5 financial risks (and how to adapt your financial plan)

Life is full of surprises—some delightful, others stressful.

As you plan your finances for the people and causes you love, it’s wise to anticipate common risks that can derail your progress. No one can predict the future, of course. But the right financial strategy will help you face life’s what-ifs with more confidence while supporting your long-term goals.

Few of us will make it through adulthood without significant upheavals to our lives and finances. Some are personal, some are economic. Here are five common curveballs and tips to plan for them:

Layoffs, position eliminations and firings happen. Even with severance and unemployment assistance, losing your job often means dipping into savings to pay for necessities. One way to work a potential job loss into your financial plan is by establishing an emergency savings fund.  Accumulating at least three to six months' worth of living expenses can keep you from raiding your retirement savings or going into debt during an already difficult time.

Consider also securing individually owned contracts for life insurance and disability insurance, and any other types of coverage you may count on as an employer-offered benefit. Those policies often are not portable, and you'll want to make sure you and your loved ones still are protected in case the unexpected happens while you're searching for your next opportunity. Having individual coverage makes portability less of a concern and supplements employer-sponsored coverage.

No one expects to get sick or hurt, but a cancer diagnosis or serious car accident can turn life on a dime. In fact, 1 in 4 of today's 20-year-olds can expect to experience a disabling event before they reach retirement age, whether it's for a few weeks or a long-term change in their ability to work. When this happens, medical bills can accumulate quickly and feel unmanageable—especially if it's accompanied by a loss of income and health benefits.

Your income is arguably your most important asset, so protecting it is especially important in the event of debilitating injury or illness. That's why long-term disability insurance can play a critical role in your financial plan. It can replace up to 80% of your income if you can't work for an extended period due to illness or injury. It also can decrease or even prevent dipping into assets you've accumulated over the years that may be earmarked for another purpose.

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The market is constantly fluctuating—sometimes more sharply and unpredictably than other periods. Often, short-term losses are to be expected and are part of the risk involved with investing. Some investments will lose money, even in the long run, while others will increase in value. But a prolonged economic downturn at the wrong time—near the beginning of your retirement, for example—could mean a big hit to your nest egg.

Instead of relying on reactionary trading in hopes of growing your money (which can be similar to gambling), it's critical to develop and stick to a dynamic and diversified portfolio as part of your financial plan. A financial advisor or portfolio manager can help ensure you're spreading your investment dollars across asset classes such as stocks, bonds and real estate, which can help mitigate risk and stabilize your portfolio's value. The same can be said of diversification within an asset class, such as owning shares of an exchange-traded fund that tracks the entire S&P 500.

Another common derailer of financial plans is inflation—the gradual increase in the price of goods and services over time. Inflation diminishes your investment returns and purchasing power, but it can be especially impactful when it defies expectations. For example, from 1992 to 2020, annual U.S. inflation was never higher than 4%. But then the pandemic happened. And in 2022, inflation reached 8%—a level not seen since the early 1980s. As a result, the value of people's savings wasn't worth as much. What was previously "enough" for goals like retirement or buying a home suddenly fell short.

While inflation has since recovered, the possibility of a higher-than-usual spike is ever-looming. Your financial advisor can help you adjust the goals or budget within your plan to help cushion for inflation. They also may recommend certain investments that help hedge against inflation, like inflation-protected bonds or I bonds.

Losing a spouse, parent, child or other beloved family member is extremely difficult in every way. As you process your grief, you're also forced to adjust to the major changes brought about by their absence. One of those may be a significant financial gap and shift in your standard of living without their provision.

Working life insurance into your financial plan can help bridge that gap and allow you and your loved ones to continue living comfortably. Your contract's death benefit is typically paid out as a lump sum, tax-free and can be used for any purpose—from settling final expenses and paying for a funeral to making mortgage payments and providing childcare. Additionally, some permanent life insurance policies provide a cash value element that can be accessed for emergencies and opportunities, such as supplemental tax-efficient retirement income.¹

Don’t let financial risk stress you out

Connect with a Thrivent financial advisor to discuss strategies designed to prepare your financial plan for life’s what-ifs.

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We can work together to:

• Evaluate your finances with a clear vision of where they stand today. 
• Build a flexible plan that can adapt to unforeseen improvements or disruptions to your income.  
• Anticipate surprise expenses without compromising your long-term goals.
• Explore tax-smart solutions to protect you and your loved ones from setbacks.