3 retirement financial shocks that could affect your finances

Those who have retired or are nearing the milestone are consistently overlooking the risk of financial shocks when compared to other generations, a survey published in PensionsAge in December 2024 suggests.

According to the report, 43% of over-50s had thought about financial shocks but not included the risks in their retirement plan. A further 32% haven’t considered risks at all.

Later in life, you might feel more financially secure than you did when you were younger, and if you no longer work, you don’t need to consider the risk of losing your job or being unable to carry out your role due to illness. So, it’s easy to see why weighing up financial shocks may become less of a priority in your later years.

However, financial shocks still have the potential to have a significant effect on your financial security and lifestyle. Read on to discover three shocks you may want to consider when you review your retirement plan.

1. An illness could affect your short- and long-term finances

During your working life, illness may have been a financial shock you incorporated into your financial plan as it could limit your ability to work. While an illness may not affect your income in retirement, it could still derail your finances.

For example, your outgoings could rise significantly. If you’re ill, you might need to factor in the cost of travelling to appointments and increased heating bills, or you might even choose to pay for private medical care. In some cases, a long-term diagnosis could lead to other large costs, such as needing to adapt your home or pay for a carer to provide support in your daily life.

If you haven’t budgeted for these outgoings or don’t have an emergency fund you can use, the cost of being ill could mean you deplete your pension and other assets quicker than you expect. This might leave you in a financially vulnerable position later in life.

Despite this, illness is something only 19% of over-50s considered when setting out their retirement plan. Similarly, just 17% had thought about the possibility of going into care.

2. A partner passing away may leave an income gap

The death of your partner can be difficult to think about. Indeed, it’s something only 18% of over-50s have fully planned for and almost a third have avoided the topic completely.

Yet, it may be an important part of creating long-term financial security for both you and your loved one. If one of you passed away, how would it affect the surviving partner’s finances in the short- and long-term?

For instance, if just one of you has an annuity that pays a regular income throughout retirement, this would stop when the person passes away, potentially leaving an income gap for the surviving partner. To mitigate this risk, you might select a joint annuity instead, which would continue to pay an income to the surviving partner for the rest of their life.

So, while these types of conversations can be emotional and challenging, having them and adjusting your retirement plan, if necessary, could offer peace of mind that you or your partner will be financially secure if the other passes away.

3. You might want to support other family members

If your child, grandchild, or other loved ones faced a financial emergency, would you want to offer them support?

Many people will answer “yes” to this question. Yet, only a small proportion of over-50s have considered how they’d lend a helping hand in retirement. As part of their retirement plan, 16% of parents have included a provision in case their children need urgent financial support and 7% have thought about how they may need to support their parents.

If you haven’t thought about how you’d lend support, it could mean you’re unsure how to respond if a loved one approaches you for help. It may lead to a decision that’s not right for you and could affect your long-term finances.

For instance, if you were to withdraw a lump sum from your pension to gift to your child, you could be faced with a larger tax bill than you expect, and it might have an impact on the long-term investment returns of your pension. Instead, depending on your circumstances, depleting other assets, like savings, could be more efficient.

Making this type of financial shock part of your retirement plan could mean you’re able to feel confident in the support you provide.

While you’re weighing up how to support your loved ones, you may want to review your wider estate plan, which includes setting out how you’d like your assets to be distributed. For some, this will involve writing a will that will state how assets are to be divided when you die. You may also consider gifting during your lifetime.

If you’d like support when reviewing your estate plan, please get in touch.

Considering financial shocks could boost your confidence in retirement

While weighing up the risk of financial shocks might seem like a daunting task, it may lead to you feeling more confident about your retirement. Knowing you’ve taken steps to improve your financial security, even if something unexpected happens, could allow you to focus on enjoying the next chapter of your life.

Get in touch with our team to talk about which steps may mitigate the effect of financial shocks during your retirement.

Please note: This blog is for general information only and does not constitute advice.  We recommend you speak to your financial adviser before making any decisions. The information is aimed at retail clients only. No statements or representations made in the article are legally binding upon Shackleton Advisers or the recipient. All references to taxation are in relation to UK taxation and are based on our current understanding of UK laws and HMRC practices. Tax reliefs may change in the future and may not be maintained.  Tax treatment is based on your individual circumstances. All other information is based on our understanding of current legislation and regulation which may be subject to change.

The Financial Conduct Authority does not regulate tax planning or estate planning.