5 Biggest Shocks That Can Derail a Retirement Plan
How to keep your plan on track
Consider planning your retirement assuming the 20% reduction in benefits. So, in the example above, your budget would consider monthly Social Security income of $3,322 instead of $4,152. That way, your budget is ready for the decrease if it happens.
You could also start claiming your benefits later. The later you claim your benefits (up to age 70), the higher your monthly benefit. In 2026, the maximum monthly benefit for someone who claims benefits starting at 62 is $2,969. Meanwhile, the maximum amount for someone claiming at full retirement age is $4,152 and $5,181 for someone who claims benefits starting at age 70. The drawback is that you might need to claim them earlier due to health issues or forced early retirement, which could impact your planned budget.
Additionally, your retirement plan should have multiple sources of income and not rely solely on Social Security. Such sources of income might include traditional 401(k)s, IRAs, real estate, personal savings and investments.
Unexpected family and financial obligations
Having to support an adult child who has failed to launch or providing caregiving support to a loved one in need can drain your resources and make it harder to save for your retirement. Having another person living at home raises utilities and household expenses. And, if you’re providing care to this person, you may have additional costs that include doctor visits, medical equipment, specialized care items and home modifications.
How to keep your plan on track
If your loved one is able to work and contribute to the household, you can ask them to pay rent, buy their own groceries or pay for their own nonessential expenses. Nate Astle, certified financial therapist and founder of Financial Therapy Clinical Institute, recommended setting clear boundaries with direction, timelines, and actionable steps, saying what you are and aren’t okay paying for, the amount of time you’ll support them and what you expect from them, whether that is help with household expenses or household maintenance.
If you have a dependent that cannot take care of themselves, set boundaries where you can. If possible, divide tasks and financial responsibilities among family members. Find support through government assistance programs, like Supplemental Security Income and Medicaid, and other public resources, including your state’s health and human services department and local community outreach programs.
How to protect your retirement plan from financial shocks
Education is the first step. Learning the potential shocks that could derail your retirement plan helps remove fear, puts you in control and allows you to better prepare for the unexpected—even if it doesn’t happen. Once you know what you could be up against in the future, you can take these next steps now to protect your plan:
Diversify your portfolio: You need to have the right asset allocation set up from the get-go. Cavanaugh recommended having a diversified portfolio, which can protect you if one type of stock takes a nosedive. By spreading your investments across different asset classes, other holdings can help buoy you when parts of your portfolio sink during a downturn.
Decide with data, but consider your emotions too: “We do need to be able to see objective numbers,” said Astle. “Data that’s accurate helps us make decisions.” It’s true that hard numbers, like your cash flow, debts, interest rates and portfolio performance, will help you decide where to invest, how much to save, when to claim benefits, when to pivot and other actions to take when building your plan. But Astle pointed to another important factor in protecting your retirement plan from financial shocks: “A lot of it comes down to our emotional regulation skills,” he said. “It’s a really useful financial skill to be able to recognize what emotions lead you to act in ways that don’t align with your values or [retirement] plan.” When you know what triggers you, you might be able to deal with it in ways other than harming your retirement plan with actions like excess spending, he said.
Work with a professional: A financial advisor or wealth manager can help create the right financial plan and asset allocation based on your financial situation, risk tolerance and retirement goals. They can also stress test your retirement plan by running it through various scenarios and provide guidance tailored to your needs if you’re experiencing one of these events.
FAQ
What is the biggest risk to a retirement plan?
The biggest risk to a retirement plan depends on each individual’s unique financial circumstances and priorities. However, the two risks that affect the majority of Americans—no matter their health, financial situation or family dynamics—are inflation and potential changes to Social Security, though these factors might affect each person’s plan differently. Inflation decreases the buying power of every person, while Social Security changes could reduce the amount of money every eligible person receives.
How can I protect my retirement plan when I lose motivation?
“Motivation is going to come and go,” said Astle, who recommended putting systems and structures in place to protect your plan when you lose motivation. This can include establishing social networks that keep you from feeling lonely and hold you accountable, setting up systems like a budget, expense tracking and spending guardrails to rely on when you’re tempted to act impulsively. You could also work with a financial advisor or financial therapist to help support your goals.
How can I plan for unexpected retirement expenses?
According to the Center for Retirement Research (CRR), 83% of households will experience an unexpected expense in a given year. To prepare, find the average costs for certain expenses and consider adding them to your budget or emergency fund plan. Experts recommend saving at least one to two years’ worth of expenses in case of an emergency. As another gauge, the CRR says that retirees, specifically, spend about 10% of their household income on unexpected expenses per year. Depending on your income, this could be more or less than the recommended emergency fund amount. Consider what costs might affect you and adjust your calculation accordingly. A good financial advisor can help you find the best number for your situation and needs.