Overcoming 5 Retirement Fears
We’ve all heard stories about people losing all of their retirement money in a stock market crash, outliving their money, or incurring unexpected medical expenses that forces 80-year-olds back into the workforce. At times, these stories can seem overwhelming — even to the point of deterring people from planning for retirement. Are these fears likely to become realities? Probably not, but the truth is that these things can happen. Here’s how you can deal. 1. Outliving your money — There’s a rule of thumb to decrease the odds of outliving your money over a 25 year retirement: by the time you’re ready to retire, you should have saved 8 times your annual salary. To get there, gradually work up to it. For example, at age 35, you should have 1 times your current salary saved, then 3 times by 45, 5 times by 55, and so on. Of course, the amount of money you need to have saved by the time you’re ready to retire depends on a huge range of very individual factors: What are your plans for retirement? How old are you? Will you still have a mortgage? Do you have long-term-care insurance? So to truly decrease the odds that you’ll outlive your money, work with a financial advisor to develop a robust retirement plan — then stick to the plan and revisit it often to make sure it remains in alignment with your goals and your circumstances. 2. High inflation — What if inflation went up to 12–14% like in the 1970s? What would you do? It’s probably not likely inflation will spike like that again. However, because it has happened before, you want to be prepared. This is where an annual review of your investments can be wise. In periods of very high inflation in the U.S., for example, you may need to adjust your investment strategy. If you are properly diversified, your portfolio should include investments that move opposite each other — so when one asset class or subclass is down, another is up. 3. Unexpected medical expenses before retirement — Unexpected medical expenses you may incur while you are still working could totally derail your retirement. To prepare for them, it’s important to have insurance in place. Disability insurance will ensure that if you lose your income due to a disability, you will still be able to take care of your basic necessities. Life insurance will protect your family in the event of your death — especially important if your income was the key to your spouse’s retirement. 4. Unexpected medical expenses during retirement — For most people, healthcare is one of the largest (often the largest) expense incurred during retirement. There are a few ways to prepare for medical emergencies: private health insurance to fill the gaps in Medicare, long-term-care insurance, and rainy day savings. For today’s retirees, Medicare takes care of most medical expenses. However, you need savings to cover what insurance won’t — like copays and expenses exceeding your insurance limit. And just as you save before retirement for unexpected expenses, so should you continue your rainy day fund in retirement; even if you are adequately insured, copays can be significant if you have a medical emergency. 5. Market crash — As with high inflation, the key to surviving a market crash is diversification. (To be clear: there is no way to insulate yourself completely from the effects of economic turmoil. But you can take steps to ensure that turmoil doesn’t completely ruin your retirement plans.) As you get closer to retirement, you should be invested less heavily in equities and more in investments like bonds.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.