How severe weather could affect your retirement savings: Are you prepared?

A new study shows that one in four Americans ranked the risk of rising costs, loss of insurance, or damage from severe weather as one of the top three risks to their retirement income, but relatively few have a plan to address this challenge.

A survey by Allianz Life, an insurance and annuity company, found that 56% of people said they were concerned about rising costs, financial losses, or health impacts from severe weather events or natural disasters. However, only 10% of these participants said they had discussed concerns with a financial professional.

“Extreme weather has the potential to erode wealth just as much as other risks to a retirement strategy such as inflation and increased medical costs,” said Lorinda Niemeyer, Head of Sustainability at Allianz Life.

It is important to have an emergency fund

According to the survey, climate change as a risk to retirement savings comes alongside concerns about taxes, debt or caregiving responsibilities.

However, the study showed that even among people whose finances were affected by extreme weather events, just over a third (36%) had taken into account the impact of extreme weather or natural disasters in their retirement planning.

People usually resist action until climate change affects them, “but we’re starting to see it impact more and more people,” said Peter Kroll, partner and director at Earth Equity Advisor.

Experts recommend keeping extra money in your emergency fund when preparing for natural disasters and severe weather events.

Justin Haywood, a CFP and president of Haywood Wealth Management, notes that Gulf Coast residents affected by tropical storms and hurricanes may need to hold extra money to prepare for unexpected expenses they may incur if they need to evacuate in an emergency.

“If you need to spend a few thousand dollars on a hotel room because you’re evicting, you want to have cash on hand and not have to raid your retirement fund,” Haywood says.

Home insurance costs are heavy

Extreme weather has made one cost skyrocket for homeowners — their home insurance bill.

According to Freddie Mac data, the average homeowner paid $1,522 for home insurance in 2023, up nearly 11% from the previous year but 40.8% higher than premiums in 2018. States vulnerable to natural disasters and weather events saw homeowners spending more to protect their homes.

This is because when insurers experience higher-than-expected claims, they suffer underwriting losses, a cost they then pass on to policyholders through higher premiums.

Kroll notes that homeowners in California, Florida and the Gulf Coast may see their insurance premiums rise or lose their insurance as insurers reevaluate climate risks. In California, some major insurance providers have stopped offering homeowners insurance to residents due to the risk of wildfires.

Haywood said some of his clients in Houston have noticed their home insurance costs rising, and he advises them to consider planning for increased inflation in their insurance rates.