7
Retirement Risks You Need to Prepare For Emily
Brandon, On Monday April 5, 2010, 2:35 pm EDT
There
are many things that could go wrong with even a carefully
planned retirement. Inflation, running out of money, and future
stock market slumps are possibilities that all retirement
savers need to prepare for. A recent Society of Actuaries
survey of 804 people ages 45 to 80 identified older American's
greatest retirement concerns. Here is how to make sure these
common retirement worries don't become your reality.
Inflation. Inflation is the
number one fear of retirees, the survey, conducted by Mathew
Greenwald and Associates and the Employee Benefit Research
Institute, found. Some 58 percent workers approaching retirement
and 71 percent of retirees are concerned that the value of
their savings and investments may not keep pace with inflation.
Social Security checks and some pension payments are adjusted
for inflation. About a third of retirees in the survey delayed
collecting Social Security in order to boost the amount of
their checks later on in retirement. Other strategies the
respondents, who were all born between 1929 and 1964, plan
to use to beat inflation include investing some money in stocks
or stock mutual funds (64 percent), real estate (43 percent),
and annuities or other investment products that guarantee
income for life (38 percent).
Running out of money. Once
you have accumulated a sizeable nest egg, it's your job to
make sure it lasts the rest of your life - however long that
may be. Many Americans approaching retirement are concerned
that they might deplete all of their savings too quickly (58
percent). And it's not just your own lifetime you need to
plan for. Many married retirees (43 percent) are also worried
about maintaining a spouse's standard of living after their
death. Retirement savers are trying to protect themselves
from depleting their nest egg too quickly by paying off debt,
ramping up savings, and reducing spending. Many of the survey
respondents approaching retirement also plan to pay off their
mortgage as soon as possible (80 percent). However, only 48
percent of retirees in the survey have completely paid off
their mortgage. Some retirees (6 percent) also tapped their
home equity as a last resort to finance retirement.
Stock market slumps. Investment
losses can be especially traumatic after retirement. Many
retirement savers dial down the risk in their portfolio in
the years leading up to and immediately after retirement.
Approximately 65 percent of those planning to retire soon
and 58 percent of retirees have moved or plan to move their
assets into increasingly conservative investments as they
get older. It is also important to keep an emergency fund
and several years worth of living expenses out of the stock
market, so riskier assets have time to weather any market
conditions. Many survey respondents also expressed concern
that their retirement income will vary based on changes in
interest rates.
Health expenses. About half
of retirees (49 percent) and two-thirds of workers nearing
retirement (67 percent) worry about having enough money to
pay for adequate health care. Signing up for Medicare beginning
three months before your 65th birthday is a good start. To
help pay for some of the services Medicare does not completely
cover, most retirees (76 percent) also say they have purchased
health insurance to supplement Medicare or participate in
an employer-sponsored retiree health plan. Many retirees are
also report they are trying to maintain a healthy lifestyle
including a proper diet, regular exercise, and preventative
care.
Long-term care costs. Almost
half of retirees are concerned about having enough money to
pay for extended care at home or in a nursing home (46 percent).
Older Americans are more likely to try to save for long-term
care costs than to purchase insurance. Almost half (47 percent)
of retirees say they are either currently saving or intend
to save for long-term care expenses or other health costs,
while 35 percent have purchased long-term care insurance.
Only about 15 percent of retirees have made or intend to make
arrangements for care through a continuing care retirement
community.
Drawing down assets too quickly. Retirees
need to create a plan to spend their nest egg after retirement.
Strategies for drawing down retirement assets reported in
the survey include setting up regular withdrawals from investment
accounts, spending only the interest and dividends earned
each month, and using savings only for emergencies or major
expenses.
Retiring too young. The majority
of retirees surveyed (80 percent) left the workforce before
the age of 65 and 28 percent retired before the age of 55.
But many of the retirees say they wish they hadn't retired
so young. Half of the retirees report that a three-year delay
in retirement would have made their retirement finances more
secure. Delaying retirement would have allowed them to get
increased payments from Social Security (66 percent), have
more time to make contributions and earn money on investments
(59 percent), and to qualify for increased monthly pension
payments (63 percent). Half of those approaching retirement
say they expect to retire at age 65 or later.