for retirement is failure-to-launch adult children. Instead of saving for retirement, too many parents are providing financial support for adult children who are perfectly capable of supporting themselves. 

It is not selfish to stash your hard-earned cash into a retirement account instead of handing it over to your 30-something offspring. You’ll be doing both of you a favor by telling them to step away from the video game and go get a job.

Number 4: Loss of a Spouse or Partner

Whether by death or divorce, the loss of a spouse or partner can have a negative effect on your retirement plans. Setting aside the obvious emotional devastation, the financial impact can be significant.

If it’s a divorce that makes you suddenly single, depending on your situation you may be liable for alimony and/or child support. Huge payments like these make it almost impossible to save for retirement. That is why if you get married later in life, it’s important to have a prenuptial agreement. It can be as simple as agreeing that if you ever divorce both parties will return to their premarital financial state plus or minus an even split of any change in net worth that occurred over the course of the marriage. It’s not romantic, but neither is having nothing but Social Security to retire on because you let somebody run off with your life savings. Social Security was never meant to be a retiree’s sole source of income and it is woefully inadequate to sustain the typical American lifestyle.

If the loss of a spouse is due to their passing, Social Security defaults to the higher of your two benefits. That sounds good on paper, but if you think about it you are still losing out. Before you had one big check and one smaller check. Now you have one big check and no smaller check. You are down one whole check.

Conclusion

Retirement planning is about planning – it’s even in the name! But saving for retirement and having a decent plan is not enough. You need to consider these risks and any others that might apply to your particular situation. Things do not always go as planned. You will benefit greatly by considering these potential risks and having a contingency plan in place to deal with them.

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