Key Takeaways
\nFinancially supporting adult children can quietly erode retirement savings if it comes at the expense of your own long-term security.Market downturns early in retirement make rigid withdrawal rules risky, underscoring the need for flexibility and having a cash buffer.<\/p>\n
Even for the well-prepared, things can go awry in retirement\u2014whether it’s entering your golden years during a bear market or facing an unexpected death.\n<\/p>\n
While you might not be able to plan for every surprise, Investopedia spoke with financial experts to understand what hidden red flags<\/a> commonly arise for people during retirement and how you can prepare.\n<\/p>\n 1. Helping Out Adult Children <\/p>\n It may be tempting to provide extra money to your adult kids when they need help affording a down payment or paying for graduate school, but make sure you’re not helping them to the detriment of your own retirement plans.\n<\/p>\n “Regarding supporting adult children, retirees are coming from a place of generosity and love. While I wholeheartedly support giving with a warm hand, I like to ensure my clients aren\u2019t sacrificing their own financial security by doing so,” said Annie Garland, a certified financial planner (CFP) at WealthClarity.\n<\/p>\n What This Means For You<\/p>\n Before you retire, consider how you’d handle your adult kids asking you for money or what you’d do if you experienced a market decline in the first few years of retirement. Preparing for these possibilities can help strengthen your retirement security.<\/p>\n 2. Ignoring the Possibility of a Market Downturn <\/p>\n The 4% rule<\/a> is a common rule of thumb in the world of retirement planning, but it’s important to personalize it.\n<\/p>\n The 4% rule suggests that a retiree can withdraw 4% of their portfolio in the first year, adjusting for inflation every year after that, and have their money last during a 30-year retirement.\n<\/p>\n However, Jean Chatzky\u2014a personal finance writer and founder of HerMoney Media\u2014recommends that people be flexible with their withdrawal rate, modifying it if they experience a market downturn at the start of retirement or have a longer retirement horizon.\n<\/p>\n “Where the 4% rule becomes really problematic [is] when you have a downturn in the first few years of your retirement,” Chatzky said. “And that’s when [the] 4% rule really starts to, if not fail, then eat into people’s ability to know that their money is going to go the distance.”\n<\/p>\n If the value of your portfolio declines at the beginning of retirement, you may need to sell more of your assets to fund your lifestyle. This could leave you with a smaller nest egg later on.\n<\/p>\n To mitigate this possibility, which is known as sequence of returns risk<\/a>, Chatzky suggests a couple of strategies: having at least two years’ worth of expenses in cash<\/a> or maintaining a lower standard of living during this period.\n<\/p>\n 3. Delaying Estate Planning <\/p>\n