Two years ago, Gallup conducted a study in which it asked Americans about their biggest financial concern. The winner? By a wide margin, Americans said they were most concerned that they wouldn’t have enough money in retirement. Nearly 60 percent said they were either very or moderately worried about the issue.1
In some cases, there may be good reason to be concerned. A recent analysis of the Federal Reserve’s 2013 Survey of Consumer Finances found that the average American couple has only $5,000 in retirement savings. A whopping 70 percent of couples have less than $50,000 saved.2
The risk of not having enough money is a serious concern, but it’s not the only potential retirement risk. There are other potential challenges that could negatively impact your ability to reach your income goals and a stable retirement.
Below are three retirement risks that warrant careful planning and preparation. If you haven’t developed a strategy for managing these risks, now may be the time to do so.
Many retirees assume they will be able to rely on Medicare to cover their health care expenses. That assumption is partially correct. Depending on which Medicare plan you choose, you can get coverage for doctor visits, prescription drugs, hospitalizations and more.
However, there are a number of expenses you will have to pay out of pocket. Those could include premiums, deductibles, copays and others. In fact, Fidelity estimates that the average 65-year-old couple will spend nearly $245,000 out of pocket in retirement.3 That figure doesn’t even include long-term care costs, which can have a substantial price tag.
Take time today to develop a strategy for managing these costs. Consider maxing out your health care savings account (HSA) so you have a tax-favored method to pay for your medical expenses. Long-term care insurance could provide much needed coverage. And remember to invest in your own health through exercise and good habits so you limit the need for costly care.
Inflation isn’t an obvious risk, but over a long period of time it can have a corrosive effect on your lifestyle. That’s especially true if you have a limited or fixed income.
Inflation is the gradual increase in prices on an annual basis. It fluctuates, so some years there could be sizable inflation while in other years there may be very little. Because inflation is often quite small, it usually goes unnoticed. After all, it isn’t a big problem if your grocery prices go up a few cents one year.
Over time, though, those small increases add up. Consider that at an average annual rate of 3 percent inflation, prices will double over a 24-year retirement.
One way to combat inflation is to find an retirement income strategy that gives the opportunity for growth while also managing risk. Resist the urge to opt for completely “risk-free” options, because they may also offer no opportunity for growth, which you will need to keep up with inflation.
You may be done earning income, but that doesn’t mean you’re done paying taxes. Depending on your income, you may pay taxes on Social Security benefits. You could also pay taxes on rental income, dividends, investment income, annuity payments, pension benefits and more.
While there may be no eliminating taxes, you can certainly plan for them. When you develop your retirement budget, consider that you will likely need to pay taxes on your income, so you could have less to spend than originally anticipated. Also, talk to your financial professional about ways to generate tax-efficient income, such as through a Roth IRA.
For more information, contact us at Gregory Financial Group. We are happy to consult with you, explore your needs and develop a strategy for managing these and other risks. Let’s start the conversation today.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
15851 – 2016/6/27