You saved for years, made sacrifices and finally achieved your goal of retiring. Nothing can get in the way of your dreams now, right? Hopefully. But life isn't always that simple. Here's how to get ahead of some risks you might face in retirement.
Risk: Outliving your money
- Not taking too much from your investments – We typically recommend an initial annual withdrawal rate of 4%, with a 3% increase each year for inflation. However, the longer you expect to live, the lower that rate should be.
- Considering annuities with lifetime income benefits –Depending on 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.
Risk: Unexpected health care costs or a need for long-term care
- Considering supplemental coverage – Medicare Supplemental Insurance (Medigap) or Medicare Advantage (Part C) may help fill in the gaps for items that Medicare doesn't cover.
- Budgeting for long-term care costs – Even if you don’t anticipate needing nursing home care, you should still consider planning for some type of assisted living or home health care costs.
- Protecting against long-term care expenses – Several options are available to help pay for long-term health care costs, including traditional long-term care insurance or combining life insurance with a long-term care benefits rider.
- Putting your wishes in writing – Powers of attorney, health care directives and living wills can help you outline your wishes for future care. Work with your tax and legal professionals to create these legal documents.
Risk: Market declines and inflation
- Staying diversified – No one can predict the financial markets, but knowing how much risk you are willing – and able – to take as well as having a properly constructed portfolio can help you prepare. This includes:
- Diversifying your investments among stocks (which can help combat inflation), bonds and cash so success isn’t tied to one company or one type of investment.
- Sticking with quality investments with proven track records and rebalancing as appropriate.
- Keeping your focus on your long-term goals, not on short-term fluctuations.
- Assessing your risk tolerance – Determine how much risk you are willing and able to take, so you can be better prepared to stay on track during the inevitable short-term declines.
- Being flexible with your spending – You should regularly review your spending strategy and withdrawal rate – especially during years when the market doesn't perform well.
- Considering 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 don't have to try to guess how interest rates will act in the future. Owning a variety of quality fixed-income investments with maturities 5 years and less can help you navigate a down market.
Risk: Personal liability
- Umbrella liability insurance – This protection is designed to kick in when coverage on other policies, such as home or auto, has been exhausted.
- Asset ownership structures – Specific ownership structures designed to hold certain assets, such as a small business or rental property, could potentially reduce your personal liability in the case of an accident or lawsuit.
How we can help
There are other risks to consider when it comes to your retirement. But your Edward Jones financial advisor can walk through different scenarios with you to stress-test your strategy and make sure you stay on track – even if one of these risks becomes a reality.
Edward Jones is a licensed insurance producer in all states and Washington, D.C., through Edward D. Jones & Co., L.P., and in California, New Mexico, and Massachusetts through Edward Jones Insurance Agency of California, L.L.C.; Edward Jones Insurance Agency of New Mexico, L.L.C.; and Edward Jones Insurance Agency of Massachusetts, L.L.C.
Diversification does not guarantee a profit or protect against loss in declining markets.
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.