Risks to Consider

There are many "Hidden Dangers" in Retirement

 
   

 In a sense, "risk" is all about "luck" -- and sometimes we all experience "bad luck" and should therefore be prepared for how we could be harmed by it.   

Consider the following list to identify concerns you should address in preparing for a more safe and confident retirement.   As you will see, there are more risks to consider than most people expect.  How much you accumulate for retirement is important -- but less so than how much you're able to keep for your own needs.  

As financial advisors, our goal isn’t to make you rich. It’s to keep you from becoming poor.   And so we ask, How much risk are you willing to take with your retirement resources?

Some of the Most Distressing Retirement Risks

  • Longevity Risk – The risk someone will live longer than expected and outlive their savings and available income. Longevity risk may be managed using insured solutions such as immediate annuities, however, Longevity multiplies every other risk as increased time horizons invite more opportunities for bad luck.
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  • Incapacity Risk – The risk deteriorating health may require assistance with activities of daily living, such as eating, bathing, or even financial management. This risk can be managed through traditional Long- Term Care insurance or the increasingly popular Asset-Based Long-Term Care assistance plans.
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  • Entitlement Risk – The risk government programs (such as Social Security or Medicare) will not provide sufficient protection. Entitlement risk can be managed by increasing personal savings and investments and using insured solutions.
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  • Medical Expense Risk – The risk of medical costs outpacing general inflation. This risk can be managed somewhat through a well-diversified, inflation-oriented portfolio as well as proper medical insurance and Medicare supplements.
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  • Sequence of Returns Risk – The risk of running out of savings prematurely due to low (or negative) returns in the early years of retirement spending. Sequence of returns risk can be managed by sound planning as well as through the use of insured annuity products and other guaranteed solutions.
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  • Inflation Risk – The risk rising costs will undermine purchasing power over time. Inflation risk can be managed through inflation adjustment options within insured solutions, through portfolio diversification, and by proper financial planning.
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  • Tax Rate Risk – The risk rising taxes (or unforeseen tax consequences) may decrease a portfolio’s size and purchasing power. Tax risk can be managed with tax-deferred and tax-free investment strategies and the help of a qualified tax professional.
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  • Excess Withdrawal Risk – The risk an individual will spend down assets too quickly and undermine their own retirement plan. Excess withdrawal risk can be managed by preparing a well-developed plan that includes a clear understanding of retirement expenses and available sources of income.
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  • Market Risk – The risk of losing invested wealth, either temporarily or permanently, because of a market down-turn or poor investment performance. Market risk can be managed through diversification of savings and investments, including the use of insured solutions to provide stability and assurance of income regardless of market results.
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  • Lifestyle Risk – The risk income is insufficient to maintain the current (or expected) standard of living during retirement. Lifestyle risk can be managed through disciplined savings, planning, and sound budgeting as well as sustainable income sources in the portfolio such as immediate or deferred annuities.
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  • Asset Allocation Risk – The risk of investing either too conservatively or too aggressively and not adequately diversifying assets to sustain a portfolio across market cycles. Asset allocation risk can be managed through the assistance of an experienced investment professional, through the diversification of assets, and by including insured solutions as part of the investment mix. (Asset allocation does not assure or guarantee better performance and cannot entirely eliminate the risk of investment losses.)
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  • Personal or Event Risk – The risk an unexpected change in family circumstances (i.e. divorce, death, adult children returning home, etc.) may undermine anticipated retirement plans. Personal or event risk can  be managed through preparation of a financial plan along with the establishment of a “rainy day” fund.
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  • Investment Expense Risk -- The risk excessive fees may dilute a portfolio’s earnings, thereby reducing its income-producing potential. Sometimes known as “fee risk”, its gradual impact may not immediately be recognized.