Can your retirement survive a financial shock?

Most U.S. workers will experience at least one disruption to their retirement savings during their lives, a shock that could set back their retirement considerably. That's the conclusion of the 2015 Financial Disruptions Survey conducted by TD Ameritrade (AMTD).

According to the survey, two-thirds of Americans have experienced an event or situation that had a negative impact on their retirement. The most commonly reported disruptions are:

  • A loss of job or needing to accept a lower-paying job (43 percent)
  • Starting a family or buying a home (36 percent)
  • Poor investment or business performance (28 percent)
  • Need to support others (24 percent)
  • Accident, sickness or disability (19 percent)
  • Becoming divorced, separated or widowed (19 percent)
  • Education costs (15 percent)

What are the consequences of these disruptions? On average, people reduced their retirement savings by almost $300 per month over the duration of the disruption, which lasted for an average of five years. In addition, 43 percent of survey respondents reported they expect to have less money to spend in retirement, and nearly half -- 49 percent -- reported that they'd need to postpone their retirement or never retire.

Note that the survey defines disruptions very broadly, and this means some shocks are simply unavoidable, such as a stock market crash. For instance, since 1987 -- less than 30 years -- investors have endured four stock market crashes. If you expect to be alive for at least 10 years, it's inevitable that more crashes are in your future.

Note also that some of these disruptions -- starting a family, buying a home, helping others and education -- aren't necessarily bad life events. So, remember that some events take priority over retirement, such as starting a family, getting a good education and taking care of family members.

In fact, all of the reported disruptions pretty much cover the gamut of life events that most people experience. No wonder most people will experience at least one of these at some point in their lives.

Perhaps that's one of the main takeaways from this survey: An important part of your financial planning should include strategies for bouncing back from a setback to your retirement plan. The trouble is, many people devise savings strategies that assume they'll continuously be able to save between now and retirement, with no breaks in their savings. Or their current level of spending assumes their current level of income will continue indefinitely.

For many people, however, it's more realistic to assume that at some point in your life, your income could drop significantly, requiring a decrease in your future spending or a cutback in the amount you save each month.

Planning for disruptions isn't rocket science, and it represents yet one more reason to adhere to the common financial sense you often hear: Save your raises, control your spending, use credit cards responsibly, take care of your health, keep your job skills and contacts current -- and save 'til it hurts.

With regard to your investments, you should only risk money you can afford to lose. For many people, that means having a portion of savings in investments that don't lose too much value in a stock market crash, such as cash investments, bonds or stable value funds in 401(k) plans. For retirees, that means having enough guaranteed lifetime income to cover your basic living expenses, such as Social Security, pensions or an annuity -- income that won't decrease during an economic downturn.

Talk things over with your spouse or partner, if applicable, and have a "plan B" in case your plans go off track. It turns out that you'll be in better shape to deal with what life dishes out if you have money in the bank, good health and a supportive network of family, friends and business colleagues.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.