Bad things with significant negative financial effects can and do happen in retirement, not just occasionally but often. The 2015 survey by the Ontario Securities Commission Financial Life Stages of Older Canadians found that close to 60% of people 50 and over had experienced an event that was major enough to affect their retirement plans or ability to live off their retirement savings. Health issues were certainly prominent but a range of other matters also caused serious financial problems – helping out adult family members, permanently losing money in the stock market, major home repair bills after a disaster, losing employee benefits, divorce or separation, funeral expenses, collapse of real estate value, business or personal bankruptcy and investment scams. Often more than one event descends on the unlucky. Such events do not lessen the longer one is into retirement either. They happen at any age with about the same frequency.
You may well find that your job as a parent never really ceases. Retired parents often find themselves providing financial help to adult children. You never cease being a sibling or a child either. If brothers, sisters, mom and dad, maybe even cousins, aunts, uncles run into financial trouble there might well be requests for help or a perceived obligation to do so, especially if you are comfortably well off. However much one may wish to apply “tough love” and say no, it seems to be very difficult to overcome emotional bonds. A 2015 survey from the Bank of Montreal Wealth Institute, aptly named The Family Bank, found that parents were willing to delay their own retirement, save less, withdraw savings and have a less comfortable retirement, even take on debt at times, to provide financial support. Very often it's not just emergency or one-time support, it's also monthly bills and day-to-day expenses as the survey found.
People retired nowadays are giving support about twice as much to their adult children as they received from their own parents. BMO quotes psychotherapist and parenting expert Alyson Schafer who says there is a danger that this will create an unhealthy dependency and prevent the child from attaining the mental resiliency, skills and strategies to deal with life's inevitable frustrations, challenges and setbacks. It's tough to find the right balance between helping people get on the road to self-reliance and creating dependency.
There are various possible ways to deal with these life events to ease or avoid the financial pain. The simplest and most general plan is to have a larger cash emergency fund and a spending buffer in the form of a higher income than you need strictly for yourself. On specific events, pre-paying for a funeral is one tactic. Home insurance is a natural protection against major home accident repair bills. Permanently losing money in the stock market, to the extent that it could cause serious financial harm, should simply be avoided with a proper set of investments, as we have explained in many previous posts (see our Guide to Self-Directed Investing). One of the key principles to do that – diversification – also applies to preventing catastrophic harm from personal or business bankruptcy and real estate value collapse. When bad events do happen, most already-retired people end up cutting back their spending i.e. being forced into a lower standard of living and / or cashing in savings earlier than desired.