How to Mitigate Retirement Challenges

1. Outliving Your Money

Thanks to medical advancements and healthier lifestyles, life expectancy has increased. It's crucial to plan for a longer retirement to avoid outliving your resources.

There are a variety of strategies that can be employed to ensure income well into a retiree’s golden years. For example, annuities could be an option for some clients, as some offer regular lifetime income.

In some cases, we may recommend that a person approaching retirement age delays taking Social Security, as waiting increases monthly payouts by 8% annually up until age 70. Additionally, if you are earning the most money of your career ahead of retirement (as many are), it may be even smarter to wait to take Social Security benefits, as your monthly payout is based on your 35 highest-earning years, adjusted for inflation. Once an American hits 35 years of employment, the annual earnings for every additional year of employment can cancel out a year of lower annual earnings.

‍

2. Rising Medical Expenses

With more Americans living longer, demand for health care services and long-term care providers has increased — and so have associated costs. Higher costs are expected to continue, and planning for these expenses is essential. Long-term care insurance and Health Savings Accounts (HSAs) are just two options that can provide financial security and ensure that health care costs do not deplete your retirement savings.

As noted above, retirement planning involves anticipating and strategizing for these risks to secure a stable and comfortable retirement. We are here to help you do just that.

‍

3. Changes in Markets

Market volatility is an inevitable part of investing, especially challenging when you're nearing or in retirement. That is why, in many cases, the risk level of a portfolio decreases with age. When you’re younger, your portfolio tends to be riskier, with more opportunity for reward, because you have time to make up for any losses. When you’re older, your portfolio tends to have less risk but also less of a chance of outsized returns. This approach can offer key protection against market volatility in later years.

The chief concern I hear from pre-retirees and newer retirees is that they need to substantially reduce the risk in their portfolio. However, as medical and technological advances lead to increased longevity, long-held philosophies about when to shift portfolios to a more conservative allocation need to be evaluated to ensure that the risk/reward level is appropriate and accounts for the possibility of living longer than our parents and grandparents. While someone today who is 65 years old and retiring may be in the financial position to do so now, if they fail to take the appropriate amount of risk (Think “Goldilocks” here… not too little, not too much) there is a distinct possibility that their good health later in life could lead to a financial emergency. The last thing anyone wants is to find out decades into retirement, when re-entering the workforce is likely not an option, that they are faced with the scenario where they could deplete their retirement savings in their lifetime.

‍

4. Inflation

On the subject of inflation, maintaining a balanced exposure to growth-oriented investments like stocks is vital to keep up with inflation and preserve purchasing power. There are also other vehicles and strategies that can hedge against inflation, such as Treasury Inflation-Protected Securities (TIPS), which adjust returns based on inflation rates and bond laddering which is a strategy where we buy bonds with staggered maturity dates, so that you regularly have cash to reinvest or use; reducing interest rate (inflation) risk.

If you’re interested in learning more, have had recent life changes, or if you would like to talk through any specific questions or concerns, know we are just an email or phone call away. Please reach out to our team with any questions or for financial advice. We are always here to help.

‍