Hearing the word “retirement” can conjure up many emotions: excitement, joy, and even anxiety or nervousness. Retirement is an amazing accomplishment, but making sure you’re ready for it can be overwhelming, especially if you look at all the unknowns. Thankfully, there are ways to plan for many of the risks and headaches that retirement brings. Let’s look at some retirement planning challenges so you can feel empowered to prevent or work through them.
The Asset Allocation Question
At retirement, the last thing you want to experience is losing a large portion of your investments due to a misallocated portfolio. It’s important to make sure your assets are handled carefully to make sure you have money for the long haul.
That’s why it’s crucial for your money to be allocated based on your age, time horizon, and personal risk tolerance. Someone who is 20 years away from retirement and okay with losing 15% of their money is going to have a portfolio that looks very different from someone who is retiring in 5 years and isn’t willing to lose more than 8% of their savings. A financial professional can walk you through the process of determining exactly what level of risk you want to take and can afford to take, how much liquidity you need, and help you design a portfolio customized to your needs.
The Reality Of Inflation
Inflation is a reality; not planning for inflation is the risk. Social Security factors in inflation through the Cost of Living Adjustment (COLA) and will adjust based on your working years, but how can you protect your other assets? There are many ways to reduce the risk of inflation, such as diversifying your assets appropriately to strike a balance between principal protection and growth or making a conservative withdrawal plan that accounts for inflation surges in the future. The best way to prepare for the impact of inflation on your retirement savings is to plan for multiple scenarios, seeing how your nest egg will hold up under different circumstances.
For example, healthcare inflation tends to be higher than general inflation rates. (1) If you end up having higher healthcare expenses in your latter years, your savings could decrease quicker than you expected. Preparing for this contingency by saving more, spending less, and reworking your retirement budget could go a long way towards protecting your hard-earned money.
Outliving Your Savings
Perhaps one of the most overlooked items in a retirement plan is your income plan, or lack thereof. We work so hard to get to retirement that we forget to make a plan for how to handle our money after. Think of it this way: When you climb a mountain, you spend the bulk of your time preparing and strategizing for how you will get to the top (in this case, retirement). But once you’re up there, you realize you didn’t plan for the descent (withdrawing your money in retirement) and are not sure if you will make it to the bottom safely.
Having your money last as long as you do requires extensive planning to create a concrete income strategy that is designed to act as a personal pension. This is based on your needs, wants, savings goals, and unique lifestyle factors, which means a cookie-cutter strategy or withdrawal rate won’t give you the security you desire. A financial professional familiar with your situation can help you retire and stay that way!
Don’t Let These Risks Get You Down
Retirement is an incredible time of life, one that you’ve worked hard for and deserve. That’s why it’s so important to do more than just save and invest; you need to look at the big picture and prepare for the many variables that could come up. If that sounds overwhelming, don’t fear! That’s what we do best at D. Bryant Retirement Strategies.
If you are looking for effective strategies for the financial challenges you face in your everyday life, we’d love to walk with you and help you take care of the intricacies of retirement planning. Contact us for a complimentary consultation by calling me at (402) 932-2141 or emailing email@example.com.
Darrell Bryant, CFS®, CAS® is Omaha’s Retirement Strategist. As the founder of D. Bryant Retirement Strategies, he focuses on helping individuals and couples nearing retirement do so successfully. Along with more than 30 years of experience, he received the Certified Fund Specialist (CFS®) designation and a Certified Annuity Specialist (CAS®) designation from the Institute of Business & Finance. Passionate about helping as many people as possible in his community, he hosts Retirement Strategies Radio, heard Saturday mornings at 8:00 a.m. on 1110 KFAB. He has also written articles on financial planning that have been featured on Fortune.com, FoxBusiness.com, Money.com, and in the Midland Business Journal. To learn more, visit his blog, his website, or connect with him on LinkedIn.