How Extreme Weather Could Affect Your Retirement Savings: Are You Prepared?

• One in four Americans said in a recent survey that loss of insurance, risks of rising costs or damage from natural disasters were among the top risks to their retirement income.

• More than half (56%) feel anxiety about how extreme weather could affect their finances or health, but only 10% of them have discussed their concerns with a financial professional, according to the Allianz Life survey.

• Only just over a third (36%) of respondents who have faced extreme weather events have considered the implications of extreme weather in their retirement planning.
  

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

A survey by Allianz Life, an insurance and annuity provider, found that 56% of people said they had anxiety about rising costs, financial losses or health effects from extreme weather events or natural disasters. However, only 10% of respondents said they had discussed their concerns with a financial professional.

“Extreme weather has the potential to erode wealth as do other risks to a retirement strategy, such as inflation and rising medical costs,” said Lorinda Niemeyer, chief sustainability officer at Allianz Life.

According to the survey, climate change as a risk to retirement savings is on par with concerns about taxes, debt or caring responsibilities.

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

Peter Krull, partner and director at Earth Equity Advisor, said people typically resist any action until climate change affects them, “but we’re starting to see that it’s affecting more and more people.”

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

Justin Haywood, CFP and president of Haywood Wealth Management, notes that Gulf Coast residents who are affected by tropical storms and hurricanes may need to set aside 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 were evacuated, you want to have cash on hand and not have to raid your retirement fund,” Haywood says.

Extreme weather has significantly increased one cost for homeowners: their home insurance bill.

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

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

Krull notes that homeowners in California, Florida and the Gulf Coast could see their premiums rise or even lose their insurance as insurers reassess 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 have increased, and he advises them to consider planning for a higher inflation rate on their insurance rates.

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