Thinking about retiring? Know the potential challenges.

Jul 25, 2013 4:26:03 PM / by Jason Shaw

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Are you thinking about retiring? Even with careful planning, the road to a successful retirement is fraught with challenges.  You may create a retirement plan that provides what seems like a comfortable income for several years, but it still may fall far short of your actual financial needs.  To give yourself the best possible chance at a comfortable retirement, be sure to plan for these obstacles that can put your retirement at risk.

Longevity Risk

Most people are aware that there is a risk that they will outlive their funds.  This is the greatest fear that most retirees express about their retirement plans.  As medicine advances and lifespans increase, investors must plan for longer-term income to ensure that they can live out their lives comfortably.  Speak with one of our professionals about how you can get the best possible use out of your assets throughout your lifetime.

Inflation Risk

Over time, dollars purchase less and less.  On average, one can expect to spend about 25-30 years in retirement.  Even if you plan for a consistent income throughout that time, bear in mind that it will become less sufficient as the years progress.  Can you remember what a gallon of gas, a new car, or a bag of groceries cost 25 years ago?  If so, you will understand how crucial it is to factor inflation into your planning.  According to the US Department of Labor Bureau of Labor and Statistics, inflation over the past 25-30 years has cut buying power roughly in half (http://www.bls.gov/data/inflation_calculator.htm).  Our professional advisors can help you get an idea of what kind of buying power you can reasonably expect out of your projected retirement income.

Volatility Risk

The impact of your distributions will change depending on current market conditions.  During a down market, distributions will be a greater percentage of the total portfolio, which can cause your nest egg to dwindle more rapidly than you might have anticipated.  Speak with a professional to get an informed picture of the risk market volatility poses to your portfolio.

Flexibility Risk

It is important to expect the unexpected.  Avoid locking yourself into a rigid budget.  Invariably, life will periodically present you with unanticipated expenses.  When you need a new roof or repairs to your vehicle, for example, your plan will need to accommodate these costs.  Build sufficient flexibility into your budget to ensure that life’s little surprises don’t derail your plan.

Behavioral Risk

Although we would all like to think we are rational decision makers, the fact is that everyone is susceptible to emotional influences that cause short-term decision making to override long-term plans.  It is important to understand this risk and realistically evaluate the impact may have on your plan.  Anticipate the impulse to change course and be clear about why it is important to stick to your plan.  Regular consultation with a professional financial advisor will help you make reasoned decisions by providing you with clear, unbiased information about your investment choices.

 

Contact our Des Moines office to meet with one of our financial professionals.  We can help you manage these risks so you can live comfortably throughout your retirement.

 

Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.

Topics: Retirement

Written by Jason Shaw