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How To Overcome A Financial Setback And Still Have A Great Retirement

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How to overcome a financial setback and still have a great retirement

Let’s face it; the road to retirement isn’t always straightforward. Even with the best planning, many of us are likely to have to experience at least one financial setback in our life. The older we get, the more stressful it can be.

2020 – A year that we could never have predicted

And what a rollercoaster we are all on as I update this post in July 2020!  The retirement savings that looked quite healthy just six months ago seem under threat.  Every country’s economy is dramatically over-extended, and financial gurus are predicting tough times for all. We can’t do much about this except manage our investments as best we can and

A financial setback can be out of your control at any time

Unfortunately, there are many events over which you have no control. A sudden job loss, divorce, bad health, disability, natural disaster, care needs of an elderly parent, or the sudden death of a partner are all difficult to foresee sometimes. That doesn’t mean that you can’t plan for them.  For instance, it is wise to build an emergency fund to help you through any unforeseen disasters. But how many of us do that?

A financial setback can be self-inflicted

Some financial setbacks, however, are due to our actions such as procrastination in saving, overspending, stacking up credit card bills, getting into debt. For instance, due to the high cost of going to university and housing, many parents are overborrowing to pay for their child’s higher education or assist with the purchase of their first home.

An aside: The potential impact of University Fees

As a result, the Consumer Financial Protection Bureau in the USA has reported that the number of consumers age 60 and older paying off student loan debt has quadrupled over the last decade. Australia’s free University system from 1974 – 1989 has saved most Australian baby boomers from this problem.  But in April 2016, it was announced that AUD$60 billion was owed to the Australian government under the HECS scheme.  This is expected to increase to $180 billion by 2026, so it is probably a time-bomb for the generations younger than us.

Financial difficulties affect most people at some time

However daunting it may feel to face a financial crisis; it’s important to remember you are not alone. Others have been through it before and there are always solutions.

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Getting through a setback and bouncing back can actually make us stronger and help us realize what’s really important in life. It can be tempting to dream about improving your finances but not acting until a need arises. A setback can be the motivation you need to take some action finally. Plan, commit, and just do it. You can then enter retirement feeling confident that yourself and loved ones will be protected.

How to overcome a financial problem

Here’s a short guide to help you better understand how to build your financial resilience while ensuring your future retirement is protected.

Save

The biggest threat to the financial security of your future retirement is not saving enough money.  You should be aiming to save around 15% of your monthly income.  Stuart Ritter, vice-president of T. Rowe Price Investment Services, observes that “not enough people are saving enough, saving 3% for retirement is like going to the gym for 6 minutes.”  According to the Office for National Statistics (ONS), the average amount being paid into private-sector workplace pension schemes in the UK was only 4.7% of a worker’s salary.

Future Health Planning

A  2014 Merrill Lynch study found that 70% of couples age 50+ had not discussed the possible cost of their health care during retirement. Yet, 81% of retirees said that health was more important to them than financial security. There’s no doubt that health is one of the biggest challenges facing retirees.  50% of retirees retired earlier than they expected, mainly due to health issues. It is vital to calculate health care costs in retirement plans to avoid future crises.

Don’t Blame Yourself.   

When you experience a financial setback, don’t blame yourself. It is far better to focus your mind on solutions rather than regret.

A 2017 study commissioned by the National Endowment for Financial Education found that by the age of 70, a staggering 96% of Americans will experience four or more major life events like redundancy, divorce, or illness resulting in a 10% drop in income. The study also reported that 60% of workers would experience a full year without earning a salary, at least once in their life.

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Let the past be the past, instead focus on practical steps to overcome your situation. Even if you are saving just a little bit every month, this can go a long way. It can be a first step in nudging you into creating a more robust emergency fund.

Assess your situation

After experiencing a serious setback, you need to assess your financial situation. This will include making an inventory of all your remaining assets, available resources, and any liabilities. Once you have a clear idea of where you are now, you can then start to design a practical plan for the journey ahead. This is an opportune moment to seek professional advice.

Develop a recovery plan

Gather as much information as possible about your situation to help you create a practical plan. Here are some things to include in your list:

  • Inventory of all your remaining assets.
  • Figure showing how much money you owe and what your monthly outgoings are.
  • Total figure showing interest spend on all debts, e.g. mortgage, credit cards, other loans.
  • Net monthly income
  • All implications of financial setback, e.g. healthcare, alimony, insurance

Be Smart

As part of your financial recovery strategy, you need to identify what you want to achieve next and what is realistic. Attempt to consider and analyze your financial goals. This should not be a wish list. For instance, if you are in debt or facing bankruptcy, aiming to become a millionaire in the next couple of years seems unrealistic.  Be specific and practical in identifying your goals.  Identify exactly how much income you need a month as a minimum, set deadlines to achieve this, then regularly evaluate your progress.

Don’t Wait, Act Now

Forewarned is to be forearmed. Planning how you will cope with a financial setback should be part of your retirement plan. We all know things can go wrong at any time – illness, job loss, natural disaster. Prepare by making sure you have enough money saved that when faced with unexpected events, you have a financial buffer. Don’t ignore your debt; instead, try to pay it off as quickly as possible. This will reduce the amount of interest you end up paying and free up available cash that you can use in a future crisis.

Invest in happiness

Long-term financial recovery involves rethinking spending priorities. This means making savings and cut back where possible depending on your situation.  Before you start sacrificing your entire budget, observe what things are important to keep you feeling healthy and happy. This is something that will be particularly important if you are going through a difficult situation.

The US Financial Diaries, a study of the money habits of 235 families, found that an occasional financial extravagance actually makes it easier to maintain a disciplined budget longer term. Allowing yourself a few pleasures that remind you of how you want your life to be can help you emotionally recover faster from whatever adversity and financial setback you have experienced.

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Home Based Business

Have you considered that a home based business may provide you the combination of extra income, mental stimulation and the opportunity of creating the lifestyle you want?

Laptops, mobile devices and the internet make it possible to create a strong, viable business from the comfort of your own home or wherever you choose to be in the world.  Many baby boomers are rethinking the way they want to live their lives, choosing to create a non-traditional retirement as a entrepreneur, and boosting their income and enhancing their lifestyle.

What will you do when you retire? Start your retirement game plan now. Decide on the retirement lifestyle that you want. Activities that you want to do.

We’re giving everyone our comprehensive and professional Retirement Planning Guide called Create a Future You’ll Love! Download it now! If you need help contact us, or perhaps you would like to consider retirement coaching.

[Updated July 2020]

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Jenni Proctor

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