No matter how much you save during pre-retirement and how careful you are with post-retirement spending, the world around you presents many threats to your retirement savings. The good news is that most of them can be planned for. Following is a list of five potential threats to your retirement income, as well as some ideas to protect yourself against them.
Inflation
Inflation is a rise in the general price of goods and services. It’s a natural occurrence, although some years it can be worse than others. Inflation hurts your retirement income by reducing the spending power of every dollar you’ve saved. There are many ways you can help combat the effects of inflation, including keeping your money invested in vehicles designed to outplace inflation
Healthcare costs
According to AARP, a 65 or older couple who retired in 2013 will need $240,000 to cover medical expenses throughout their retirement. Carefully making your Medicare coverage selections and paying attention to deductibles and copays will help you save money on these expenses.
Low interest rates
Interest rates that don’t at least keep up with inflation make it impossible for you to recapture lost spending power. Worse, when you lock yourself into low interest rates through long-term fixed products such as CDs, you may miss out on higher new issue rates during your term. In addition, if interest rates rise, it could negatively affect some fixed income investment values such as bonds. See our previous blog entitled How Rising Rates Affect a Bond Portfolio. One way to prevent this is to structure an investment portfolio that is less sensitive to rises in interest rates.
Caring for elderly parents or spouse
The Family Caregiver Alliance reports that the average age of a caregiver is 48 years old. Further, they found that, as of 2012, 43.5 million adults care for a family member. It’s very possible that you may end up caring for your parents, spouse or another elderly relative at some point in your life. This can force you to work fewer hours and save less. It can also affect your expenses if you have to pay for supplemental care. When your parents and spouse have long-term care insurance, it helps to provide the resources you need to get home care or even adult day care so you can work and avoid these added costs.
Supporting adult children
A 2013 study released by Rutgers University of Law found that 53 percent of adults between 18 and 34 lived with their parents in 2011, the highest level in more than 60 years. With employment options drying up for many college grads, multi-generational living with parents supporting their working-age children could continue to be relatively common. If you decide to allow your adult children to move back in, make sure you have a written agreement or lease in place that requires them to get work within a reasonable time frame and contribute to household expenses so that the financial burden is shared between you.
At Kramer Wealth Managers, we understand how overwhelming these challenges—and others—can be. We’re here to help you navigate them and try to overcome these retirement challenges to help you live the retirement you envisioned.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. An issuer may default on payment of the principal or interest of a bond. Bonds are also subject to other types of risks such as call, credit, liquidity, interest rate, and general market risks. Sales of CD’s prior to maturity may result in loss of principal invested.
