Retirement Assassins: 5 Hazards That Can Sneak Up on You

With all the planning that goes into preparing for retirement and managing your finances while in retirement, it can be a bit scary to think about the hazards that can quickly unravel all your hard work. These hazards, which we call retirement assassins, range from stock market swings to health care costs and aren’t always pleasant to consider. However, ignoring these retirement risks could derail your future, so you need to prepare and protect yourself.

Here are five retirement assassins to watch out for:

1. Stock Market Crashes

The first retirement assassin to watch out for is a stock market crash. While investing in the stock market shouldn’t be something to fear, ignoring the risk of a market crash could put your retirement plan in jeopardy. The question you need to ask yourself is “Does a stock market crash mean that I have to change my lifestyle?”

If you still have a few decades left in your career, a crash may not have much impact, if any, on your lifestyle. That’s because you have time to let the value of your retirement accounts recover.

However, if you’re very close to retiring or already in retirement and you have most of your personal finances tied up in the stock market, a crash could significantly affect your ability to afford the lifestyle you want. To reduce this risk, consider how you can diversify your retirement plans and savings accounts so that you can more easily weather a down market.

2. Premature Death of a Spouse or Partner

In the unfortunate event that your spouse or partner passes away sooner than expected, you may have to navigate not only emotional hardship but also financial hardship. In these cases, you may lose significant income, whether that’s income from a high-paying career, pension benefits, Social Security, etc.

While you may be able to obtain survivor’s benefits, you should still plan for how you would navigate this period and get a good sense of how much your finances would be affected. If you find, for example, that survivor’s benefits would not be sufficient to cover your expenses, you may want to obtain life insurance or adjust your retirement plan savings strategy.

3. Long-Term Care Expenses

In addition to preparing for premature death, you also need to be ready for the high health care costs that can come from you or your spouse or partner needing a home health aide, moving to an assisted-living facility, or needing other types of long-term care.

Even if you have a large nest egg, the cost of long-term care can be several thousand per month and could erode your savings over time. In particular, as life expectancy increases, people may need to receive such care for long periods—for example, someone who is in their 50s or 60s and has a health issue where they need some long-term support.

To protect against this hazard, you may want to consider long-term-care insurance or establish a plan to pay for these costs if need be.

4. Taxes

While taxes on their own likely won’t wipe out your retirement accounts, improper planning can cause you to spend more in retirement than your net income after taxes, particularly if taxes increase during your retirement.

For example, you may assume that you have a certain amount to add to your nest egg if you plan to sell your house in retirement and put the proceeds more toward living expenses. However, a tax increase could affect how much you would ultimately receive by the time you sell your home.

In contrast, optimizing your tax planning, such as figuring out how much to withdraw and when from retirement plans, may add a couple of percentage points to your annual investment returns. Having a trusted accountant or financial planner could help you turn this retirement risk into an advantage.

5. Inflation

The last retirement assassin to watch out for is inflation. Like taxes, this hazard could cause you to have less purchasing power than you may have assumed. For example, if the cost of food and utilities outpaces increases to your Social Security income, you could end up spending more each month than you are prepared to.

Worse, if you have money sitting in a savings account earning a low interest rate, the effective amount you have could be minimized in a few decades due to inflation.

With people living longer in retirement, this is a retirement risk you need to prepare for. Investing can help you outpace inflation, or you can hedge your risk by investing in inflation-linked bonds so that you can minimize the threat of losing purchasing power.

Protect Yourself from Retirement Assassins

These five retirement assassins can sneak up on anyone, but once you recognize them and prepare in advance, you have a better chance of countering them.

If you’d like to discuss how to protect yourself from retirement assassins or have any other financial planning questions, reach out to the team at Financial Dynamics for some guidance. You can call our financial advisors in the Richmond, VA area anytime at 804-777-9999. Or simply text the word “tips” to that number, and we’ll be sure to respond back to you shortly.

You can also listen to our podcast where we discuss these hazards in more detail.

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The information contained in this presentation does not purport to be a complete description and is intended for informational purposes only. Any opinions are those of the content creator and not necessarily those of the named advisor(s) or JWCA. This information is not intended as a solicitation or an offer to buy or sell any security or investment product. Information is solely intended for recipients in jurisdictions where the named advisor(s) are licensed to engage the investing public. Investments and strategies mentioned may not be suitable for all investors. The S&P 500 and other such indices are unmanaged, do not incur fees or expense, cannot be invested into directly and individual investor’s results will vary. Past performance is no guarantee of future results. As with all investments, various risks may exist and JWCA recommends you consult with your financial advisor prior to making any investment decisions. Advisory Services offered through J. W. Cole Advisors, Inc (JWCA). Financial Dynamics & Assoc. Inc and JWCA are unaffiliated entities.