Six risks to be prepared for in retirement
As baby boomers approach retirement, many may find themselves in different economic circumstances than what they planned for. Recent economic events have taught us the downside of risk, yet careful planning can help soften the impact.
Your retirement plan can stay on track if you focus on these six key risks.
• Longevity risk: Americans are living longer and longer. There's a 50 percent chance that a 65-year-old man today will live to age 88 and a woman to age 90.1 Unless you're realistic about how long you may actually live, you may be putting yourself at risk of outliving your retirement savings.
• Market risk: Participating in the stock market can give your retirement savings and income the potential to keep pace with inflation, however, volatility in investment markets can significantly impact how long your money will last.
• Inflation and taxes: With inflation reducing purchasing power and taxes impacting liquidation strategies, less money will be available to spend or invest in retirement planning. And with taxes, all the money you've been putting away in tax-deferred accounts will be subject to tax when you begin taking withdrawals in retirement.
• Health care risk: Rising medical and prescription drug costs, fewer employer-sponsored retiree benefits and limitations of Medicare are all impacting income and retirement savings. According to Medicare.gov, estimated health care costs for a 65-year-old range from $3,000 for someone in excellent health to $10,000 for someone in poor health, including premiums, deductibles and copays but not including long-term care, vision or dental expenses.
• Long-term care risk: The cost of care for an unexpected event, or long-term illness not covered by private insurance or Medicare is requiring more Americans to prematurely deplete their assets. Someone turning 65 today has an almost 70 percent chance of needing some type of long-term care in his or her lifetime. And those services are typically not covered by Medicare, Medicaid or even health insurance. 2
• Legacy risk: Many Americans want to leave a legacy, making an impact beyond their lifetime by leaving a financial gift to a loved one or a charity. It is necessary to balance this desire with the need to fund an individual's retirement.
With your retirement at stake, these risks can seem overwhelming -- but you don't have to go it alone. Working with a trusted financial professional will help you to keep these risks in mind as you approach retirement, keeping you on track toward the retirement you've always envisioned.
1 Annuity 2012 Table with mortality enhancements determined using projection scale G2
2 U.S. Department of Health and Human Services, as of September 2015
Article prepared by Northwestern Mutual with the cooperation of David Park. David Park is a Retirement Planning Specialist with Northwestern Mutual, the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, Wisconsin, and its subsidiaries. David Park is based in Schaumburg. To contact David Park, please call (847) 969-2534, email at firstname.lastname@example.org, or visit www.vistawealthmanagementgroup.com.
• David Park, CLU, ChFC, CASL, WMCP, is a retirement plan specialist at Northwestern Mutual.