7 Retirement Risks You Need To Prepare For


Published on

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

7 Retirement Risks You Need To Prepare For

  1. 1. 7 Retirement Risks You Need to Prepare For There are many things that could go wrong with even a carefully planned retirement. Inflation, running out of money, and future stock market slumps are possibilities that all retirement savers need to prepare for. A recent Society of Actuaries survey of 804 people ages 45 to 80 identified greatest retirement concerns. Here is how to make sure these common retirement worries don't become your reality. Inflation. Inflation is the number one fear of retirees, the survey, conducted by Mathew Greenwald and Associates and the Employee Benefit Research Institute, found. Some 58 percent workers approaching retirement and 71 percent of retirees are concerned that the value of their savings and investments may not keep pace with inflation. Social Security checks and some pension payments are adjusted for inflation. About a third of retirees in the survey delayed collecting Social Security in order to boost the amount of their checks later on in retirement. Other strategies the respondents, who were all born between 1929 and 1964, plan to use to beat inflation include investing some money in stocks or stock mutual funds (64 percent), real estate (43 percent), and annuities or other investment products that guarantee income for life (38 percent). Running out of money. Once you have accumulated a sizeable nest egg, it's your job to make sure it lasts the rest of your life - however long that may be. Many that are approaching retirement are concerned that they might deplete all of their savings too quickly (58 percent). And it's not just your own lifetime you need to plan for. Many married retirees (43 percent) are also worried about maintaining a spouse's standard of living after their death. Retirement savers are trying to protect themselves from depleting their nest egg too quickly by paying off debt, ramping up savings, and reducing spending. Many of the survey respondents approaching retirement also plan to pay off their mortgage as soon as possible (80 percent). However, only 48 percent of retirees in the survey have completely paid off their mortgage. Some retirees (6 percent) also tapped their home equity as a last resort to finance retirement. Stock market slumps. Investment losses can be especially traumatic after retirement. Many retirement savers dial down the risk in their portfolio in the years leading up to and immediately after retirement. Approximately 65 percent of those planning to retire soon and 58 percent of retirees have moved or plan to move their assets into increasingly conservative investments as they get older. It is also important to keep an emergency fund and several years worth of living expenses out of the stock market, so riskier assets have time to weather
  2. 2. any market conditions. Many survey respondents also expressed concern that their retirement income will vary based on changes in interest rates. Health expenses. About half of retirees (49 percent) and two-thirds of workers nearing retirement (67 percent) worry about having enough money to pay for adequate health care. Signing up for Medicare beginning three months before your 65th birthday is a good start. To help pay for some of the services Medicare does not completely cover, most retirees (76 percent) also say they have purchased health insurance to supplement Medicare or participate in an employer-sponsored retiree health plan. Many retirees are also report they are trying to maintain a healthy lifestyle including a proper diet, regular exercise, and preventative care. Long-term care costs. Almost half of retirees are concerned about having enough money to pay for extended care at home or in a nursing home (46 percent). Older people are more likely to try to save for long-term care costs than to purchase insurance. Almost half (47 percent) of retirees say they are either currently saving or intend to save for long-term care expenses or other health costs, while 35 percent have purchased long-term care insurance. Only about 15 percent of retirees have made or intend to make arrangements for care through a continuing care retirement community. Drawing down assets too quickly. Retirees need to create a plan to spend their nest egg after retirement. Strategies for drawing down retirement assets reported in the survey include setting up regular withdrawals from investment accounts, spending only the interest and dividends earned each month, and using savings only for emergencies or major expenses. Retiring too young. The majority of retirees surveyed (80 percent) left the workforce before the age of 65 and 28 percent retired before the age of 55. But many of the retirees say they wish they hadn't retired so young. Half of the retirees report that a three-year delay in retirement would have made their retirement finances more secure. Delaying retirement would have allowed them to get increased payments from Social Security (66 percent), have more time to make contributions and earn money on investments (59 percent), and to qualify for increased monthly pension payments (63 percent). Half of those approaching retirement say they expect to retire at age 65 or later
  3. 3. The 30 Fastest-Growing Occupations for Older Workers Projected job growth 2008-2018 Career (in thousands) Primary, secondary, and special education teachers 647.3 Registered nurses 581.5 Home health aides 460.9 Personal and home care aides 375.8 Nursing aides, orderlies, and attendants 276 Medical assistants 163.9 Licensed practical and vocational nurses 155.6 Business operations specialists 147.2 General and operations managers 143.2 Child care workers 142.1 Teacher assistants 134.9 Receptionists and information clerks 132.7 Medical and health service managers 100.8 Clergy 85.1 Social and human service assistants 79.4 Maids and housekeeping cleaners 78.6 Educational, vocational, and school counselors 73.3 Computer support specialists 64 Office clerks 60.8 Managers 57.6 Social and community service managers 57 Mental health and substance abuse social workers 56.4 Accountants and auditors 55.6 Rehabilitation counselors 54.2 Medical and public health social workers 53.9 Bookkeeping, accounting, and auditing clerks 52.3 Administrative services managers 52.2 Lawyers 52.0 Computer systems analysts 50.1 Human resources, training, and labor relations 49.1
  4. 4. specialists 21 Ways to Reduce Your Retirement Expenses Few people are saving enough to finance a retirement that could last 30 years or more. Workers who haven't accumulated enough to maintain their current standard of living have two choices: delay retirement or learn to live on less money. Those willing to put in a little effort to downsize big and small expenses may be able to get by just fine with a smaller retirement stash. Here are some frugal strategies retirees can employ to stretch their nest eggs: Downsize your home. Once your kids move out of the house, you no longer need a multiple-bedroom home near a good school district. "It's not just the mortgage but all the maintenance," says Jane Young, a certified financial planner for Pinnacle Financial Concepts in Colorado Springs, Colo. "A lot of people like to move into a townhouse where they no longer have to take care of a huge yard." Consider downsizing to a smaller home or condo and padding your nest egg with the extra income. Ditch a vehicle. Eliminating a daily commute is one of the biggest perks of retirement. Couples may no longer need two vehicles when they don't travel to separate offices. Ditching a car also will cut your insurance and car maintenance bills. Some retirees who can't or don't want to drive can even go carless. Take required minimum distributions. Those ages 70½ or older must take required minimum distributions from retirement accounts each year. The withdrawal amount is calculated by dividing your individual retirement account and 401(k) balances by your life expectancy, as determined by the Internal Revenue Service. The penalty for failing to take out the correct amount from your retirement accounts is steep: a 50 percent tax penalty, plus income tax on the amount that should have been withdrawn. Spend taxable accounts first. You don't have to pay income tax on the money in your 401(k)'s and IRAs until the money is withdrawn. But many types of gains outside retirement accounts are taxed each year. Minimize your tax bill by spending money outside your retirement accounts first. Also, consider strategically spacing your retirement account withdrawals throughout retirement to control your tax burden. Scrutinize investment fees. Fees and expenses diminish investment returns. Even after you retire, it can pay off to seek out investment options with lower expense ratios and fewer fees. "A lot of times index fund expenses are every low—half of 1 percent," says Robert Krakower, a certified financial planner in Huntington Beach, Calif., and author of Redefining Retirement for a New Generation. "If you have a mutual fund that is changing you 2 percent, try to narrow your
  5. 5. expenses." Also, take care to avoid banking fees in general, including trading fees and ATM or overdraft charges on your checking account. Sign up for Medicare on time. Seniors can sign up for Medicare during a seven-month period beginning three months before their 65th birthday. Fill out an application right away to avoid a Medicare Part B premium increase of 10 percent for each 12-month period of delayed enrollment. Seniors who are still working and receive health insurance through their employer after age 65 need to enroll within eight months of leaving the job to avoid the penalty. Find the best Medicare Part D prescription drug plan. Every year the premiums, deductibles, and cost-sharing provisions of Medicare Part D prescription drug plans change. Retirees should go to medicare.gov and compare expected out-of-pocket costs for necessary drugs under all the plans available in their area. Seniors can switch plans once a year during the open enrollment period. Delay signing up for Social Security. Workers may sign up for Social Security benefits beginning at age 62. But benefit checks are reduced by 20 to 30 percent for workers who claim their checks before what the Social Security Administration calls the full retirement age. Soon-to-be retirees born between 1943 and 1954 must wait until age 66 to claim their full entitlement.