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Thought Leadership in Action

How Climate Change Will Impact Retirement

There’s no doubt that changes in the climate can have immediate economic effects, from rising fuel and food prices to product availability and demand. The long-term effects of climate risk should also concern retirees and everyone working toward retirement. A Washington Post analysis of federal disaster declarations found that over 40% of Americans live in counties hit by climate disasters in 2021. Climate change can also contribute to higher expenses and adverse health effects such as asthma and heat-related illnesses, all of which can affect retirement planning.  

How can climate risk affect financial planning? Budgets, a primary concern for retirees, can be drastically affected by environmental events. Changes in a location’s average temperature or an increased risk of extreme conditions can create additional home expenses, such as repairs or more stringent insurance requirements.

Retirement locations can also be affected by climate change. Many retirees choose to relocate to areas like Florida and Texas for retirement, but these states are also some of the most susceptible to climate risk. Extreme weather conditions have caused catastrophic damage in both states, and those considering retirement in these areas should consider the risk carefully. “People talk to financial planners about longevity’s impact on their retirement, but they seldom ask how climate change might affect the place they hope to retire to in 15 or 20 years,” Mick Smyer, founder and CEO of Growing Greener, explained to U.S. News and World Report


Planning for Climate Risk

          While addressing climate change globally requires a collaborative effort, individuals can still analyze its potential impact on their lives and address it in their financial planning.

            One way people can prepare is to do some soul-searching, say actuary Steve Vernon and retired AARP executive Harry R. Moody of MarketWatch. Start by having your clients envision the ideal future retirement experience and what it will take to get there. What’s an average day like? What’s the ideal location, and what changes do they anticipate making between now and then?

Once you and your clients have a vision of the ideal retirement experiences, start focusing on whether expenses are likely to outpace income. The typical retiree can expect significantly lower income compared with their working years. Having them first reflect on the most critical priorities can help reduce unnecessary costs. Housing costs are often the most significant retirement expense, but housing can also affect comfort, safety and general quality of life.

While some may choose to retain their current home during retirement, others may downsize to lower expenses, maintenance, and personal effort. Advise your clients to consider how retirement location ⁠— and the climate risk in that region ⁠— can affect the costs associated with other living expenses such as transportation, food and entertainment.

Win-win strategies exist for clients working toward retirement but looking for ways to plan ahead while supporting positive change. These balance returns with the planet, such as environmental, social and governance investing, socially responsible investing and impact investing. These approaches focus on investing in solid assets while considering climate impact.


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