by John R. Berry
It's very true that a bad spending plan can totally derail your retirement. But it isn't the only risk. Other hazards line the road to and during your Golden Years. I'll call them Retirement Roadblocks.
While we can't anticipate every thing that comes our way good or bad through the years, retirees face several possible challenges that, if not planned for, might wreak havoc on your plans.
The first Retirement Roadblock is Inflation. Even a mild increase in goods and services can reduce your spending power over time. And inflation affects EVERY RETIREE...those with modest means and those who are better off. At an average inflation rate of 3%, your cost of living would double in 24 years. Also, some costs, such as medical care, have historically increased faster than general inflation. Remember 1980? Back then, the cost of a new home was about $76,000 and a postage stamp was 15 cents. Those prices that seem low to us demonstrate the sneaky power of inflation.
Another Retirement Roadblock might be your Portfolio. Extremely conservative investments can be just as risky as aggressive investments. If your portfolio grows at a slower rate than inflation, you could eventually have to dip into your principal. The same thing can happen with super aggressive portfolios due to the increased volatility and the possibility of having to draw from investments while the market is falling. It's really important to monitor your withdrawal rate so you don't deplete your portfolio.
Health expenses. On top of insurance premiums, you’re likely to face outlays for prescriptions, co-pays and deductibles, dental care, and eyeglasses. Perhaps the biggest health-related expense you might encounter would be the need for nursing home or at-home care. Medicare won’t cover all of your health expenses, and it doesn't cover the cost of custodial care at all (which is assistance with daily living activities). Proper insurances such as Medicare supplements and possibly long term care insurance, as well as personal savings, can help relieve SOME sense of the unknown in the health and care department.
The last retirement roadblock I'll mention, I hate to even call a problem. But while it may not be a problem, it's real. And that's Longevity. With life expectancy for many stretching into their 90s and older, retirement assets must last longer. Expect to live longer than your parents. This reality should affect your treatment of your nest egg as well as your health. We often have clients who express surprise when we tell them how long they might live, but it's definitely an important factor to keep in mind.
Don't let lack of awareness or an ostrich approach with your head in the sand keep you from addressing all the factors as best you can for your retirement. Most people need to plan to live a long time, making inflation, portfolio composition, and health and insurance issues incredibly important to consider, alongside other factors like your retirement dreams and consistent savings.
CERTIFIED FINANCIAL PLANNERTM John R. Berry may be reached at (940) 325-9800.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.