The Top 10 Retiree Risks in Retirement

Mortality Risk If you die before life expectancy you won’t face the risks in retirement. But your spouse could feel more than just emotional distress at your passing, your dual income from Social Security will cease and your spouse will have one less tax exemption. Bottom line: there will be less income and maybe more tax on it. If both spouses are healthy, life insurance should be consideration for the survivor.

Market Risk, Withdrawal Rate Risk & Sequence of Return Risks If the history of the market has taught investors anything over the years, it’s that it has ups and downs. Many financial advisors show the famous Ibbotson mountain chart with its upward trajectory over the years. That’s OK during accumulation, but the math doesn’t work that way during distributions. The touted 4-percent withdrawal rate hasn’t worked well over the last decade. Most financial advisors have deserted it and are quoting a 2½ to 3% withdrawal rate just to be safe. If the premise of a safe withdrawal rate is based off of portfolio earnings from interest and dividends, it may not be enough to live on. Then it may be necessary to invade your portfolio principal to make up the short fall. And if the market experiences a downturn you could be in financial trouble. Bottom line: retirees will deplete their retirement resources well before their death. So part of your retirement income strategy should include guaranteed lifetime income you can never outlive.

Inflation Risk & Deflation Risk We’re living in the lowest interest rate environment in modern U.S. history. The government controls monetary policy with the Fed and the Treasury Department. The country’s enormous indebtedness and government pension obligations have keep interest rates artificially low. The printing of dollars could trigger inflation that could drive up the cost of necessities. Bottom line: inflation risk could erode the purchasing power of your retirement dollar. Part of your retirement plan should be in stocks as well as a guaranteed lifetime annuity with a cost-of-living adjustment rider.

Taxation Risk & Regulatory Risk The government has the power of taxation and regulatory change. Congress changed the file and suspend provision in Social Security after promising seniors in or near retirement that they wouldn’t be affected—but they were. So laws can change. But there are tax-advantaged products and strategies that can manage your taxes and leave you with more spendable net income. Bottom line: unless the vast population of the public engages in elections, the government will continue to control the rules and regulations, which could mean paying more taxes. As Americans we need to engage in the political process.

Medical Expenses & Long-Term Care Risk Medical expenses and assisted living during retirement are a given. Some financial advisors say that married retirees will pay around $220,000 during their retirement. Bottom line: retirement planning needs to have long-term care insurance, either in a traditional insurance policy or a hybrid insurance policy that provides elder care benefits. A good financial planner who understands these retirement challenges should be able to design an integrated retirement strategy that can prepare you for these risks in your elder years. For more information on how you can prepare to meet these challenges in retirement, just go to onthemoneynews.com and request you free information.

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