Retirees and people nearing retirement face an increasingly complex challenge—making sure their income lasts a lifetime. Recent volatility in stock market returns coupled with historically low interest rates has caused some investors to question whether their existing retirement plan will provide enough income to make retirement comfortable. These concerns are prompting investors to revisit their retirement planning goals and assumptions in order to make course corrections as needed.
To determine if you should reevaluate your retirement plan, consider the following:
- Longevity – Increased life expectancies as a result of wonderful medical advancements have also led to longer retirement periods. With a longer retirement comes the need for more assets to provide necessary income.
- Inflation – Longer retirement periods may be more affected by inflation thus making it important to evaluate whether one’s portfolio should include equity investments that provide the potential to keep pace with inflation.
- Proper Asset Allocation – Many retirees think they need a very conservative portfolio consisting of only guaranteed bonds and certificates of deposit. With increasing life spans, this strategy may cause them to outlive their assets. Long-term success may lie in a portfolio allocated between stocks for growth and dividends and bonds for safety and income.
- Realistic Income Withdrawal Rates – Back in the 1980s and 1990s, above-average stock market returns led many investors to plan on withdrawing 8-10% annually from their portfolio for retirement income. More recent studies suggest that much lower withdrawal rates from a balanced portfolio of stocks and bonds may be more appropriate.
- Healthcare Expenses – Longer life spans, rising medical costs and possible shortfalls ahead for Medicare programs all add up to make healthcare costs a substantial financial burden during retirement for which financial planning is important.
If any of these issues has raised questions in your mind about the long-term success of your retirement plan, now is the time to resolve those concerns and meet with your financial advisor for a complete review. A few course corrections now may mean the difference between a smooth sailing retirement or a stormy one.
Investing involves risk, including the loss of principal. Asset allocation does not ensure a profit or protect against a loss. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.