Personal Finance

6 Retirement Risks You Need To Be Prepared Of

Planning for retirement is an integral part of your life {money wise) and time and again the emphasis on starting to save early for the retirement is reinstated.

Once you decide to start planning for your retirement you need to anticipate and make provision for unanticipated retirement risks. This is essential to maintain your desired lifestyle during your retirement years. It is imperative that you prepare a robust retirement plan that can protect you from various retirement risks.

Ensuring your assets last throughout your retirement years requires careful planning right now to determine how retirement risk factors may affect your income and lifestyle over time. Here’s a look at six key retirement risks that you should take into consideration when setting your retirement plan and ensure they do not detriment your well-being in your golden years:

  1. Inflation: Inflation is the biggest concern for retirees, especially those who are witnessing the impact of rising inflation over the past few years. In the long run you will have years when the inflation will be more than what you had anticipated. Even low rate of inflation can have a serious impact the well-being of retirees who live for many years. For this you need to consider inflation in your plan and need to do investments so that it can beat inflation.
  1. Running out of money and longevity: You need to work on estimates, assumptions and possibilities to arrive at a sizeable retirement corpus. With increasing life span, many people spend more time in retirement than in working. You need to ensure that your retirement corpus lasts long enough. For someone retiring at age 60, another 25-30 years in retirement is possible and it will be good to plan accordingly.
  1. Investment volatility: It is important to understand the need for equity exposure because of its long term benefits compared to fixed return investments and maintain a diversified portfolio. However the volatility associated with unknown swings in the market and making poor investment choices can play a spoilsport in your retirement planning. Moreover, investment losses are unbearable after retirement because of lack of supportive income. Although many retirement savers bring down the risk in their portfolio in the years leading up to and immediately after retirement by moving allocation towards safer asset class. Make sure to have a well-diversified portfolio based on your profile both pre and post retirement.
  1. Health expenses: Health and asset insurance is a must in retirement to take care from risk that you may exposed to. It is important to adopt and maintain a healthy lifestyle including a proper diet, regular exercise and preventative care. While health insurance is a must but after a certain age it may be difficult to obtain insurance. As you grow older you are prone to have greater healthcare needs and may need frequent treatment for a number of different health-related issues. So make sure you plan a sufficient corpus to take care of unexpected healthcare needs.
  1. Depleting assets too quickly: You need to create a plan to spend your nest egg after retirement. You need to set up regular withdrawals from investment accounts, spending only the interest and dividends earned each month and using capital savings only for emergencies or major expenses.
  1. Retiring Young: If you plan to retire early, you should understand the number of years in retirement that you will live for. Someone wanting to retire at 45 may have worked for the retirement corpus for 20 years, but life in retirement could be 40 years, which is twice the working years that went into building the corpus. You need to understand the consequences of retiring young and the impact of such a move on your finances and quality lifestyle.

 

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