April showers bring May flowers. The old saying reminds us that April’s rainy days aren’t all bad. In retirement, though, a financial rainy day can have long-lasting consequences. It turns out that many future retirees aren’t confident their rainy-day fund can withstand the test. A study from Gallup found that 58 percent of Americans are worried that they won’t have enough money to fund retirement.1
Other studies have found that many Americans may have reason to worry. A report from the Stanford Center on Longevity found that one-third of all baby boomers had no retirement savings. Of those who had savings, the median balance was $200,000. While that’s a significant amount, it’s likely not enough to fund a full retirement.2
The best way to protect yourself against financial challenges is to save more money. If you can increase your savings, even marginally, that extra money can help you withstand financial rainy days in retirement.
What kinds of financial challenges could cause problems in retirement? Below are three of the biggest. The good news is you can take steps today to develop your rainy-day strategy.
Health Care Costs
Like most retirees, you’ll probably rely on Medicare for health coverage. Medicare is a valuable resource that provides coverage for everything from hospitalizations to doctor visits and even prescription drugs, depending on your specific policy.
Medicare doesn’t cover everything, though. In fact, Fidelity estimates that the average 65-year-old couple will face $280,000 in out-of-pocket medical expenses in retirement.3 That’s for things not covered by Medicare, such as premiums, deductibles, copays and more.
Again, the best way to prepare for medical expenses is to increase your savings. You may want to consider a health savings account, which can serve as a tax-efficient source of funds in retirement. You also may want to explore Medicare Advantage policies, which can offer enhanced protection beyond what’s available in traditional Medicare.
Market volatility and risk can be scary at any stage of life, but it can be especially problematic in retirement. You’re no longer earning money or making contributions, so it can be difficult to bounce back from a downturn. Also, you may be dependent on your savings for income, so a market decline could have a real impact on your financial stability.
There’s no way to prevent market downturns. You can manage them, however. One strategy is to review your allocation and make sure it’s aligned with your needs in life and your risk tolerance. Many people become more conservative as they get older. If you haven’t reviewed your allocation recently, now may be the time to do so.
You also may want to incorporate annuities into your strategy. Some policies, like fixed indexed annuities, allow you to earn interest based on the returns of a market index. If the index performs well, you earn more interest. If the index declines, however, you don’t lose any money. That downside protection could bring stability and certainty to your retirement savings.
Retirees are living longer than ever. A long-life span is undoubtedly a good thing. However, it can create financial issues because it means your money has to last longer. If you overspend in the early years of retirement and then live longer than you’d expected, you may not have many assets left in the later years.
Just how long could you live? According to Fidelity, the average 65-year-old couple has a 50 percent chance that one spouse will live to age 94. There’s a 25 percent chance a spouse could live to 98.4 If you retire in your mid-60s, there’s a possibility that your assets may have to last for 30 years or more.
Again, an annuity can help you overcome this challenge. Many annuities offer guaranteed lifetime income. That means you get a reliable, predictable income amount for the rest of your life, no matter how long you live or how the market performs.
Ready to protect your retirement against financial rainy days? Let’s talk about it. Contact us today at Protecting Your Retirement LLC. We can help you analyze your plan and implement a strategy. Let’s connect soon and start the conversation. Our telephone number is 913-648-2700.
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18661 – 2019/3/18