Three Retirement Backup Plans You Need to Have

Planning for retirement can be daunting, and every day brings you closer to the moment when you might have to rely on your savings and investments to cover your bills. Even then, most of us don’t feel confident that our savings will be enough (assuming we have any at all). And while money is important, there’s a lot more to consider when planning your retirement, from how you’ll spend your time, to where you’ll live, to how you’ll handle healthcare coverage.

In other words, you need more than just a 401K or an IRA—you need a fully-formed retirement plan. But even if you’ve put a lot of thought into your retirement, if you only have one plan for your golden years, it might not be enough, because you should also have a backup plan. Several backup plans, in fact. You need to prepare for anything, because every assumption you’re making about your post-retirement life might turn out to be wrong, or could change at some point in the future.

Here are the three retirement backup plans you should be thinking about if you want to prepare for any eventuality.

The rush plan (aka unexpected early retirement)

One big assumption any retirement plan makes is when you will retire. About a third of Americans consider their Social Security benefit to be a “major” part of their retirement income, so it makes sense that folks plan to work at least until full retirement age, which is either age 66 or 67, depending on when you were born. But what happens if you find yourself retiring unexpectedly early? After all, more than half of Americans are retired by age 61. What if you lose your job and can’t get a new one, or develop health issues that force you out of the workforce before you’re ready?

If that happens, you need a retirement backup plan you can switch to—one that assumes a much smaller income and a much longer retirement period. You need to know what your reduced Social Security benefit will be, and make some guesses about how much income you can expect from other sources if you had to stop contributing and start accessing them years earlier than expected. Consider side hustles you might be able to monetize, and how you might adjust your lifestyle and other expectations in retirement. Better to do all this now—calmly and rationally—than in a panic when your situation changes abruptly.

The downsized plan (for when your retirement income drops or expenses rise)

Even if you retire on the exact day you always planned to and everything up to that point goes as expected, you may hit some unexpected bumps in the road. Expenses like property taxes or insurance premiums can rise unexpectedly, inflation or market forces could drive up your monthly expenses, and surprise medical bills can impact your retirement savings significantly.

In other words, you need a “downsized” retirement plan you can switch to if you suddenly find yourself with less money than you assumed in your golden years. This might simply be a “skinny” budget you can switch to that cuts out a lot of unnecessary expenses, or you might need to do something more drastic to boost your income, like selling your house or taking out a reverse mortgage.

You might consider making a plan for “unretiring” and heading back into the workforce to amass more savings if you need to. Since you can’t guarantee your money will last as long as you need it to, it’s best to have a plan ready to go.

The relocation plan (where you'll go if you need to move)

One big consideration for people planning their retirement is where they’ll live. For some folks, it’s all about weather. For others, it’s being close to family. Some fall in love with places they’ve visited and want to have that experience year-round. Other people just want to stay in the house and town they’ve lived in for years.

The assumption in any of these scenarios, of course, is that nothing will change—your warm-weather paradise won’t get pummeled by climate change, your sleepy, charming town won’t get invaded by monied interlopers, over-development won’t snarl traffic and raise property taxes, and your family members won't decide to relocate. For example, when we got married my wife was bullish on retiring to the small town she grew up in—and it is a charming place. But the population has doubled in the last decade or so, and she admits it’s not quite the same town she remembers.

So, think about a backup plan for where you retire. If your chosen spot loses its charm, becomes too expensive, or otherwise stops working for you, having an idea of where you can pivot—and the logistics involved, like selling or renting your home—will save you a lot of time and stress.