Retirement is a time to enjoy the fruits of your labor, but without a resilient plan, unexpected challenges can derail your financial security.
Why? Because many retirees need to prepare for the financial shocks that can occur during retirement, such as health issues, market downturns, or unexpected expenses. Below, we’re exploring strategies for building a retirement plan that is resilient enough to withstand life’s uncertainties, so you’re better prepared to enjoy financial stability in your golden years.
What Is Retirement Resilience?
A resilient retirement plan can adapt to changes while withstanding financial shocks or unexpected events. Because it’s impossible for retirees (and their advisors) to predict the future with 100% certainty, adaptability and preparation are critical components of the retirement planning process—especially in today’s unpredictable economic environment.
From a sudden market downturn to a personal health crisis, your life and financial well-being can be changed instantly—but a resilient retirement plan is designed to absorb the shock of such changes and keep you on track to enjoying a sound, secure retirement.
Retirees face a few common financial risks, which can impact your retirement plan if not adequately addressed and managed. They include:
- Inflation: As inflation rises, your future purchasing power diminishes.
- Healthcare costs: Not all costs are covered by Medicare or Medigap insurance, and you should plan to pay those unexpected out-of-pocket costs (like long-term care).
- Market volatility: In retirement, you rely on your portfolio as a long-term income source. Market volatility can impact the value of your portfolio, especially if it hits right at the beginning of retirement. This gives your portfolio virtually no time to recover from a downturn before you begin making withdrawals.
- Longevity: People are enjoying longer life spans, which is incredible—but it also means your retirement plan must be able to support your financial needs for several decades (especially if you’re retiring earlier than the average retirement age).
How to Build a Resilient Retirement Plan
According to TFS Advisors’ founder Dale Terwedo, author of “Retirement Resilience: Going Beyond The Numbers Into The Psychology Of Flourishing,” there are a few critical components to building a resilient retirement plan.
They include:
Diversify Income Sources
In retirement, you won’t receive a steady paycheck from one employer—as you typically would during your working years. Instead, you’ll need to create your own retirement “paycheck,” stemming from different sources with varying tax treatments. Similar to diversifying your investments, it’s essential to ensure your income is spread across multiple sources. If your brokerage accounts are experiencing market volatility, for example, this would enable you to delay withdrawals and pull from other sources of income instead.
Your income sources might include:
- Social Security (which offers guaranteed lifetime income, adjusted for inflation)
- Pension plan (though these are becoming increasingly uncommon)
- Part-time work
- 401(k), 403(b), or IRA
- Roth accounts
- Taxable brokerage account
- Sale of a business or other assets
Work with an advisor to create a diversified income plan that not only reduces your reliance on any single source of income but also takes the tax treatment of your various income sources into account.
Manage Healthcare Costs
A recent study found that an average couple will need around $413,000 to cover their healthcare costs in retirement.1 As mentioned, some expenses, like long-term care, are not covered by Medicare.
Work with your advisor to determine the best plan for covering future medical costs. Additional insurance coverage (like a long-term care policy) may be necessary, or you could start contributing to a separate healthcare emergency fund.
Incorporate Investment Strategies for Stability
As you near and transition into retirement, your risk tolerance will typically fall—meaning your portfolio must prioritize stability, preservation, and income generation. An advisor can help you review and select investment strategies that reflect these needs, such as bonds and fixed income, dividend-paying stocks, and annuities.
Throughout retirement, you’ll need to balance your portfolio’s level of risk with opportunities to achieve returns to continue creating long-term income for retirement.
Prepare an Emergency Fund
One of the keys to creating a resilient retirement plan and portfolio is to have cash reserves on hand for unexpected emergencies. This enables you to cover unexpected and immediate expenses without drawing down your long-term investments (giving them more time to grow and compound).
Everyone’s emergency fund needs will be different, but the funds should be easily accessible and highly liquid—think a savings or checking account.
Interested in Learning More About Retirement Resilience?
Author Dale Terwedo is an experienced financial advisor with a deep understanding of the challenges and opportunities throughout the retirement planning process. His book “Retirement Resilience” offers a refreshing perspective on retirement planning, focusing on the power of positive psychology to create a fulfilling post-career life. Through practical strategies and inspiring anecdotes, you’ll learn to cultivate resilience, embrace change, and design a retirement lifestyle that promotes well-being and purpose.
This book is ideal for anyone who is either currently in or fast approaching retirement and seeking to create a fulfilling, purposeful post-career life. Whether you’re a few years away from retirement or have already embarked on this new chapter, this book offers invaluable insights and practical strategies to help you navigate the complexities of this transition with confidence and resilience.
A resilient retirement plan is designed to adapt to life’s uncertainties. Our team at TFS Advisors can provide you with a comprehensive review and strategy session so you can better prepare your financial life to support a secure and fulfilling retirement—no matter what challenges come your way. Send us a message to get started today.
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1How much will you need to save for health care in retirement?
