Retirement Risks and How to Prepare

3/29/2024 8:00:00 AM

An elderly couple staring at a tablet while seated at a table in their home.

As you near retirement, you can start looking ahead to a well-earned and relaxing next chapter of your life. After spending years diligently saving and preparing, you can finally enjoy the retirement you’ve worked so hard to achieve.

However, even as you transition from your working years to being retired, there are a number of risks that could pose a threat to your retirement portfolio. Longevity, inflation, improper portfolio allocations and more all require vigilance and thorough planning to make sure that you’re prepared as you enter your retirement years.

Longevity: The risk of outliving your portfolio can be a concern for retirees. According to the Centers for Disease Control and Prevention (CDC), Americans are living longer than ever. While that’s obviously a good thing, it also means that you could spend 20 years or more in retirement. Making careful and realistic estimates about your life expectancy will be necessary to make sure your portfolio is prepared for a long time horizon.

Portfolio allocation risk: During periods of market volatility, portfolio values can fluctuate both up and down. Although this isn’t as much of a concern during your working years, major market drops or corrections occurring early in retirement could severely impact your savings. If your portfolio is weighted too heavily toward stocks, it could be unable to provide the necessary income for your desired lifestyle, or simply deplete too soon. That makes it crucial to have the right asset allocation mix along with diversified income sources.

Inflation: When inflation is high, goods and services cost more, and your money doesn’t go as far – effectively eroding the value of your savings. High inflation can be challenging for anyone, but it is an especially significant obstacle when you’re retired and living on a fixed income. You can’t predict where inflation will be when you retire, but you can account for potential increases as you plan for retirement.

Health care costs: According to the Bureau of Labor Statistics, the cost of medical and health care expenses has risen faster in recent years than other areas. That’s a concern, because as Americans live longer, they’re more likely to face costly medical issues or need expensive long-term care in retirement. Planning ahead for these costs, purchasing long-term care insurance and using a tax-advantaged health savings account (HSA) are all ways you can prepare.

Having enough money: There’s no specific figure for how much money you’ll need in retirement – some people may be able to live on less, while others may need more. One commonly cited guideline says you’ll likely need between 70-80 percent of your pre-retirement income, but that will depend on your desired lifestyle. Do you hope to travel? Do you see yourself keeping more than one home? As you approach retirement, it will be important to answer those types of questions and assess your essential vs. lifestyle retirement expenses.

Withdrawal risks: How long your portfolio will last in retirement can also depend on how quickly you draw it down. You need to start taking required minimum distributions (RMDs) from your tax-deferred accounts, such as IRAs or 401(k)s, starting at age 73 (age 75 if you were born after 1959), and it will be important to determine a withdrawal strategy that’s appropriate for your situation and portfolio. Income sources: Potential problems with government and employer sources of retirement income should also be a concern for retirees. Social Security and Medicare face an uncertain future and may be forced to reduce benefits over time, while pension plans may default or reduce benefits to those already in retirement. Designing a retirement portfolio that can provide multiple sources of income can help mitigate this concern.

Careful planning is required

Because of these and other risks to your retirement, thorough planning is crucial to make sure that your portfolio is as prepared as possible for whatever the future brings. Bell Bank Wealth Management can help you develop a comprehensive and effective retirement plan – contact us today to start the conversation.

Mary Locken

fargo, ND

Mary Locken

SVP/Wealth & Fiduciary Division Manager

701-451-3084 | mlocken@bell.bank

Brooks Bollinger

Minneapolis/St. Paul, MN

Brooks Bollinger

SVP/Twin Cities Wealth Management Director

952-905-5063 | bbollinger@bell.bank

James Dufresne

Phoenix, AZ

James Dufresne

VP/Senior Wealth Advisor

480-909-3974 | jdufresne@bell.bank

Investing and wealth management products are: Not FDIC Insured | No Bank Guarantee | May Lose Value | Not A Deposit | Not Insured by Any Federal Government Agency

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