Along any journey, there are bound to be occasional bends in the road. Some more challenging than others, these life events can take you off course if they catch you by surprise. But when you are prepared for what's ahead, even the sharpest curves become little more than landmarks along the way.
1) longevity: How long will I live?
Planning your retirement journey would be easier if you knew exactly how long your trip would last; unfortunately, this is one area where there can be no certainty. Yet looking to statistics for guidance, it is clear that Americans are living longer than ever before. Advances in medicine and quality of life are yielding a new generation of retirees who could live 30 years or more in retirement. As a result, your retirement assets must be structured to provide you with income for as long as you will need it.
A long and healthy life should be something to look forward to, not something to fear. Consulting with your financial advisor to create a strategy that provides income for life, regardless of how long that may be, can help ensure that the length of your journey does not diminish its quality.
2) inflation: Will my income keep up with the cost of living?
Everyone has felt the impact of inflation on paychecks throughout life, so it isn't hard to imagine the bite it can take out of one's retirement income. In the past, retirement nest eggs were often invested in low-risk, low-yield vehicles. While these vehicles generate a dependable income, the income could be counted on to last only for a given period of time; yet, with increased life expectancies comes increased exposure to inflation. Over a period of years, exposure to even moderate or low inflation rates can have a dramatic impact on your spending power.
To help you to combat inflation, some portion of your investments will need to continue to grow even after you retire. Working with your financial advisor to turn your nest egg into a retirement paycheck can help you to keep up with inflation and make sure it doesn't drag you off course.
3) health care: How much will I pay for health care?
It is difficult to predict the future of health care in the U.S. except to say that costs are likely to continue to increase dramatically. At the same time, the percentage of health care expenses paid by employers is expected to continue to decrease. This trend is particularly worrisome for retirees who no longer enjoy employer-sponsored health benefits and must manage these higher costs on a fixed income. With the average inflation rate for health care at approximately 9%, this may well be the biggest retirement risk of all.1
That is why a strategy for addressing health care expenses must be a key component of any retirement roadmap. Your financial advisor can help you determine what investment and insurance vehicles can best manage your health care risk to help ensure that whatever your financial needs, you are confident in your ability to meet them.1
4) asset allocation: How do I invest my money?
Asset Allocation2 is the process of dividing invested assets across multiple asset classes such as stocks, bonds, cash and real estate to help manage risk. Without a careful asset allocation strategy, retirement savings are more vulnerable to forces such as inflation, poor market conditions, and weak economies.
Taking into account your income needs, risk tolerance, and time horizon, the sound asset allocation strategy recommended by your financial advisor can help ensure that no single event or market downturn has the power to derail your retirement journey.
5) withdrawal rate: How much can I withdraw from savings?
When it comes to retirement income, the first thing most people want to know is the amount of money it is safe to withdraw from their savings each year. While you don't want to run out of money too soon, you also want to feel confident that you can take moderate withdrawals for living expenses and enjoy a comfortable lifestyle.
Discussing your future income needs with your financial advisor can help you to get an idea of the expenses that lie ahead, both planned and unexpected. From there, your advisor can map a strategy that may allow you to withdraw money when you want it while leaving enough in reserve to pay for emergency expenses and help ensure your assets don't run out too soon.
On the retirement journey, when you are prepared for what's ahead, even the sharpest curves become little more than landmarks along the way.
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