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Six Risks in Retirement – and What You Can Do about Them
Whether you’ve been retired for a decade or have just blown out the candles on your “Happy Retirement” cake, it’s important to be aware of several risks that can derail your dreams and put your goals in jeopardy. Fortunately, there’s still time to change course even if your career is well in the rear-view. Here are six risks to plan for — and six ways to help make sure that they don’t de-rail your retirement.
1. Outliving Your Retirement Savings
Average life expectancy continues to increase year after year. In the grand scheme of things, this is very good news. (Great-grandchildren are a lot of fun, after all.) Yet in terms of your retirement, longevity is a “risk” you have to plan for. Depending on how old you are when you retire, you may need to prepare for 30 years beyond your working life. Do you have enough retirement savings to support yourself and your loved ones for that long?
All of the potential risk factors below hinge on the answer to that question. If the answer is anything but a resounding “Yes!” then you may want to consider an annuity, which can provide a set amount each month to ensure you never outlive your money. (Calculator: How Long Will My Retirement Savings Last?)
2. Falling Behind on Rising Expenses
It’s no secret that the price for everything from gasoline to a gallon of milk is on the rise. Cost of living — and its partner in crime, inflation — continue to increase. That’s a given. (Hey, there was a time when a “dollar matinee” was a popular way to spend the afternoon.) One expense to pay attention to is the inevitable jump of healthcare expenses. What you pay in terms of medical costs today will most likely rise significantly throughout your retirement.
When determining your annual living expenses, consider the potential costs of personal health aides and nursing care, not to mention more visits to your doctor and more prescriptions to fill. Nursing home facilities range from $3224 to $29,574 a month1. And while insurance or Medicare may pay for part of these costs, a large burden will fall on you.
Here is where an annuity’s guaranteed2 income can supplement your savings — from retirement day one to the end of your life or a period you choose. (Related: Does an Annuity Fit Your Retirement Goals?)
3. Taking Withdrawals in a Down Market
The unpredictability of the stock market poses perhaps the biggest danger to your retirement savings. Equity investments can provide significant upside potential to help you accumulate assets, but there are risks as well — especially in the first few years of your retirement. Taking distributions during a period of negative returns can have huge ramifications on your future income. So plan accordingly and protect yourself against market fluctuations in retirement.
4. Losing Steam in Your Investment Portfolio
The tried-and-true method of investing over time is to start aggressive when you’re young and then gradually become more conservative as you near retirement. While this is a sound approach, it’s now important to factor in longer lifespans. If you have 30 years of retirement on the horizon, you may want to include more growth funds into your portfolio. Many Financial Professionals will recommend a mix of equity investments that may gain value while helping to bolster your retirement income.
5. Singing the Retirement Blues
After working five days a week (and often more) for 40-plus years, you’ve earned some serious downtime. We all dream of what retirement could be — from lounging on a beach in Hawaii to living in a log cabin in Maine — but what will your day-to-day reality look like? (Calculator: What Will My Monthly Income Be in Retirement?)
Setting aside financial talk for a moment, consider the real risk of boredom in retirement. It may sound inane, but it’s a good idea to plan ahead to stay active. Pick up a new hobby. Volunteer in your community. Get more involved with your children and grandchildren. Keeping busy is a good way to stay happy during retirement.
6. Passing Away without a Plan
This retirement risk falls squarely onto your family’s shoulders. So be sure to plan ahead and take care of your surviving spouse and children when you’re gone. Keep in mind that while both members of a household receive social security, half of that income goes away when one dies. Income from an annuity could potentially cease, depending on your annuity option. Yet monthly expenses for groceries, mortgage and car payments continue on. One way to supplement the loss of income is through the death benefit of a life insurance policy, which can help your beneficiary pay off any large debts while also helping to make up the difference in lost income. (Calculator: How Much Insurance Do I Need?)
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