From the risks of outliving your assets to investment risks, health and aging risks and beyond, there are a lot of things to think through and plan for in retirement. It can seem overwhelming trying to address these issues as you also plan to shift from accumulating wealth during your working years to spending down those assets during your retirement years.
Working with a trusted financial professional to create a clearly defined financial strategy can help guide you through retirement’s potential challenges and changes.
The good news is that you don’t have to go at it alone. Working with a trusted financial professional to create a clearly defined financial strategy can help guide you through retirement’s potential challenges and changes.
A professional from the Retirement HQ network of advisors and agents can help you think through all the “what-ifs” of your unique situation to develop a well-thought-out strategy to keep you on track to fulfilling your goals. This takes specialized management know-how and training, and the financial and insurance professionals in our network can help you develop a strategy to address these risks more effectively.
What’s the problem with living longer?
Life expectancy in the United States is at an all-time high, and that’s a great thing. However, for those who are planning for their retirement income, it can also be an added source of concern. With those extra years comes the increased potential of outliving your resources.
The good news is that the risk of outliving your income is something that can be managed. Thinking through all the scenarios — including how you’ll afford a longer lifetime, preparing for the effects of inflation on your savings and then planning for how you’ll draw down that income in a way to ensure you don’t take too much too soon — can be crucial to a successful retirement strategy.
One of the things you’ll need to think through is how you’ll prepare for the potential of higher health care costs as you age. What if you incur more health care costs than expected or require long-term care (such as assisted living, in-home nursing, etc.), and lack adequate insurance to cover those costs? Home health care can cost more than $42,000 per year,1 and nursing home care can run as high as $91,250 per year.2 It’s a good idea to plan for these expenses as well as think through what will happen to you if you are no longer able to manage your finances or household.
Are you living with too much risk?
How much would the value of your nest egg decrease if we experienced similar market losses to what happened in 2008? If you’re diversified and not yet retired, you may still have some time to make up those losses. However, if you’re already retired, negative returns on investments may damage your ability to draw an adequate level of income when you need it later.
Fluctuating interest rates may also pose risk to the value of your investments. That’s why diversifying your retirement assets among a variety of vehicles — including a mix of both insurance products and investments, depending on what is appropriate for your situation — may help you meet your retirement goals. It may also provide you with access to cash in the case of an unexpected expense.
Thinking through the not-so-obvious risks
We all know we have to prepare for the unexpected as we plan for retirement, but sometimes that’s easier said than done. It can be difficult to think through all of the scenarios that may affect your retirement income, particularly when it involves delving into emotionally painful territory.
For instance, have you thought through what would happen if health or some other issue forced you or your spouse to retire before you hit your retirement savings goals? Or what if the part-time work you had planned on to help with expenses in retirement doesn’t materialize? Having a “plan b” is always a good idea.
It’s painful to think about losing someone you love, but you need to consider what would happen to you financially if you lost your spouse. Or, what if you are asked to tap into your retirement savings to pay for an aging parent’s medical care? These scenarios are often difficult to anticipate or think about, but giving thought to your options ahead of time can make a difficult situation just a little less stressful for everyone involved if the time ever comes.
Here are a few other risks you may not have thought of, but that you could potentially face in retirement:
- Timing risk: What if something out of your control, such as a sharp stock market downturn, occurs just as your planning to sell a portion of your stock portfolio?
- Public policy risk: What if during your retirement the federal government implements new tax policies that impact you unfavorably, or policies that significantly curb your Social Security benefits?
- Institutional or custodial risk: What if the institution (like a bank, pension fund, insurance company, etc.) holding your money or other assets goes under?
These are just some of the potential risks that you might encounter as you go through retirement. While some of these risks may be out of your control, it is still a good idea to think through how you would approach each scenario to be prepared.*
Not all RHQ advisors are licensed to sell both insurance and securities. If meeting with a dually licensed advisor is important to you, make sure you indicate that to your RHQ representative.
1Genworth Financial. March 20, 2015. “Genworth 2015 Cost of Care Survey.” https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/130568_040115_gnw.pdf. Accessed March 25, 2016.
* David Littell. The American College of Financial Services. 2014. “Retirement Risk Solutions.” theamericancollege.edu. Accessed Feb. 3, 2016.
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