Retirement Contingencies
February 17th, 2012 Filed under: Personal Finance — Finance AuthorHow much you need to retire really depends on how much of a safety net you want to have in case of an emergency. Many people plan their budgets around having contingency money in the event that things go awry. However, emergencies may not take on the form you expect them to. We often think of a financial disaster occurring as the result of an injury, illness, or even uninsured damage from a natural disaster. Maybe you’re downsizing your residence and need to rent several storage unit facilities for years at a time. It’s important that as you begin to plan your finances for retirement that you think about how you will prepare for unexpected expenses. Here are few of the situations you may want to anticipate:
You have to subsidize your kids’ rent and student loans.
The job market is not exactly a promising place right now for many Americans, especially graduates. In fact, more graduates than ever are finding themselves unable to find high-paying jobs, or even low-paying jobs, after getting their degrees. As you approach retirement you may find that your kids need financial assistance, for rent money, student loans, car insurance payments, even groceries. This is just par for the course right now. No one anticipated the mess we’re in and it certainly isn’t the fault of Generation Y.
Prepare yourself for the possibility of withdrawing money from your pension plan.
We don’t like to think about dipping into our savings accounts, but what good are savings if they’re untouchable? Unplanned expenses are exactly why we build these accounts. It’s possible you may have to borrow money from your 401(k) or IRA. You will have to forgo some of your tax credits if you do so, but that’s still better than declaring bankruptcy.
Your home may not be worth as much.
The collapse of the housing market is now part of American history. Toxic loans and the predatory lending bubble will be talked about for decades. As a result of the precipitous decline of home values, many homeowners are finding that they either can’t sell their house at all or are being forced to expect way less than the original value.
Your investments have declined.
The stock market also took a major hit from the economic troubles of the past few years. Many people lost a decade’s worth of investment assets and there’s no silver lining as to when some of these stocks and mutual funds will recover. It may be safer at this point to cut your losses, sell what you have left, and reinvest back into your savings or retirement plans.
Retirement ages have been pushed as a result of the down economy. Many people are working more years and cutting expenses where they can. This may be an important part of preparing for the future, as is having contingency money saved in the event of unplanned expenses.
