Risks to lifelong retirement incomes fall into five key areas.
1. Longevity
The need to plan for the possibility you may live longer in retirement than you ever imagined.
2. Inflation
Even at a 2% inflation rate, $50,000 of income today would only be worth $30,477 in 25 years.
3. Health Care Costs
Numerous studies have shown the majority of medical costs occur in the last five years of life, posing additional high costs in the very last stage of retirement.
4. Proper Asset Allocation
Fear of being caught in a bear market causes some retirees and pre-retirees to become overly cautious and place their lifetime income needs solely with cash and fixed income instruments. This strategy can have an adverse effect on their financial well-being. It eliminates the upside potential and inflation hedge that a more diversified strategy may offer.
5. Too-Rapid Withdrawals
The severity of the 2007-2009 market correction set off alarm bells for many retirees and pre-retirees. The downturn was especially shocking for those who assumed they could withdraw up to 8% every year in retirement while presuming their portfolio would continue to grow. Statistics show that a more conservative withdrawal rate of 5% or lower decreases the depletion risk of a retirement income plan.
Talk to us about our active management retirement planning process to reduce these risks in your retirement plan. Millhiser Smith provides a number of financial calculators for your reference.
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