No one knows better than you how hard you’ve worked to get to retirement — which is why it is all the more important to protect what you’ve earned. Here are the top three risks to your retirement funds as well as some actionable tips for how to prepare for them.
1. Outliving your money
Thanks in part to improved medical care, people are living much longer than they did in the past, which means your retirement savings may need to last longer than you originally planned. Luckily, there are steps you can take to help prevent the possibility of outliving your retirement funds:
- Lower your withdrawal rate if possible. We typically recommend an initial annual withdrawal rate of 3% to 4%, with a 3% increase each year for inflation. However, the longer you expect to live, the lower that rate should be.
- Consider annuities with lifetime income benefits. Depending on certain factors such as your spending flexibility and how much you rely on your portfolio for income, you may want to consider annuities that guarantee an income payment for as long as you live.
2. Unexpected health care and long-term care expenses
Just as you would prepare for expected health care costs, preparing for unexpected expenses or the possibility of needing long-term care is just as important. Including additional health care and projected long-term care costs in your budget can help you determine if you should consider additional strategies. In some cases, specifically identifying assets and/or reducing your withdrawal rate are ways to help cover these potential costs.
Medicare generally doesn’t cover expenses related to long-term care, which can be substantial. Several options are available to help pay for long-term care costs. Your financial advisor can help you determine the options that may be appropriate based on your preferences for care and financial goals.
3. Market declines and inflation
While it is typical to expect a certain amount of market fluctuation and inflation, if the past few years have shown us anything, it’s just as important to prepare for heightened or prolonged periods of market downturns. Here are some things you can do to prepare for these unexpected market shifts:
- Stay diversified and assess your risk tolerance. No one can predict the financial markets, but knowing how much risk you are willing — and able — to take is an important consideration when building your portfolio. In addition, a balanced portfolio aligned with your risk tolerance that includes investments with the potential for rising income can help protect against inflation. Your Edward Jones financial advisor can help find the right risk balance for you.
- Be flexible with your spending. You should regularly review your spending strategy and withdrawal rate — especially during years when the market doesn’t perform well.
- Consider a CD/short-term fixed-income ladder. Laddering involves owning a variety of quality fixed-income investments with staggered maturity dates. By doing this, you can potentially avoid selling assets in a down market to cover your income needs.
Of course, there are other risks to consider when it comes to protecting your nest egg. Fortunately, your Edward Jones financial advisor can help you prepare for these and other potential risks so that you can enjoy your hard-earned retirement.
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Diversification does not ensure a profit or protect against loss in a declining market.
You must evaluate whether a bond or CD ladder and the securities held within it are consistent with your investment objectives, risk tolerance and financial circumstances.