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4 Retirement Risks to Avoid

Filed under: Retirement

Happy senior man and woman couple dancing and holding hands on a deserted tropical beach at sunrise or sunset

People are living longer than ever now, and of course we consider that to be good news! But a longer life may also mean a longer retirement. With one in five of us living past age 90, sound financial planning should include the possibility of a 30-year (or longer) retirement. It’s important to remember that your retirement budget today may not cover your expenses ten or twenty years from now. As you plan for retirement, consider whether the following four risks could impact you.

Inflation. You probably aren’t too worried about the price of bananas today, as compared to last year at this time. If there has been an increase, it is small and you barely noticed it. But over time – say, 20 or 30 years – inflation has an enormous impact on the price of food, gas, health care, and other essentials. When you plan for retirement, keep in mind that the budget you plan today may have to cover your same expenses in 20 or 30 years!

Interest rates. If you’re heavily invested in bonds, then you probably know that our current low interest rates have boosted your bond values. But when interest rates rise, bond values usually fall. This is something to keep in mind for the future, because interest rates aren’t likely to stay this low forever. But there’s no need to panic; interest rates probably won’t see a huge, unpredictable jump overnight. Just be aware of the situation and talk with your financial advisor about the effects on your portfolio.

Stock market decline. If you’ve built a sizable retirement fund thanks to favorable stock market conditions, keep in mind that these conditions can and do change. What goes up must come down, as the old saying goes. As you shift into retirement, it is a good idea to reassess your risk tolerance. Consider moving more of your assets into less risky investment vehicles. But again, this is a situation to discuss with your financial advisor.

Your individual risk. One of your largest expenses in retirement is likely to be your health care. And with the cost of health care rapidly rising, we should all consider the impact on our retirement budgets. Your health can be unpredictable, so it’s best to have a back-up plan in case you need expensive long-term care or pricey prescriptions. Another factor to consider is the housing market. How much of your retirement plan relies on the value of your home? You probably face other unique risks, depending upon your own plan for retirement.

Remember, the take-home lesson is not that you should panic, but that you should plan for 20 to 30 years of retirement. Make sure you’ve considered all of the risks before you quit working, and meet with your financial advisor regularly to be sure your plans are on target with your financial capability.