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Don’t Overlook These 3 Retirement Risks

Filed under: Life Events, Managing Medical Costs, Retirement

Worried about your ability to retire comfortably? You’re not alone. According to a 2014 Gallup survey, 59 percent of Americans say they are either “very or moderately worried” about whether they will have enough money in retirement.1

In many cases, there may be good reason to be worried. A recent analysis of the Federal Reserve’s 2013 Survey of Consumer Finances found that the median working-age couple has only $5,000 saved for retirement. A whopping 70 percent of couples have less than $50,000 saved.2

Unfortunately, insufficient savings is a very real risk for many Americans. However, saving money isn’t the only retirement challenge. Even if you are a disciplined saver, there are still other risks that could cause serious financial difficulty in retirement if you’re not prepared.

Below are three common, but often overlooked, retirement risks. If you don’t have a plan to manage these risks, now may be the time to develop one.

 

Taxes

You may stop earning income when you retire, but that doesn’t mean you’ll stop paying taxes. A wide range of income sources in retirement can be taxable, including Social Security, pensions, distributions from qualified retirement plans, dividends, interest income and more.

In fact, depending on your level of income, you may not even see much of a drop in your tax bracket after you retire. Now is the time to estimate your projected retirement income and calculate your potential tax liability each year.

Too many retirees project their income without estimating taxes. They’re then left with far less take-home income than they had anticipated, severely impacting their budget and their ability to live a comfortable lifestyle.

Don’t make that mistake. Estimate your taxes and also look at ways to minimize your liability. Possible strategies could include converting to a Roth IRA, utilizing life insurance or considering other tax-advantaged investment vehicles.

 

Health Care Costs

According to a recent Fidelity study, the average 65-year-old couple retiring today will spend $245,000 out of pocket in retirement.3 Think that figure sounds high? Consider that it includes things like premiums, deductibles, copays and more. Those costs can add up quickly.

However, that number does not include long-term care, which can be costly and is sometimes needed for years, especially toward the end of life. Long-term care can drain your assets, deplete your legacy and possibly put your surviving spouse in a difficult financial situation.

Take action today to plan for health care costs. You may want to look at long-term care insurance. Also consider maximizing contributions to a health care savings account, which you can use to pay medical expenses in retirement. Finally, make an investment in your own health so you enter retirement in excellent physical condition.

 

Inflation

Do you remember what bread and milk prices were like 10, 20, or even 30 years ago? They were much lower than they are today. That increase is due to inflation, the gradual rising of prices on an annual basis.

Inflation is so corrosive because it often flies under the radar. If prices for groceries, clothing, gas and other goods increase by a few percent one year, you probably won’t notice. However, over a retirement that lasts decades, those slight increases can add up to a significant increase. Consider that inflation of only 3 percent per year would mean that prices would double in 24 years.

You can’t stop inflation, but you can prepare for it. You will likely need to keep expanding your assets and your income after you retire so you can keep up with inflation. Think twice about savings vehicles that offer little risk but also little return. Over time, they may limit your ability to keep up with rising prices.

For more information, contact us at Ambrose Financial & Insurance Services in Walnut Creek, California. We welcome an opportunity to consult with you, identify your retirement risks and develop an action plan. Let’s connect today.

 

1http://www.gallup.com/poll/168626/retirement-remains-americans-top-financial-worry.aspx

2http://www.marketwatch.com/story/the-typical-american-couple-has-only-5000-saved-for-retirement-2016-04-28

3https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-retirement-rise

 

Ambrose Financial and Insurance Services, LLC does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

15820 – 2016/6/20