Dad was several years older than Mom, and toward the end of their lives, in poorer health than hers. I tried asking Mom if they had plans in place to take care of her when dad passed away.
For obvious emotional reasons, she refused to even think about it. Less than two years later, Dad passed away. We had to scramble to make sure Mom was financially secure. Dad’s pension and social security benefits dropped more than 40% once he passed, while expenses dropped by only 20%.
Shocks like this can derail your retirement plan, if you even have one. The following details some of the more likely shocks, and tells you how to keep your plan on track.
It’s not Enough to Have a Retirement Plan, but It’s an Important Start
One of my favorite quotes on planning (often misattributed to Ben Franklin) says, “Failing to plan is planning to fail.“
What better evidence for this than the miserable state of retirement planning among American workers?
According to a TransAmerica Center for Retirement Studies report, only 1 in 5 workers has a written retirement strategy. Worse, nearly half of those who estimated their retirement needs confessed that their answer was a guess.
No surprise then that the estimated median savings for Baby Boomers (born 1946-64) is only $152,000. That’s only 15% of the $1 million workers believe they’ll need to retire. Gen-Xers (born 1965-78) are far behind even that low mark, with a median of $66,000. Millennials (born 1979-2000) have only $23,000 saved for retirement.
The median for all ages, $50,000, instead of increasing, dropped 21% over the past few years from the $63,000 in TransAmerica’s 2016 data.
Bloomberg reported recently that nearly half of Americans 55 or older have zero saved in a 401(k) and individual retirement plans.
According to BankRate, 2 in 5 Americans save nothing or less than 5% of their annual income for retirement. Only 1 American in 6 saves over 15%, which you need if you start at age 25 and want to retire by your mid-60s.
All this helps explain why 69% of workers 60 or older plan to work, or already work, past age 65. That’s if they even plan to retire.
Shocks Can Derail Retirement Plans and Retirement Itself
The Society of Actuaries (SOA) examined how the unexpected can affect retirees and retirement plans. Major factors that could derail your retirement plans include:
- Sequence-of-returns risk: If the markets tumble just as you enter retirement, your risk of outliving your money increases dramatically.
Why Long-Term Perspective Matters During Market Downturns
It’s completely natural to feel rattled when the market plummets. The urge to cash out and hide your money under the mattress becomes overpowering—believe me, I’ve been there with my own family’s finances. But bailing out during rough patches isn’t just emotionally costly; it’s financially devastating in the long run.
History has an annoying habit of repeating itself. While stock markets have regular hiccups (with some, like 2008, feeling more like earthquakes), they also have a proven track record of bouncing back. Consider that the S&P 500 has posted positive returns about 80% of the time over the last few decades. Those who stuck it out after seemingly catastrophic years—think about anyone who stayed invested after the steep loss in 2008—were rewarded as markets rebounded, recovering and then some over the next several years. On the flip side, those gripped by fear and who pulled out at the bottom missed out on those surges entirely, taking a double whammy: first from the loss, then from missing the ride back up.
A thoughtful plan can help steel your nerves during these downturns. By knowing your own risk tolerance and sticking to a strategy designed for your personal goals, you’re far less likely to make impulse decisions that could permanently cripple your retirement savings. In short, staying calm and investing for the long haul is your best defense against the storms—and far more effective than whatever the pundits on TV urge you to do at midnight.
Becoming a widow/er: This is especially devastating if your spouse’s retirement income came mostly from a pension or annuity that stops upon his or her death. As I shared above, this almost undid my mom’s retirement when Dad passed away.
Divorce during retirement: If you divorce after retiring, your entire plan is likely out the window. Suddenly you each need a separate housing solution, a separate car (unless you live in an area that’s especially walkable and/or with great public transportation), and spend more on previously shared services (cell phone plans, streaming TV…
- Becoming a widow/er: This is especially devastating if your spouse’s retirement income came mostly from a pension or annuity that stops upon his or her death. As I shared above, this almost undid my mom’s retirement when Dad passed away.
- Divorce during retirement: If you divorce after retiring, your entire plan is likely out the window. Suddenly you each need a separate housing solution, a separate car (unless you live in an area that’s especially walkable and/or with great public transportation), and spend more on previously shared services (cell phone plans, streaming TV, etc.).
- Dental expenses: Few appreciate how expensive dental care can be in retirement, since Medicare doesn’t cover it very well. Late in life, my mom needed to replace all her teeth with implants. At several thousand bucks a piece, that had a major impact on my parents’ retirement savings.
Timing the Market: The Perils of Panic-Driven Investing
When the economy takes a nosedive or the news cycle starts shouting “Recession!”, the urge to yank your investments out of the market can feel overwhelming. I get it—we’re all wired to run from pain. But trying to outsmart the market by cashing out or completely revamping your portfolio based on headlines rarely ends well.
For starters, market downturns are nothing new. Yes, volatility can rattle even the most seasoned investors, but history shows that those who jump ship during the storm often miss out when the clouds eventually part. If you dive for cover during one of those infamous down years, say, like the 38% drop in 2008, you risk missing the dramatic rebounds that follow—the S&P 500 tripled between 2009 and 2017. Those who stuck to their plan eventually recouped losses and then some, while panic sellers lost out twice: first to the fall, then to the recovery they didn’t participate in.
What’s more, trying to “time” the market isn’t just difficult—it’s nearly impossible with any consistency. The best days often come on the heels of the worst, and missing even a few of those big upswings can put a serious dent in your long-term returns. According to numerous studies, most investors who attempt this timing game ultimately underperform the market.
Instead, anchor yourself with a well-crafted investment plan tailored to your goals and risk tolerance. A solid plan works like the seatbelt in your financial vehicle—it keeps you strapped in when the ride gets rough, so you don’t end up making decisions you’ll regret when the dust settles. Sticking to your strategy, rather than reacting to every twist and turn, is what ultimately sets you up for success as you work toward your retirement vision.
Diversification: Your Best Defense Against Retirement Shocks
So how do you shield yourself from the kind of surprises that can sabotage your retirement? One word: diversification.
Think of diversification as the financial equivalent of not putting all your eggs in one basket—not just for when things go well, but especially for the inevitable times when life throws you a curveball. By spreading your investments across different sectors, industries, and even countries, you cushion your portfolio from the full impact of a market downturn in any single area. When tech stocks stumble, perhaps healthcare surges; when U.S. Markets reel, international funds may offer a lifeline.
Mutual funds and exchange-traded funds (ETFs) make this easier than ever, providing instant access to hundreds—sometimes thousands—of stocks, bonds, and other assets all at once. Vanguard, Fidelity, iShares, and a parade of other major providers offer low-cost funds that automatically diversify your dollars without forcing you to become a part-time day trader. Behind the curtain, professional managers rebalance these funds to help weather market squalls and smooth out the ride.
In uncertain times (and, let’s face it, is there ever any other kind?), a well-diversified portfolio helps ensure that no single event—be it a stock market crash or a sudden downturn in real estate—wipes out your nest egg. It’s about staying in the game, covering your bases, and giving your retirement plan a fighting chance to go the distance.
Bonds: The Steadying Force in Your Portfolio
Let’s talk bonds—the tortoises of your investment race. While they won’t win any sprints, they’re often the ones still plodding along when your high-flying stocks trip over their shoelaces.
Bonds, especially U.S. Treasuries and solid blue-chip corporate issues, have a knack for adding ballast to your retirement portfolio. When stocks get walloped by a market downturn (remember 2008, anyone?), bonds can step in, paying regular interest and helping soften the blow. They tend to be much calmer than stocks, historically showing less wild price swings, which means your overall portfolio isn’t as likely to nosedive when the economy hiccups.
Besides, many investors—including pension funds and insurance companies like MetLife or Prudential—use bonds as their financial anchor for precisely this reason. Holding bonds gives you a reliable income stream—a cushion you’ll appreciate when you’re living off your savings rather than a paycheck.
So, while they may not be flashy, bonds play a vital role in shielding your retirement nest egg from unexpected market shocks and keeping your long-term plans on course.
Diversification: Your Safety Net Against Market Swings
So, what’s an aspiring retiree to do about all the “what-ifs” lurking in the stock market? Enter the tried-and-true principle of diversification.
Think of your investment portfolio like a buffet, not a single jar of pickles. Instead of putting all your savings into just one company’s stock—or even one sector—you spread your investments across a wide range of industries, countries, and company sizes. Why bother? Because when tech stocks catch a cold, maybe healthcare, consumer staples, or international markets are still going strong.
By mixing it up, you’re not trying to predict which area will outperform next year (let’s leave crystal balls to fortune tellers). Instead, you’re aiming to soften the blow when one part of the market takes a nosedive. Just as my parents’ retirement was nearly thrown off course by unanticipated shocks, a single bad year in one area doesn’t have to ruin your entire plan if you’ve diversified your investments.
In short, spreading your investments across different slices of the market can help cushion the bumps so you’re not left scrambling if one piece falters. Which, as retirement plans go, sure beats playing financial whack-a-mole.
The Power of Diversification: Mutual Funds and ETFs
One smart way to protect yourself from retirement shocks—particularly those nasty market fluctuations—is to spread your eggs across more than one basket. Enter mutual funds and exchange-traded funds (ETFs).
Both mutual funds and ETFs allow you to own small slices of dozens, hundreds, or even thousands of stocks, bonds, or other securities in a single purchase. Instead of betting your nest egg on a handful of stocks, you get instant diversification: if one company tanks, it hardly leaves a dent.
Here’s why seasoned planners frequently turn to these tools:
Built-in professional management: Instead of DIY-ing your portfolio, you have fund managers (think Vanguard, Fidelity, BlackRock) making decisions and monitoring risk.
Cushion against market swings: Because these funds spread your investments broadly, sharp losses in one area often get balanced by steadier performance elsewhere.
Easy access and flexibility: You can buy or sell shares in mutual funds and ETFs through most major brokerages, just like regular stocks.
For retirees (and those on the way), this mix-and-match approach can help keep your financial plan intact—even if the market decides to get spicy.
Why Precious Metals Shine During Uncertainty
So where do gold and silver fit into this picture?
Historically, precious metals like gold and silver have been the financial equivalent of a rainy-day bunker—always there when economic storms hit. Unlike paper money, they aren’t subject to the whims of central bankers or the roller coaster that is Wall Street. Because they’re physical assets, they can’t be created out of thin air, making them resistant to the effects of inflation and volatile currency swings.
When the markets get rocky or the value of the dollar starts doing its best imitation of a roller coaster, investors flock to precious metals as a way to safeguard their savings. They’ve built a reputation as safe havens because, time and again—from the stagflation of the 1970s to the Great Financial Crisis in 2008—gold and silver typically hold their value, or even climb, while other assets tumble.
Of course, precious metals are still commodities, meaning their prices can fluctuate. But if you’re looking for a time-tested buffer against uncertainty, having a slice of your nest egg in gold or silver might just help soften the blow when the unexpected arrives.
Contingency Planning – Shock-Proofing Your Retirement Plan
Say you’re far ahead of the pack. You have a written retirement strategy. You even have more set aside than most of your peers. Have you considered that an emergency or medical issues could force you to retire sooner than planned? Or that you might need to deal with a savings shortfall for some other reason?
If you answered yes, you’re one of only 12% who have considered such risks. Broken down between generations, 14% of Millennials, 12% of Gen-Xers, and only 7% of Boomers have done so.
As for non-retirement shocks, the median emergency savings are $5000 for all ages ($2000 for Millennials, $5000 for Gen-Xers, and $10,000 for Boomers). That’s nowhere near the 3-6 months’ spending recommended by most experts. It’s even further from the 6-12 months’ expenses needed if your income is more precarious and/or have more responsibilities.
Shock-Proofing Your Own Retirement Plan
To keep your retirement plans on track, you need to manage the risks mentioned above. Here’s what you can and should do.
- Budget for contingencies: When estimating how much you’ll need in retirement, add a margin on top of whatever you expect to spend. With so much unknown, NASA’s guidance for its projects is to assume a 30% higher budget than you think you’ll need. If that’s good enough for launching spacecraft, it’s probably good enough for planning your golden years.
- Save more: This is the easiest risk mitigation, and will automatically happen if you plan for a margin on your retirement budget. If you have a larger portfolio when you enter retirement, you will have more reserves and more options.
- Break your retirement budget into Needs and Wants: If nothing bad happens, you’ll be able to spend as planned. If an unexpected shock hits, you’ll be better prepared emotionally and practically to cut back, minimizing your “Wants” spending.
How Strategic Investments Can Safeguard Your Retirement
Investing in assets designed to withstand market turbulence is a powerful way to shield your retirement plans from unexpected shocks. Think of assets like U.S. Treasury bonds, dividend-paying blue-chip stocks, or even inflation-protected securities (TIPS) as the financial equivalent of airbags for your savings. While you can’t predict every bump in the road—be it inflation running hotter than expected or a sudden downturn in the markets—these assets can soften the blow and help you avoid derailing your long-term goals.
Diversifying across a mix of these shock-absorbing investments not only adds stability during volatile times but also helps your nest egg weather rising living costs. By putting a portion of your savings into assets that historically hold up against inflation and economic stress, you’re building a more resilient plan—one that won’t unravel the minute the market sneezes.
Of course, even the best investments can’t replace common sense: revisit your plans regularly, stay informed, and don’t be afraid to rebalance if your needs or the economic landscape shift. Just like NASA wouldn’t launch a mission without contingency plans, strategic and diversified investing can help ensure you reach your own retirement “launch” successfully—no matter what space debris comes your way.
Building a Shock-Resistant Portfolio: Your Best Asset Choices
It’s not just about saving more—where you park those savings matters just as much when it comes to riding out the unexpected. If market turbulence or an unforeseen crisis threatens your retirement funds, certain types of assets can help you hang onto both growth and peace of mind.
Here’s a rundown of time-tested, shock-absorbing assets to consider for strengthening your nest egg:
Real Estate: Brick-and-mortar assets like rental properties or multi-family buildings provide both potential appreciation and steady rental income. While home values can fluctuate, real estate often holds its ground longer than stocks when markets get choppy—plus, you can live in it or rent it out for cash flow.
Treasury Inflation-Protected Securities (TIPS): Issued by the U.S. Government, TIPS are designed so their principal rises with inflation. That means your purchasing power doesn’t erode even if the cost of living leaps, making them a worthy anchor in your bond allocation.
Precious Metals: Gold, silver, and their glittering cousins have a long track record as “panic assets”—people flock to them when other markets are melting down. They don’t churn out income, but they often hold up well when currencies and stocks run into trouble.
Diversified Stock Holdings: It sounds counterintuitive, but keeping a broad mix of stocks across industries and geographies can help dampen the impact of shocks. The key word is “diversified”: don’t put all your eggs in one sector or country, and rebalance regularly.
Mutual Funds and ETFs: Instead of picking individual assets, let the pros handle diversification for you. These funds spread your money across a basket of investments—stocks, bonds, or even real estate—so a stumble in one area doesn’t torpedo your whole plan.
Bonds: While they’re rarely exciting, high-quality government and blue-chip corporate bonds are old standbys for income and stability. They won’t make you rich, but they can help cushion the blow if stocks nosedive, providing a predictable stream of returns.
A mix of these assets, tailored to your risk tolerance and time horizon, is one of the surest ways to shock-proof your financial future. And remember, the best asset is the one you understand and can stick with—come storm or sunshine.
Why Consult a Financial Professional?
You don’t have to go it alone—sometimes, having a seasoned guide can mean the difference between smooth sailing and taking on water during choppy financial seas.
A trusted financial advisor can help you put together the kind of investment plan that stands a fighting chance against all those “what ifs” retirement throws your way. They’re adept at spotting gaps you might miss, weighing your specific risk tolerance, and building a balanced portfolio that can weather storms like a bad year on Wall Street, a surprise expense, or even a major life change. Think of them like the mission control to your NASA retirement launch—vetting your plan, checking the numbers, and making sure you have enough margin for error.
Not only that, but an advisor can help diversify your investments strategically, so you’re not putting all your eggs in one (potentially crash-prone) basket. Whether it’s stock market downturns or sudden shifts in interest rates, a diversified approach is essential.
And while no one can promise market returns—Bernie Madoff taught us that much—an experienced pro can help you navigate uncertainties with more confidence, so you don’t have to white-knuckle every headline. Sometimes, a steady hand and an outside perspective are exactly what you need when making decisions that could affect the next thirty years.
Real Estate as a Buffer Against Retirement Shocks
Another strategy worth considering: real estate. Unlike a portfolio of stocks that can nosedive the moment you need to make your first retirement withdrawal, real estate has a reputation for holding its own—even thriving—amid economic turbulence. After all, we all need somewhere to live, recession or not.
Owning property, especially something like a duplex or small apartment building, can bring in rental income month after month. This steady cash flow can help cover living expenses even if your investment accounts are temporarily underwater. And unlike some assets, a well-located property usually appreciates over time, helping offset inflation and potentially growing your nest egg.
Some retirees choose to downsize and invest the proceeds from selling their larger family home into a rental property or two. Others may live in one part of a duplex and rent out the other. Either way, a thoughtful real estate purchase can act as a sort of financial shock absorber—providing income, hedging against inflation, and avoiding the steep ups and downs that come with relying solely on stocks or bonds.
Understanding Treasury Inflation-Protected Securities (TIPS)
Another tool in your shock-proofing toolkit is Treasury Inflation-Protected Securities, or TIPS for short. These are special U.S. Government bonds created to help shield your savings from the relentless creep of inflation. The way they work is clever—TIPS regularly adjust their principal value based on changes in the Consumer Price Index. If inflation rises, the value of your TIPS goes up, too. If deflation hits, the principal shrinks a bit, but your investment always keeps pace with the true cost of living.
Here’s why that matters for retirees and pre-retirees: While regular bonds pay a fixed interest on your initial investment (leaving you vulnerable if prices soar), TIPS ensure that both your interest payments and your final payout keep up with whatever inflation throws at you.
In other words, TIPS are like a financial fire extinguisher. You may not need them every year, but when inflation sparks up, you’ll be glad you thought ahead.
The Bottom Line
The first step in shock-proofing your retirement plan is to have a retirement plan in the first place. Next, add a margin of 30% to what you think you’ll need, and set aside enough to fund that higher amount.
Finally, identify where you might be willing to reduce spending in retirement if the market tanks early in your retirement or you suddenly need to pay a large amount of money for unexpected reasons.
Where are you in your retirement planning process? Have you considered preparing for the unexpected?
Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. Before making major financial decisions, please speak with us or another qualified professional for guidance. The original version of this article first appeared on Wealthtender written by Opher Ganel.