Watch Out for these 3 Financial Risks in Retirement

Watch out for these retirement risks

Retirement is supposed to be about enjoying the good things in life. It’s a time to travel, pursue a favorite hobby, and spend time with family. After all, you’ve worked hard for decades to accumulate assets. Retirement is your time to enjoy the fruits of your labor.

Of course, saving money and getting to retirement is only half the battle. After you leave the working world, you will still face risks that could threaten your financial stability. Without a plan to manage those risks, your retirement may not be as comfortable as you would like.

Many retirees associate the word risk with market volatility. It’s true that market performance could threaten your assets in retirement. However, risk isn’t all about investments. There are a broad range of risks that could impact your financial stability.

Below are three such risks to consider as you enter retirement. If you don’t have a strategy to manage these risks, now may be the time to develop one.

1. Inflation

Inflation is easy to overlook, but it’s too important to ignore. Inflation is the gradual increase in the prices of goods and services from year to year. It’s driven by a number of factors, including costs of materials and labor, interest rates, and economic conditions.

There are very few costs that aren’t impacted by inflation. Everything from groceries to clothing to utilities to health care are usually affected by inflation over time. Some cost areas, like health care, may see higher inflation rates than other expenses.

While inflation is usually modest on an annual basis, it can have a significant impact over time. Consider that just a 3 percent average annual inflation rate would lead to a doubling in prices over a 24-year period. If you retire in your mid-60s, it’s very possible that you could be retired for 20 years or more. Could your budget withstand a doubling in prices?

Develop a retirement strategy that allows your income to increase through retirement. For instance, resist the urge to become so conservative with your investments that you eliminate all growth potential. You will likely need some growth to increase your income.

Also, consider delaying Social Security to increase your benefit. While you can first file at age 62, you may want to wait until your full retirement age or beyond to start receiving payments. The longer you wait, the higher your benefit will be.

2. Health Care Costs

Think Medicare will cover all your health care expenses in retirement? Think again. According to Fidelity, the average 65-year-old couple can expect to pay $260,000 out-of-pocket in retirement on things like deductibles, premiums, copays, and more. Medicare is a helpful resource, but it usually only covers a portion of your medical bills. There are some services that Medicare doesn’t cover at all.

That Fidelity estimate doesn’t even include the costs for long-term care, which is extended assistance for daily living activities like eating, dressing, and mobility. The U.S. Department of Health and Human Services estimates that 70 percent of retirees will need long-term care at some point. The cost for care, whether provided in your home or a facility, can often be thousands of dollars per month.

Again, make sure health care spending is a part of your retirement strategy. Consider maximizing contributions to a health savings account (HSA) so you can take advantage of tax-favored dollars to pay medical bills. Also, think about long-term care insurance as a protection against assistance costs.

3. Market Volatility

While you need some growth to offset inflation and to fund your lifestyle in retirement, it may be difficult to achieve growth without taking risk. Return and risk often go hand in hand. The investment vehicles that offer the most growth potential often have the highest level of volatility.

In retirement, volatility can be difficult challenge. A market downturn could threaten your income, which could limit your ability to support yourself. If the downturn is extended, there’s a risk that you could run out of money.

Fortunately, there are steps you can take to protect yourself. Annuities offer several protection strategies. You could use an immediate annuity to create guaranteed lifetime income that isn’t impacted by market volatility. These tools allow you to create your own personal lifetime pension, so you can be confident that you will always have a base level of income.

You could also use a deferred annuity to minimize downside risk. Fixed annuities and fixed indexed annuities offer growth potential with principal guarantees. That means you can earn interest on your funds without risk of loss. An annuity could make sense as part of your risk management strategy.

Ready to develop a plan for these risks and more? Contact us today at America’s Annuity. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation