FINANCE
Navigating the
top five retirement risks
Longer lives and better health translate into
longer retirements and new concepts about
what retirement should be. Many of today’s re-
tirees view retirement as a time to shift gears but
not necessarily slow down.
They keep their skills sharp in new job roles
or by starting businesses. They continue to
BRUCE
master abilities by going back to school as both
LINGER (CFP, teachers and students. Some choose to serve on
CRPC, CCFS) boards of directors or pursue creative and artis-
tic passions.
However you define retirement, the bottom line is that you
want to have enough money to live without constantly wor-
rying that you’ll run out. It certainly pays to be prepared and
stay on a plan.
What to look for
A successful retirement plan begins, of course, with making
smart savings and investing decisions long before you con-
template retiring. But of equal or even greater importance is
how you manage your money after you’ve left your primary
career and turn to your investments to provide the income
that supports your lifestyle.
To boost the chances that your savings will let you live
comfortably in retirement, there are five primary areas of risk
that you need to address:
1. Timing and withdrawals. The amount you withdraw
from your retirement portfolio and when you do so are
two of the main determinants of how long the portfolio
will last. For example, taking large withdrawals during
bear markets, such as those in 1973-1974, 2000-2002 and
2007-2009, makes it hard for a portfolio to recover and
grow.
To the degree possible, you want to minimize drawing on
your capital in a weak market, since you’ll have less capi-
tal for the rebound. Your annual withdrawal rate should be
smaller than your average annual return, less inflation. Of
course, to be conservative, you could bring it down even fur-
ther and your assets may continue to grow positively, even
though you’re making withdrawals.
2. Market volatility. Related to the first risk, you need to
position your portfolio to withstand inevitable swings in
the market. The way to do this is through diversification
and asset allocation — holding a combination of stocks,
bonds, cash and alternative investments that match your
risk profile. Returns on these investments should be
non-correlated so that when one area is down, another
area is up. In retirement, you need diversification to per-
form a balancing act of having enough growth-oriented
investments toward helping achieve acceptable long-
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■ OCTOBER 2018
term returns and bonds and other fixed income securi-
ties to provide steady income. Annuities could also make
sense to provide at least a portion of your retirement in-
come.
3. Longevity. The good news is that you have a decent
chance of living to a ripe old age, but the risk here is es-
sentially that you could outlive your assets. A woman
born after 1973 has more than a 20 percent chance of
living to age 100. This means that if you retire at 65, you
may need to plan for 35 years or more in retirement.
4. Taxes and inflation. Don’t underestimate the ability of
inflation to destroy spending power. Over the past 25
years, during which inflation has been fairly tame, the
Consumer Price Index (CPI) — the cost of a basket of
goods and services determined by the Bureau of Labor
Statistics — has more than doubled. If inflation acceler-
ates to 6 percent prices would double in about 12 years.
5. Healthcare costs. The CPI is often not the most accu-
rate measure of your personal inflation rate, since you
may spend disproportionately on healthcare as you age.
These costs have traditionally run at double or triple the
overall rate of inflation and are not under control. In ad-
dition, consider long-term care insurance as a way to
help pay for some of the potential nursing home costs as
you get older.
Writing the next chapter
Thanks to a combination of advances in medical technol-
ogy and better lifestyle choices, Americans are living longer,
more active lives. Nonagenarians (people between the ages
of 90 and 100) are becoming commonplace. Enjoy your re-
tirement years however you decide to spend them. Spending
some time with your financial advisor today can help you en-
joy true financial security tomorrow. d
Bruce Linger (CFP, CRPC and CCFS) is a registered represen-
tative and investment advisor representative for Lincoln Fi-
nancial Advisors Corp., a broker-dealer (member SIPC) and
registered investment advisor offering insurance through Lin-
coln affiliates and other fine companies. His office is at 61 S.
Paramus Road, Suite 425, Paramus. For more information,
call 201-556-4564. This information should not be construed
as legal or tax advice. You may want to consult a tax advisor
regarding this information as it relates to your personal cir-
cumstances. The content of this material was provided to you
by Lincoln Financial Advisors for its representatives and their
clients.