You Need to Consider These Three Alternative Retirement Plans

Planning for retirement can be daunting, and each day brings you closer to the time when you may have to rely on your savings and investments to cover your bills. Still, most of us don’t feel confident that our savings will be enough (assuming we have any at all). And while money is important, there’s so much more to consider when planning your retirement, from how you’ll spend your time to where you’ll live to how you’ll manage your health coverage.

In other words, you need more than just a 401K or an IRA – you need a fully formed retirement plan. But even if you’ve put a lot of thought into your retirement, if you only have one plan for your golden years, it may not be enough because you should also have a backup plan. Several backup plans, in fact. You need to prepare for anything because every assumption you make about your post-retirement life could turn out to be wrong or change at some point in the future.

Here are the three alternative retirement plans you should think about if you want to prepare for any eventuality.

The urgent plan (also known as unexpected early retirement)

A big assumption any retirement plan makes is when you will retire. About a third of Americans consider their Social Security benefit to be an “important” part of their retirement income, so it makes sense for people to plan to work at least until full retirement age, which is 66 or 67. years, depending on when you reach retirement age. were born. But what happens if you unexpectedly retire early? After all, more than half of Americans are retired by age 61. What if you lose your job and can’t get a new one, or develop health problems that force you to leave the job market before you’re ready?

If that happens, you’ll need a retirement backup plan you can switch to — one that assumes a much lower income and a much longer retirement period. You need to know what your reduced Social Security benefit will be and make some assumptions about how much income you can expect from other sources if you have to stop contributing and start accessing them years earlier than expected. Consider the side hustles you can monetize and how you can adjust your lifestyle and other expectations in retirement. It’s better to do all of this now – calmly and rationally – than to panic when your situation changes abruptly.

The reduced plan (for when your retirement income drops or expenses increase)

Even if you retire on the exact day you always planned and everything up to that point goes as expected, you may encounter some unexpected obstacles along the way. Expenses like property taxes or insurance premiums can increase unexpectedly, inflation or market forces can increase your monthly expenses, and surprise medical bills can significantly impact your retirement savings.

In other words, you need a “skinny” retirement plan that you can switch to if you suddenly find yourself with less money than you assumed in your golden years. This may simply be a “skinny” budget that you can switch to that eliminates many unnecessary expenses, or you may need to do something more drastic to increase your income, such as selling your home or taking out a reverse mortgage.

You might consider making a plan to “not retire” and return to the workforce to accumulate more savings if necessary. Since you can’t guarantee your money will last as long as necessary, it’s best to have a plan ready to go.

The relocation plan (where will you go if you need to move)

A big consideration for people planning their retirement is where they will live. For some people, it’s all about the weather. For others, it’s being close to family. Some fall in love with the places they visit and want to have that experience all year round. Other people just want to stay in the house and city where they have lived for years.

The assumption in any of these scenarios, of course, is that nothing will change – your warm-weather paradise won’t be hit by climate change, your sleepy, charming town won’t be overrun by moneyed interlopers, overdevelopment will win. If you don’t complicate traffic and increase property taxes, your family members won’t decide to move. For example, when we got married, my wife was optimistic about retiring and living in the small town where she grew up – and that and a charming place. But the population has doubled in the last decade and she admits it’s not quite the same city she remembers.

So, think of a backup plan for where you retire. If your chosen location loses its charm, becomes too expensive or stops working for you, having an idea of ​​where you can pivot — and the logistics involved, like selling or renting your home — will save you a lot of time and stress.