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

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

A survey from Allianz Life, an insurance and annuities 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 those respondents said they had discussed the concerns with a financial professional.

“Extreme weather has the potential to erode wealth just like other risks to a retirement strategy like inflation and increasing medical costs,” said Lorinda Niemeyer, head of sustainability, Allianz Life.

Important to Have Emergency Fund

Climate change as a risk to retirement savings is right up there next to concerns over taxes, debt, or caregiving responsibilities, according to the survey.

However, even among people who have had their finances affected by extreme weather events, only slightly more than a third (36%) have factored in the impact of extreme weather or natural disasters into their retirement planning, the study showed.

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

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

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

Home Insurance Costs Weigh Heavy

Extreme weather has pushed up one cost significantly for homeowners—their home insurance bill.

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

That’s because when insurance companies face higher-than-expected claims, they suffer underwriting losses, a cost that they then pass on to policyholders via higher premiums.

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