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Patricio Nahuelhual \/ Getty Images<\/p>\n
Many retirees say they can’t absorb a surprise expense. Here’s what experts suggest. <\/p>\n
In life, accidents happen. But when they occur during retirement, it’s important to be prepared\u2014otherwise, you risk running out of money during what should be considered your golden years.<\/p>\n<\/p>\n
According to a recent T. Rowe Price survey of more than 7,000 retirees globally, more than a quarter (27%) of respondents said they’d be able to withstand a financial shock in retirement.<\/p>\n
Investopedia spoke with financial planners who shared what they think are the most common financial shocks retirees face<\/a> and how people can prepare for them.<\/p>\n “Retirement resilience<\/a> isn\u2019t about predicting every expense. It\u2019s about having a safety margin with options and a plan that can adapt when life doesn\u2019t follow the script,” said Mike Casey, a certified financial planner (CFP) and founder of AE Advisors.<\/p>\n Most people qualify for Medicare starting at age 65; however, there are many costs the federal insurance program doesn’t cover. For this reason, people may purchase a supplemental plan\u2014an additional insurance policy that can be used to cover costs that Medicare does not pay for.<\/p>\n However, even with a supplemental plan, some retirees can find themselves on the hook for pricey medical bills.<\/p>\n Unexpected costs can hit hard in retirement, so it helps to draft a plan before retirement<\/a>, closely review your insurance coverage, and keep a cash cushion on hand so you\u2019re not forced to sell investments in a down market.<\/p>\n “Health care is one of the most common financial shocks. Not catastrophic illness, but the in-between costs people don\u2019t plan for,” said Melissa Caro, a CFP and founder of My Retirement Network. “Medicare and supplemental insurance leave gaps<\/a>, and many people don\u2019t realize how quickly those gaps add up until they\u2019re already in the middle of it.”<\/p>\n Additionally, neither Medicare nor supplemental plans cover long-term care costs, so financial planners like Casey suggest that people carefully evaluate their potential medical needs before retirement.<\/p>\n “There\u2019s a behavioral element when thinking about health decline, longevity, or family emergencies that’s uncomfortable, so those risks get deferred or ignored,” said Casey. “Reviewing insurance coverage including supplemental, long-term care alternatives<\/a>, and umbrella liability<\/a> is critical.”<\/p>\n Whether you plan to age in place or downsize<\/a>, housing-related expenditures\u2014like monthly home insurance premiums or the repair of a leaky roof\u2014can eat away at your retirement income.<\/p>\n “Many retirees assume they can ‘just downsize’ if needed, without fully accounting for the cost and timing involved,” said Caro. “Selling a home takes time. It often requires repairs, staging, moving costs, temporary housing, and higher-than-expected prices in the new location.”<\/p>\n Caro notes that this can be especially detrimental for retirees during market downturns, as they may have to sell more of their assets to cover costs.<\/a><\/p>\n One way to mitigate the risk of having to sell stocks during a bear market is to keep a cushion of cash savings that you can draw upon instead of your investments.<\/p>\n “The most effective preparation starts with building flexibility into a retirement plan,” Casey said. “That means maintaining a dedicated liquidity reserve beyond basic emergency savings, ideally covering 12\u201324 months of spending.”<\/p>\n