5 Tips for Planning for the Unexpected in Retirement

Life can be unpredictable. Planning for retirement is no different. Find out how you can better prepare for life's unexpected circumstances so your retirement plans aren't caught off guard.

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The COVID-19 pandemic that hit in 2020 had a profound impact on the economy, our way of life and also on how Americans plan for retirement.

Amplified by a decade-long decline of employer-sponsored retirement plans, pensions and 401(k)s, concerns stretch far beyond the 2020 COVID-19 pandemic. According to a survey by the National Institute on Retirement Security, 51 percent of Americans say the pandemic has increased their concerns to achieve financial stability in retirement. Sixty-seven percent say the country is facing a retirement crisis.1^National Institute on Retirement Security, "Retirement Insecurity 2021," June 2021

With many Americans still adjusting after one of the most economically challenging times of our lives, we look at five tips to plan for the unexpected in retirement.

Plan for Income in Retirement to Cover Expenses and the Unexpected

Knowing where your retirement income will come from is probably the most important aspect to consider when planning for your financial future. You need to consider whether you can cover your regular living expenses without a paycheck coming in once you retire, as well as any unanticipated costs. Replacing a regular paycheck looks differently for every person depending on an individual's retirement, investment and savings vehicles and whether they plan to work post-retirement. A 2018 Indexed Annuity Leadership Council study found almost four in 10 workers will have to work part-time in their retirement years. 2^ Indexed Annuity Leadership Council, "America's Workforce - The Reality of Retirement Readiness," April 2018 

Lifetime income is another important financial option to consider. An annuity can provide stable and protected income that cannot be outlived. A National Institute on Retirement Security survey estimated over half of Americans (54 percent) are willing to take money out of their retirement accounts to purchase guaranteed income options like an annuity. 3^ National Institute on Retirement Security, "Retirement Insecurity 2021, Graphic 3," June 2021


Make a Plan When it Comes to Your Health Care and How to Stay Insured

Healthcare can create a lot of uncertainty when heading into retirement. If you retire before you are 65 years old, you do not qualify for Medicare and will have to purchase your own health insurance. There are several options when it comes to making sure you stay covered.

Consider your former employer’s insurance. Retiree health insurance might be an option and your company’s benefits department should be able to help you answer any questions. The Consolidated Omnibus Budget Reconciliation Act, or COBRA, created a program that allows you to keep the same insurance you had while working for up to 18 months. 4^Medicare.gov, "COBRA: 7 Important Facts," July 2021 While an option, this can also lead to other considerations when it comes to cost. The average premium for family coverage has increased 22% over the last five years and 55% over the last ten years. 5^Kaiser Family Foundation, "2020 Employer Health Benefits Survey," October 2020

Gap insurance can help provide relief and protection from high deductibles. Experts often refer to gap insurance as insurance for your insurance. It’s a supplemental policy in addition to your regular insurance. Its purpose is to lower your overall out of pocket costs until your main insurance policy kicks in. In the event that retirement comes earlier than expected, this could be your Medicaid benefits or any other insurance you are able to acquire. Keep in mind, gap insurance is regulated differently than your regular insurance plan and companies can deny certain coverage based on any pre-existing conditions. 6^MagnifyMoney, "The Pros and Cons of Gap Insurance," October 2016 In this case, it is especially important to do research on what might fit best for you.

Understand How Social Security Benefits Work in Retirement

According to the Social Security Administration (SSA), almost 70 million people in total received benefits from programs run by the SSA in 2019. 7^Social Security Administration, "Fast Facts and Figures About Social Security," 2020, 2019  However, if you were born in 1960 or later, the full retirement age in the U.S. is 67. Often financial experts recommend to wait to use Social Security benefits until reaching your full retirement age. 8^Forbes.com, "A Departure Checklist for Your Unexpected Retirement," September 2020

Based on age, Social Security benefits can be reduced. “Starting to receive benefits after normal retirement age may result in larger benefits. With delayed retirement credits, a person can receive his or her largest benefit by retiring at age 70.” 9^Social Security Administration, "Early or Late Retirement," 2020 The earliest you can sign up for Social Security benefits is 62 years old. Consider your overall situation, including if you might be able to return to work or your health. Those factors can greatly impact when it makes sense for you to access your Social Security benefits.

Learn More About What an Annuity is and Why it Can Be Beneficial

A fixed annuity with an optional income rider can provide stable and flexible income in retirement and can help prepare for those unexpected costs or life situations. A fixed index annuity with an income rider can also be an option for unexpected sources of money, such as inheritances or the sale of a home. The rider therefore allows flexibility on when to start, defer or stop payments. It provides additional income asset control and options for single or joint life payments. Like all types of annuities, fixed index annuities allow the owner to convert a lump sum amount into a series of annuity payments, either for the owner’s life or for a specified period of time. Flexibility is an important advantage for choosing an annuity and an income rider. This goes for how the benefits are paid out, fees are calculated and how assets accumulate. However, once these annuity payments start, the payments are generally locked-in, meaning the owner cannot change the amount of any payment. 

Be Prepared for the Unexpected and Understand Your Options

Heading into retirement is arguably one of the most important decisions of your life. Even if you are no longer working, unexpected circumstances can arise, no matter if it’s your health or the decision on how to best spend your money. The above-mentioned tips can help you plan when it comes to social security, income and healthcare. Talk to your financial professional about what’s right for you. Understanding your options is the first step into a stable and happy retirement.




The content is provided for informational purposes only and does not constitute advice. For specific details on how this may apply to your personal situation, contact your personal financial advisor or insurance agent for more details. American Equity contracts are only sold through independent agents. Please contact your state insurance department to see if there is an independent insurance agent in your area appointed to sell American Equity annuity contracts. American Equity Investment Life Insurance Company® does not offer legal, investment, or tax advice. Please consult a qualified professional. 

Annuities are long term vehicles designed for retirement income and are not suitable for everyone. They involve restrictions and charges, including possible surrender penalties for early withdrawals. Annuity distributions are subject to ordinary income taxes, and if taken before age 59-1/2 may incur an additional 10% federal penalty. Guarantees are based on the financial strength and claims paying ability of American Equity and are not guaranteed by any bank or insured by the FDIC.