Three Key Risks of Retirement
Ready for Retirement?
As Boomers get older, we can expect that the number of retirees will grow each year. After all, the oldest member of this generation is now 74 while the youngest is 56. If we look at the statistics of Pew Research Center starting in 2012, the annual increase in the retired Baby Boomer population has run between 1.5 million to 2.5 million a year… until 2020. The increase in 2020 was markedly higher at 3.2 million, for a total number of 28.6 million retired Boomers.
Some Boomers made a lifestyle choice in 2020, accelerating their retirement plans for personal reasons. Others may have been furloughed, or lost their positions, and decided to not get back into the game. For whatever reason, this choice is best made with preparation – emotionally and financially.
Let’s begin with our financial readiness, including the consideration of the risks during retirement. The Society of Actuaries identifies 160 retirement risks, but protecting against all of these is not possible. Many are completely out of our control and not probable. Here are three significant financial risks, however, for which we can make plans:
- Longevity risk. This risk of outliving our money is a sobering one, especially considering the extension of our life expectancy. Recent statistics are that for a 65-year old couple in relatively good health, there is a 50% chance that one in the couple will live to age 92, and a 25% chance that one in the couple will live to age 97. Planning for 30 years of retirement is becoming the norm, and we should prepare ourselves accordingly.
- Market fluctuations. If your life savings are invested in the stock and bond markets, you can expect to confront the uncertainty of market fluctuations. Historically, 20%+ downturns in the stock market have been less frequent than people realize, but they do happen (remember March?) and create anxiety. This is when an investment plan which dovetails with our personal needs and risk tolerance is critically important.
- Unexpected spending needs. It would be nice to know what negative surprise might present itself, and when it might happen, but that is not the nature of unexpected needs. What we can do, though, is model various scenarios for unexpected expenses and plan for addressing them. Stress-testing our plans also provides confidence that even an uncertain future can be handled.
Downside risks are a reality, but we can create peace of mind by addressing them. When we do, we are truly bringing together our money with the meaning it serves in our retirement lives.
Retirement planning can be an exciting process, filled with dreams of being liberated from a more structured schedule and envisioning more time to enjoy life, friends and family. Whatever our dream, planning financially and emotionally will help us enjoy it.
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