The 5 biggest risks that retirees confront

Retirement planning has always been difficult since retirees confront several risks and may not appropriately perceive them, according to Wenliang Hou, author of a recent report from Boston College’s Center for Retirement Research. 

In addition to analyzing how Americans in their retirement years perceive these risks, Hou’s study provides an objective ranking of the main risks affecting seniors. Naturally, there are some inconsistencies. Americans, for instance, frequently overestimate market volatility while also grossly underestimating both their longevity and the financial toll it would have. 

Longevity risk 

According to Hou’s study, outliving retirement funds is the most significant risk that seniors face. This is what he calls the “longevity risk.” 

While the fact that Americans are living longer is fantastic news, the extra years do have a cost. Americans frequently underestimate how long they will live and, thus, the amount of money they will need for retirement. Because it influences the planning horizon for the retirement era, Hou noted, it is not unexpected that longevity risk is at the top of the list.

Making sure you have a sizable retirement nest fund that can provide enough income at a safe withdrawal rate is the greatest strategy to prepare for longevity risk. If you intend to adhere to the 4% guideline, you need to make sure you have at least $750,000 invested before retiring if you expect your retirement savings account to provide $30,000 in income, for instance.  

Health care costs 

According to Hou, health care costs are a significant financial risk that pensioners frequently underestimate. 

According to a recent study from Fidelity Investments, the average 65-year-old retired couple may now anticipate paying $315,000 in medical bills throughout retirement. The previous year, that sum was $300,000. The expected cost of retiree health care has nearly quadrupled since Fidelity started tracking it 20 years ago, and most Americans say they aren’t ready to handle the soaring prices. 

Experts frequently suggest long-term care insurance as a strategy to assist in the covering of medical expenses later in life. Health savings accounts (HSAs) can also be used to do this because of their significant tax benefits. 

Stock market volatility 

Americans perceive stock market volatility as the greatest risk to their retirement savings, but according to Hou’s rating, it is the third-worst risk. 

While investing in the stock market is an excellent method to accumulate money, it can be highly volatile in the short run. According to a survey from investment management firm First Trust, the average bear market in the United States lasts 1.4 years and results in a 41% loss. If these bearish conditions occur around the time you want to retire, it might pose a significant danger to your financial stability. 

However, you can reduce market risk by maintaining an adequate asset allocation and avoiding investing too much of your nest egg in equities, lessening the possibility of having to sell investments at a loss. You should also have enough liquid cash to cover two to five years of living needs. 

Family expenditures 

In addition to any personal financial difficulties you may encounter in retirement, your family is likely to experience unanticipated crises and costs for which you’ll need to pay. 

For instance, if you and your spouse anticipated working to pay expenses throughout retirement, that plan may be quickly derailed if one of you were to develop a chronic illness or something much worse. If you are at full retirement age, the Social Security Administration does offer 100% survivor benefits, but this may not be sufficient to address your unique circumstances, particularly if your spouse becomes employed. The trajectory of your retirement might also be drastically changed by a divorce which may occur later in life. 

A change in Social Security policy 

The SSA is on track to go bankrupt in the 2030s, partially due to the seismic demographic changes brought on by Baby Boomer retirement. Insolvency may occur sooner due to current high inflation, which raises Social Security payouts every month in the short term. 

While retirement payments may be reduced by 20% or more and insolvency is a genuine possibility, Hou’s rating doesn’t place a hypothetical reduction to Social Security payouts at the top. Congress might, of course, take action at any moment before that to maintain fully funded retirement benefits. 

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Bio:
After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely with
helping them pursue the most comfortable financial life possible.

Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.

Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.

Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.

Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.

With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.

Aaron can help you and your family to create, preserve and protect your legacy.

That’s making a difference.

Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.