Life can be unpredictable, but financial setbacks don’t have to disrupt your retirement plans. Whether you’ve had to dip into savings due to the loss of a job, navigate the financial challenges of divorce, or deal with market downturns, rebuilding retirement savings is always possible. With a proactive approach and thoughtful planning, you can regain stability and work toward a secure financial future.
Common life events that can derail retirement savings
Job loss
The loss of a job can affect financial plans, sometimes forcing you to use retirement savings for immediate expenses. A prolonged period of unemployment may make it difficult to contribute consistently to retirement accounts, setting you back from your long-term financial goals. If you had a pension or stock options that required a certain tenure, losing your job may mean forfeiting these benefits.
Divorce and assets division
A divorce can significantly impact retirement savings, as assets are often divided between partners. Many individuals find themselves with a smaller nest egg than expected, requiring them to rethink their financial strategy. Additionally, spousal benefits from Social Security (if married for less than 10 years) or pensions may no longer be available, altering retirement income projections. Divorce may force partners to liquidate investments, real estate, or other assets to meet settlement agreements, potentially incurring taxes, penalties, and lost future growth potential.
Market fluctuations
Stock market downturns can erode retirement account balances, particularly if your investments are heavily concentrated in riskier assets. This can significantly impact your long-term savings if withdrawals occur during a downturn. While markets tend to recover over time, sudden declines can be stressful, especially for those nearing retirement. Market volatility, combined with rising inflation, can reduce the purchasing power of your savings, making it harder to cover retirement expenses.
Strategies to rebuild retirement savings
Fortunately, several strategies can help reset your retirement savings, including:
- Taking advantage of catch-up contributions: If you’re 50 or older, you can contribute extra funds to your retirement account, such as a 401(k) or IRA. These additional contributions allow you to maximize your savings in the years leading up to retirement.
- Automating and increasing contributions: Setting up automatic contributions helps ensure you consistently add to your savings, even if you’re managing a tighter budget. If possible, increase your contributions gradually to take advantage of compound growth.
| Now You Know Compound growth means that the returns you earn on an investment are not only calculated on your initial investment but also on any previously earned returns, essentially allowing your earnings to grow on top of themselves over time. This strategy aims to potentially grow your investment over longer periods. |
- Adjust your investment strategy: After experiencing financial setbacks, it’s important to reassess your investment portfolio. A balanced mix of stocks, bonds, and other assets can help reduce risk while still allowing for growth. If you have become too conservative, gradually increase risk exposure to growth-oriented investments. Consult with your wealth advisor to make sure your strategy aligns with your new goals.
- Reduce expenses and reallocate savings: Cutting back on discretionary spending, such as dining out or subscription services, can free up funds for retirement contributions. Allocate windfalls (bonuses, tax refunds, or inheritance) directly into retirement savings. Tracking expenses and budgeting can provide additional financial stability.
- Reevaluate Social Security timing: Delaying Social Security benefits beyond your full retirement age can increase your monthly payments. Although you can start receiving Social Security benefits before full retirement age, currently 67, you could have a permanent reduction in payments. If possible, consider waiting until age 70 to maximize your benefits (benefits increase by 8% until 70). Read our article to learn more.
- Explore part-time or freelance work: If you’ve experienced a job loss or a significant financial setback, part-time work or freelance opportunities can help rebuild savings. This approach allows you to supplement income while maintaining flexibility in your retirement plans. You can use extra earnings to fund a Roth IRA or brokerage account for additional growth.
- Manage debt wisely: Paying off high-interest debt, such as credit cards, should be a priority. The less you spend on interest payments, the more you can allocate toward rebuilding your retirement fund. If needed, consider consolidating or refinancing debts to lower your overall costs. Read our article to learn how to develop repayment plans and distinguish good from bad debt.
- Seek professional guidance: A wealth advisor can help tailor a recovery plan based on your specific circumstances. They can guide you through tax-efficient strategies, investment decisions, and budgeting adjustments to accelerate your savings progress.
If you’re a Mercer Advisors client, you know that retirement planning is an ongoing process that requires reviews and adjustments. Contact your wealth advisor if you experience changes in your financial priorities, life events, or other situations that may necessitate modifications to your retirement plan.
Not a Mercer Advisors client? We have 40 years of experience helping clients throughout their retirement journey and can help you figure out the best course forward for a successful retirement. Ready to learn more? Let’s talk.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. Hypothetical examples are for illustrative purposes only. All investment strategies have the potential for profit or loss. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
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