5 Retirement Risks and How to Manage Them
Retiring can be risky business. The Society of Actuaries, a group of professionals who evaluate risk for a living, recently named inflation the top retirement concern among both retirees and people nearing retirement age, according to a survey released this week.
About 57 percent of those already retired and 63 percent of those near retirement age said they were concerned that the value of their savings wouldn't keep pace with inflation, the telephone survey of 801 adults ages 45 to 80 found.
The Society of Actuaries also offered advice for dealing with the top retirement risks. Here's a summary:
Inflation. Between 1980 and 2007, U.S. inflation averaged 3.5 percent a year, ranging from 1.1 to 8.9 percent. And yet most retirees have only one source of inflation-adjusted income: Social Security. Time-tested strategies to beat inflation include investing in stocks and stock-based mutual funds, owning a home and other assets, holding TIPS (Treasury inflation-protected securities), buying annuity products that offer a cost-of-living adjustment, and delaying tapping your retirement assets for as long as possible.
Outliving your assets. A 65-year-old American man can expect to live 17 years on average, while a woman the same age can expect to live 20 years. Fully 30 percent of women and 20 percent of men can expect to reach age 90. Defined-benefit pension plans, Social Security, investments that preserve principal, and deferred annuities that commence at high ages, such as 75 or 80, can all help protect assets.
Loss of a spouse. Women have longer life expectancies and tend to marry men who are older than them, so a widowhood period of 15 years or more is not uncommon. The death of a breadwinner spouse can trigger a dramatic decline in your standard of living. A single person requires nearly 80 percent of the income needed by a married couple, according to the Society of Actuaries. Yet the Social Security benefit paid to a survivor is typically only from 50 to 67 percent of what the couple received. Married couples can consider joint and survivor annuities and life insurance, plus strategies for maximizing their Social Security benefit.
Long-term care. Long-term care options include home care, adult day care centers, assisted-living facilities, and nursing homes. What they have in common: They're all expensive. The cumulative cost of care may amount to $1 million for a couple, with nursing home costs reaching $70,000 annually. Long-term-care insurance can help pay for the cost of caring for disabled seniors.
Healthcare and medical expenses. Nearly all retirees and those near retirement say they maintain a healthy lifestyle, and three quarters have or plan to have supplemental health coverage. But retirees need to be prepared for unexpected health problems, Medicare premiums, and the expenses that Medicare doesn't cover.
Tags: healthcare | inflation | retirement | social security | marriage
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Are We to Believe this Fear-Mongering?
This type of article (or something like it) comes out about once a week, with the intent of scaring the heck out of all those planning to retire. Then every newspaper, blog and ezine picks it up stirring everyone up into a frenzy. But, if you think about it, if what they claim is true, then only millionaires will be able to retire.
The trouble is that there aren't that many millionaires in the world. According to the Merrill Lynch/Capgemini World Wealth report, only 8.73 million people globally have at least one million dollars or more in financial assets (excluding the value of their primary residences), and only about 2.7 million of them live in North America (the U.S. and Canada).
But right now there are plenty of retirees in America and most aren't millionaires. According to the Social Security Administration, Social Security is currently the major source of income for almost two-thirds of America’s retirees. For one-third of retirees, it is in effect the only source of income. The average Social Security retirement benefit was about $1,000 per month per person ($24,000 for a couple).
Sure, that's a tight budget for those who live in expensive locales like Los Angeles and New York City (where many financial "experts" live), but in many places in the U.S. you could squeek by with that kind of money (some people actually prefer beans and rice over being a wage-slave their whole life).
So are we to believe the fear-mongering? I say no. A successful retirement is about finding a retirement lifestyle that fits your budget. Most people will retire with less money than they had hoped (most people want to be thinner and better-looking too), but it doesn't mean you can't retire unless you have millions. That's not to say that bad things won't happen to some people. Unfortunately, some people may have real trouble in retirement. But if you try to plan for every contingency that you can come up with, you'll never have enough to retire.
Thankfully, Americans are clever and creative people and they'll figure out a way to retire with the resources they have and, hopefully, we'll help out those who aren't so lucky.
Jonathan Edelfelt
Author of Who Said You Need Millions? Retirement Strategies for the Rest of Us
Good Article
Emily:
Good Article. Those are important factors for every one to consider, and plan for, when they plan their retirement.
Jonathan:
You are absolutely correct. Although, I don't believe this article, made any claims that you need to be a millionare. Most Americans, are mis-led into believing that they need more retirement savings, than they actually do in order to retire.
The problem is that traditional retirement planning calculates the amount of savings, you need for retirement based on the "Consumption Assumption", method of calculating retirement savings. This is the assumption that, you will need 70%-80% of your current earnings, to pay for your consumption in retirement.
The "Consumption Assumption", grossly over-estimates the amount of savings, you actually need for retirement. There is an alternative, Green Retirement Planning, retirement planning based on conservation not consumption.
Green Retirement Planning is a new method of retirement planning, one that uses a person's spending in retirement not their current earnings, to determine the amount of retirement savings required.
Yes, people are afraid, and traditional retirement planning is un-realistic, but there is now an alternative. One that enables people to retire with less savings, retire years earlier, and help save the planet.
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