#Outside the Box: This heat wave is a retirement issue — 6 ways to build climate change into your retirement planning

Even the middle of the country is not immune: eight of the 10 costliest tornado events ever occurred in the last decade, and the frequency and intensity of devastating floods is increasing.

The climate crisis is no longer some theoretical future event, it’s a reality in our lives today.

Read: Biden announces increase in federal firefighter pay as heat wave grips the U.S.

While our elected leaders continue to debate the cause of the climate crisis and what must be done about it (or even whether it exists at all), we must all accept that climate change comes with real costs that we must bear, both collectively and individually. Anyone who doesn’t accept that, and therefore plan for it financially, is in for a nasty surprise.

Read: Portland and Seattle hit 100+ degrees — what’s a heat dome and how is climate change bringing these extremes?

The climate crisis and retirees

Whether you’re eyeing an early retirement in your 40s or 50s, or a traditional retirement in your 60s, odds are good that you’ll spend several decades in a world that’s hotter and more volatile than the world you’ve known for most of your life. An analysis by ProPublica and the New York Times Magazine found that much of the U.S. will be barely inhabitable within our lifetimes, writing, “between 2040 and 2060 extreme temperatures will become commonplace in the South and Southwest, with some counties in Arizona experiencing temperatures above 95 degrees for half the year.” But it’s not just heat. Humidity will also increase to unsafe levels across the entire South, and even in parts of the Southwest that have never known humidity before. Wildfires will become even more severe than they already are. And water shortages will become widespread and long-term across much of the country.

Retirees will be especially vulnerable to these changes, in part because many live on fixed incomes and have little flexibility to move or to pay for skyrocketing electricity bills, but even more because retirees tend to move to exactly the areas that are most likely to face the worst impacts of the climate crisis.

ProPublica’s analysis found that the counties facing the greatest economic losses from climate change as soon as 2040 are clustered in the retirement hotspots of the Gulf Coast, the Atlantic seaboard from the Carolinas down to Florida, and Arizona. That’s not surprising given all the near-term projections for sea level rise, in addition to worsening hurricanes, heat, and drought, and yet retirees continue to flock to these areas.

The economic impacts can take many forms besides the obvious things like losing a home built too close to the ocean or having to pay enormous bills for air-conditioning. A report by the Urban Institute found that natural disasters resulting from climate change negatively impact residents’ financial health in a broad range of ways, from increasing mortgage delinquency and foreclosures, to harming credit scores, to increasing bankruptcies. But as natural disasters become more frequent, and as communities are forced to consider drastic and costly measures like managed retreat, someone will have to bear those costs.

While the federal government will almost certainly have to pay for some of it, which we’ll all pay for through federal income tax, residents of the most affected states will see their taxes go up, something that will shock many retirees who’ve moved to those states exactly because of their low tax rates.

Even those who live far away from coastal areas will be affected, as increasing heat, drought, and flooding will lead to increased crop failures that force food prices higher, and with any number of more frequent natural disasters causing the types of inflationary events we’ve seen with the shipping disruptions during the COVID-19 pandemic. We all need to be prepared for everything to get more expensive long-term.

Building climate change into your financial plan

While most of the news around the climate crisis sounds dire, the good news is that there are several things you can do to put yourself in the best possible position to weather these literal and figurative storms. Being clear-eyed about what’s to come will make you far better off. Here are some things you can do:

Plan for lower returns. For decades, market investors have enjoyed returns far outpacing the overall growth of the economy, and that has to change for a number of reasons. First, higher inflation driven by climate change will erode real returns, lowering the value of your portfolio. Second, returns on individual stocks will decrease as companies like the fossil fuel giants are forced to change their ways and others experience higher costs and lower profits driven by the economic impacts of climate change. While the S&P 500’s
SPX,
+0.13%
average real returns after inflation have stayed between 6% and 7%, we should not rely on similar returns over the long run.

Plan for higher costs on everything. Crop failures, floods, droughts, supply chain disruptions, failing infrastructure like the roads buckling under the heat this week in the Pacific Northwest… all of these things and more will make everything costlier to produce and transport, and we must be prepared to pay the price. The same goes for taxes to pay for all the damage and rebuilding we can expect.

Avoid areas vulnerable to sea level rise, wildfire and unsafe heat. While property values are still strong in most coastal communities, in hilly and mountainous areas vulnerable to wildfire, and in the ever-warming Southwest, that will certainly change as those areas become unlivable. Avoid living in these areas, and if you can’t do that, rent rather than buying your home. We’ll almost certainly see more federal buyout programs popping up to pay people to move out of the most vulnerable areas, but given the scale of the impending disaster, your individual odds of securing a buyout are low. Meanwhile, insurance companies are regularly dropping homeowners’ policies in vulnerable areas because of the risk involved, a trend we should expect to accelerate.

Keep yourself well insured. – A shockingly low percentage of homeowners in low-lying coastal areas carry flood insurance, with the large majority putting themselves at high risk of financial ruin when (not if) a big flood comes. Don’t put yourself in this position. Carry solid insurance against the likely hazards in your area, be they floods, wildfires, or earthquakes, even if that insurance is expensive. If your budget can’t accommodate the insurance costs in a given area, that’s a good sign that you should look for somewhere else to live. And even with insurance, rebuilding after a natural disaster could still take years, which comes with its own costs, and insurance policies only cover rebuilding in the exact same place, not relocating to a safer spot, so you could find yourself covered in one disaster but still vulnerable to repeated disasters.

Seek out more climate resilient areas. While the majority of snowbirds who move to the warmer retiree hotspots are looking to escape cold northern locales, states like Minnesota actually have the best long-term forecast under climate resiliency models. Especially if you’re planning for an early retirement, and likely have many decades of life ahead of you, plan to live in areas that are still expected to have livable temperatures, adequate rainfall, and no threat from sea level rise for the long term. Natural disasters happen everywhere, but putting yourself in the most climate resilient location possible will increase your odds of staying safe long-term without the continued worry of losing your home or your loved ones.

Do what you can to stop contributing to climate change. Just as important as preparing your own finances is to face up to your contributions to the climate crisis. Americans and residents of other wealthy nations contribute far more to climate change per capita than do residents of poorer nations, and the richer you are, the more you contribute. We also know that older people tend to use more energy, making retirees among the worst offenders. Reducing your consumption is essential to reducing your climate impacts, from cutting down on how much energy you use to heat and cool your home, to reducing how much you travel, to cutting back on the unnecessary things you buy, and even to shrinking the amount of meat and out-of-season produce you eat. While it’s true that corporations are the biggest contributors to climate change, it’s also true that we as their customers are driving the demand for all those emissions. Cutting back on what you consume is both good for the climate and good for your own financial wellbeing.