On Tuesday,
TD AmeritradeAMTD released its
2015 Retirement Survey, which analyzed the impacts of major life events upon long-term investing objectives. The survey illustrated that without adequate planning for the unknown, long-term goals easily and drastically become off track.
Categorizing these pre-retirees and retirees as "Disrupted Americans," TD Ameritrade starkly contrasts those who integrate risk management into their retirement plans and those caught unaware.
Managing Director of Retirement for TD Ameritrade Lule Demmissie stated, "Every human being faces the threat of a financial disruption because there will always be external factors that can upset the course of a person's life. The key is to have a financial plan that incorporates risk management because no one knows when these disruptions can occur."
Below are a few key findings from the survey coupled with advice from financial advisors and retirees who faced potential upheavals and were still able to remain on track.
66 Percent Disrupted
Out of the 2,019 adults surveyed who experienced a situation that could have negatively influenced their financial plans, two thirds of the participants said that these life events detrimentally disrupted their long-term plans.
Unfortunately, while large-scale catastrophes are certainly unplanned, other causes of financial disruption can be tentatively anticipated. While no one can be prepared for a devastating calamity, expecting life to go glass-smooth is imprudent.
Just as many financial planners recommend an emergency fund of three to six months' expenses, the same line of thinking should be applied to larger-scale, longer-term planning. Consider the benefits of setting aside a pocket of retirement savings specifically for life-overhauls.
$2.5 Trillion = Savings Lost
TD Ameritrade determined that the economic impact of disrupted retirement planning comes in at a whopping $2.5 trillion. This opportunity cost was figured as an average decrease in savings by $300 per month over approximately five years.
Another
TD Ameritrade survey found that those who felt secure in their retirement attributed their success most frequently to limiting credit use, saving consistently, saving early and not spending exorbitant amounts on frivolous luxuries.
Similarly, those surveyed in the disruption study stated that, in hindsight, they wish they would have saved more (44 percent of participants), saved earlier (36 percent) and broadly been more aware of how to correctly save and invest for long-term financial security (26 percent).
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$300 Less Per Month, 50 Percent Delayed/Foregone Retirement
Unsurprisingly, only a minimal decrease in monthly contributions over a short amount of time was cited as financially disruptive. Just as saving a little over a long time can pay off in a big way, decreasing saving habits follows the same trajectory.
Those surveyed stated that these major life events resulted in an average decrease of $300 in savings per month over a period of five years. These figures were estimated to amount to an average $16,000 less in retirement savings, resulting in severely off-track retirement plans.
Furthermore, out of the 66 percent of respondents who considered themselves financially disrupted, fifty percent of those (so, one third of all participants) had to delay retirement or indefinitely forego retirement.
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Four Out Of Five Remain Damaged
Only one fifth of those surveyed whose plans were detrimentally disrupted feel that they have recovered financially, with the average recovery taking five years to get back to a financially secure place.
In order to recover, the most commonly cited changes were listed as "decreasing expenditures, using less credit and repaying debt."
"A retirement plan is adjustable and should evolve over time," Demmissie stated. "While no one can predict when, or if a financial disruption will occur, the key is to focus on what can be controlled. Understanding ones' retirement goals, regularly evaluating your portfolio and being prepared to make adjustments to your long-term strategy along the way can help you pursue your retirement plan."
One way to thwart being caught unprepared is to overestimate retirement expenses from the get-go. A study conducted by Genworth concluded that 65 percent of retirees spend more during retirement years than they did during years when they were employed.
When planning for retirement, do not forget to plan for increased healthcare expenses, relocation costs, end-of-life care and different tax filings in addition to setting aside an extensive emergency fund specifically for your retirement years.
