The Top Five Risks You Face in Retirement and How to Handle Them

MarketWatch lists the top five risks you face in retirement and how to handle them. We'll cover them one-by-one:

Risk #1: Inflation

How to handle: Retirees and would-be retirees should consider investing in equities, a home and other assets, such as Treasury Inflation-Protected Securities (TIPS) and annuity products with a cost-of-living adjustment. In addition, the SOA recommends would-be retirees "stage a semi-retirement to delay tapping retirement assets."

Risk #2: Outliving one's assets

How to handle: The SOA recommends strategies that preserve principal, including investing in joint-and-survivor annuities and deferred annuities that commence at high ages, such as 75 or 80.

Risk #3: Loss of spouse

How to handle: Use income-producing investments, including joint-and-survivor annuities, and purchasing life insurance.

Risk #4: Declining health

How to handle: [Healthcare] costs can be mitigated by committing to a healthy lifestyle that includes eating right, exercising on a regular basis and using preventive care. In addition, the SOA says long-term care insurance can pay for the cost of caring for disabled seniors. And the SAO suggests -- not without reservation -- that retirees look for a continuing care retirement community that caps monthly costs for assisted living and skilled nursing care.

Risk #5: Medical expenses

How to handle: Retirees and would-be retirees manage this risk by purchasing medical insurance and Medicare supplemental insurance.

Here's my take on the situation:

1. There are a lot of factors that can derail your retirement.

2. As such, the best bet is to be very conservative in what you think you'll need for retirement. For instance, if you think you'll need $2 million for retirement, try to save much more than that -- something like $2.5 million or more. Another option: save for retirement assuming you'll get nothing from Social Security -- then if you do it will all be gravy.

3. Delay retirement as long as you can. Every year you do, especially at the end where your investments are very large, will significantly help your finances.

4. Live well below your means and decrease your spending as you get older. The less you need to spend, the less you'll need to save.

Comments

[Julia]

#5 is my biggest concern. Especially when it comes to early retirement when you don't have the option of medicare.

[Trent D.]

Risk #3: Loss of Spouse

Get out of debt quickly, and have enough life insurance to pay off your outstanding debts in case you die before debt is paid off - that's the best way to support your spouse if you die early.

If I die today, my wife will have a paid off house, no student loan debt, two paid off cars, and about $100,000 to supplement her income.

She could basically live on her current salary for the rest of her life with no problems, simply because all the debt would be out of the way.