Thanks to recent market volatility and the crash of 2008, most people planning for retirement are very aware of the risks their retirement portfolios face. But market risk is not the only pitfall in retirement planning. Here are a few dangers that may not be in the forefront of people’s thoughts, but that could have a tremendous influence on their retirement.
Inflation
Since 1982 there has been a decline of interest rates in the U.S. Combine that with the relatively low interest rates of the last couple of years and you create a real danger of today’s retiree’s underestimating the affect inflation could have on future purchasing power. Here is an example of what just a 3% inflation rate would do to a household with $60,000 of expenses today:
- 15 years = $93,478 to cover expenses
- 20years = $108,366 to cover expenses
- 25years = 125,626 to cover expenses
No one knows for sure what inflation rates will be in the future, but ignoring or underestimating them could negatively impact retirement plans over time.
Long Term Care
It is understandable that most people do not want to think about spending any of their retirement years in a lLong-tTerm cCare facility. But if you are serious about creating a solid retirement plan, you can’t just stick you head in the sand and ignore this possibility. While percentages will vary by study, the US Department of Health and Human Services say 69% of people turning 65 this year will need LTC services during their lifetime. Their website also states the national average of room for a year in a private facility costs $92,376. It is important to have a plan to protect yourself, your spouse and your legacy against the possibility of an event you have no control over.
No Clear Vision of Retirement:
You are more than your portfolio. Spend time giving serious thought to what you want to accomplish in retirement. Employment provides an arena for regular socialization as well as mental and physical activity on a weekly basis. How will you replace those hours in your week? What will motivate you in retirement? Remember that setting goals for yourself should not end at retirement. Some people may be happy making sure they can travel at least once a month to see their grandchildren, while others may want to start a non-profit organization to support their favorite charity. Your retirement plan should assist you in achieving your goals, not dictate them.
Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000 CRN202701-10779997