5 Common Retirement Concern
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  • 3-Minute Article
  • |
  • May 24, 2018

5 Common Retirement Planning Concerns — and How to Address Them

Consider these strategies for common worries, from outliving savings to navigating market volatility.

As people approach retirement, their mindset often shifts from saving and investing strategies to maintaining a desired lifestyle in retirement. Concerns about how expenses might change or the potential impact of market factors can create uncertainty about a retirement plan.

Fortunately, there are ways to prepare. Here is a closer look at five common retirement concerns, along with strategies that may help manage those issues.

Maintaining Savings for Life

More than 54% of Americans are worried about not having enough money in retirement.1 The possibility of longer lifespans increases the chances that retirees might outlive their savings, and that requires an income strategy that can cover a retirement that might last 30 years or longer. While average life expectancies for a 65-year-old man and woman are 84 and 86, respectively, about one in four might live past age 90.2

Consider: Allocate a portion of assets to guaranteed lifetime income products to help protect against the risk of outliving retirement savings. Talk to a financial professional to review potential options.

Affording Healthcare

Americans are living longer at a time when healthcare costs are rising rapidly, averaging an approximate 6% annual increase over the past four years.3 In fact, one estimate says that a couple age 65 that qualifies for Medicare and has median prescription drug expenses might still need $256,000 to cover out-of-pocket health care costs throughout their retirement.4 This trend makes planning for medical expenses during retirement more important than ever.

Consider: Establish a health savings account to offset future medical expenses. Contributions are tax-deductible, grow tax-deferred, and are distributed tax-free if used for qualified healthcare expenses. A financial professional can also help people explore insurance options such as chronic illness riders or accelerated death benefits to help prepare for medical costs in retirement.

Maximizing Social Security

Decisions about when to claim Social Security can have a big impact on the size of a monthly benefit, but roughly half of people still working said they lack knowledge about how claiming Social Security sooner versus later will change their benefits.5 Carefully examining the potential amount of a monthly benefit based on age can help determine the right Social Security strategy for a retirement plan.

Consider: Delay Social Security to receive a higher monthly benefit. You can receive 100% of your Social Security benefit at full retirement age, which ranges from 65 to 67 depending on birth date. However, nearly two-thirds of men and half of women claim Social Security prior to full retirement age and receive a reduced benefit.6 By contrast, waiting until age 70 can increase the monthly payout by 32%.7 Consult the Social Security Administration’s table on the effects of early or late claiming to learn more about the potential differences in monthly payout, based on claiming age.

Managing Inflation Risk

Over time, the purchasing power of money will decline due to price increases driven by inflation. Think of it this way: If inflation averages 3% a year for the next 20 years, something that costs $100 today will cost $180 in 2037. Low interest rates on fixed-income investments have made it more difficult for retirees to protect their savings against the impact of inflation.

Consider: Add financial products with inflation protection. For example, some annuities offer a feature – for an additional cost – that helps hedge against inflation by providing a yearly increase in income. This feature can help retirement income keep pace with rising prices.

Dealing with Market Volatility

Market declines are always a concern, but they can have a bigger impact if they occur early in retirement. It’s more difficult to recoup losses that happen in the first years of retirement. This is because the downturn combined with retirement income withdrawals means there’s less money available to benefit from any future recovery in the markets — potentially leading to an income shortfall in later years.

Consider: Ensure that a portfolio is properly diversified for personal goals and risk tolerance. The right mix should strike a balance between assets protected from market losses and assets exposed to risk to support a potentially long retirement. A financial professional can help create a properly diversified investment mix.

Building a sustainable retirement plan

Retirement planning comes with many unknowns, but an effective plan can help you maintain your lifestyle during retirement by balancing income stability with growth potential. A financial professional can help tailor your retirement plan to address specific concerns.

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