Overspending, investing too cautiously, and deviating from your plan are some of the most typical pitfalls on the road to retirement. The good news is that they are simple to avoid with a little discipline and planning.
Other risks, such as a medical emergency or a market slump, cannot be avoided, but they may be managed. Here are four of the most prevalent threats to your retirement strategy, as well as strategies you may take to mitigate them.
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Outliving your money
Longevity (or outliving your assets) is most likely the most serious retirement danger. You may be able to retire earlier than you think thanks to medical improvements and a healthier lifestyle. You may even spend the same number of years in retirement as you did working. That is why it is critical to devise a strategy to ensure that your assets survive as long as you do.
Overspending is also a risk to one’s retirement. You must examine the rate at which you will withdraw and spend your money. During your retirement, or the distribution phase, you will most likely be taking income from the assets you are currently collecting. The rate at which you remove funds from your retirement savings will have a significant impact on whether you outlive your money.
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Volatility
The probability of investing losses is referred to as market risk. These losses can occur even in retirement, as retirees often require some money invested in the stock market to generate fair returns. However, there are a few techniques to reduce market risk.
To begin, you should maintain an adequate asset allocation and avoid investing too much of your nest egg in equities. To lessen the possibility of having to sell investments at a loss, you should also have enough liquid cash to cover two to five years of living needs.
You may also reduce market risk by developing a strong investing plan and diversifying your portfolio. Investing in index funds is a straightforward and easy method for many retirees to diversify, but skilled investors may frequently do well by buying individual stocks as well.
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Health Care
Unexpected and expensive health problems are referred to as health risks. Unfortunately, seniors are sure to experience some years of poor health, which will result in exorbitant medical costs, particularly for those who require long-term care. The best approach to reduce this risk is to receive regular preventative care, take actions to be healthy such as exercising and eating well, and factor in healthcare costs while making retirement savings objectives.
You should be well prepared if you can save in a health savings account or have a special investing account for healthcare bills. However, if you’ve already retired and have no savings set aside for medical expenses, make sure to shop carefully for insurance during Medicare open enrollment to select the coverage that best meets your needs. You might also look into obtaining long-term care insurance.
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Unexpected Death of a Spouse
Losing a spouse is heartbreaking no matter when it occurs. However, losing a spouse in the last years of their employment might jeopardize the surviving spouse’s financial strategy. Furthermore, without a partner to share expenditures and provide care, retirement and long-term care costs may rise. Depending on the pension benefits chosen, a surviving spouse’s pension may not be paid out in the case of his or her death. An early death may also reduce the surviving spouse’s spousal Social Security payments, leaving him or her with minimal income.
To avoid a setback if this catastrophe occurs, both spouses must be actively involved in the planning process. Consider providing benefits to the surviving spouse, such as life insurance, wills, trusts, and beneficiary designations should be evaluated to ensure that both spouses are financially safeguarded. You should also develop a pension and Social Security strategy to maximize the surviving spouse’s payout. Examine many possibilities to ensure that you are taken care of regardless of what happens.
It’s important to make sure you have enough money to cover all your expenses in retirement when you’re no longer working. Much of that planning should begin as early as possible since you’ll have several decades to build up your savings. But if you find yourself nearing retirement or already in retirement and you don’t feel too confident about your spending plan, you might consider speaking to a financial professional who can guide you down a more confident path.
Working with an experienced expert is the greatest approach to gain confidence on your retirement path. Lion’s Wealth Management would be happy to be that guide, with the ultimate objective of assisting you in building a more secure retirement. Our high-quality investment solutions, highly customized service, extensive planning, and impartial counsel can assist you in preparing for life’s expected and unforeseen events. Do you have a sound retirement plan in place yet? Or does your existing plan need a review?
The commentary presented herein contains the opinions of Lions Wealth Management, Inc., a State of Minnesota Registered Investment Advisor. This information should not be relied upon for tax purposes and is based upon sources believed to be reliable. No guarantee is made to the completeness or accuracy of this information. Lions Wealth Management, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions contained herein or their use, which do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes, and therefore are not an offer to buy or sell a security. Investments in securities are subject to investment risk, including possible loss of principal. Prices of securities may fluctuate from time to time and may even become valueless. This information has not been tailored to suit any individual.