Retirement brings many opportunities, but it also comes with financial risks. Pure’s Financial Advisor, David Kleinman, CFP®, AIF®, shares expert strategies to help you manage these risks and achieve a more secure, comfortable retirement.
You will learn about:
- Longevity risk
- Death of a spouse
- Economic factors
- Inflation and increased spending
Transcript
Picture this: You’ve worked hard your entire life, saved diligently, and are finally ready to step into retirement. But what if something unexpected happens, something that threatens your financial security and your peace of mind?
Retirement is meant to be a time for relaxation and enjoyment, but there are risks that could jeopardize your comfort and stability in those years. Today, we’re going to talk about four critical risks you must be prepared for and strategies to help you manage these risks.
- Longevity Risk
As life expectancy continues to rise, there’s a very real possibility that you could outlive your funds. This is particularly concerning as healthcare costs tend to rise in later years. One of the best ways to manage longevity risk is to plan for a longer retirement than you might expect. You should plan as though you could live into your 90s or even beyond. This means saving more aggressively before retirement and being mindful of your withdrawals. Avoiding withdrawals that are too high will help preserve your savings and prevent them from depleting too quickly. It’s also important to do regular projections to see how long your money will last based on your expected spending, investment returns, and inflation.
- The Death of a Spouse
Another significant risk to consider is the death of a spouse, which can lead to both emotional and financial challenges. When one spouse passes away, the surviving spouse often faces reduced income, as Social Security or pensions may be reduced. In many cases, there may also be an increase in taxes due to changing from filing taxes jointly to filing single. The combined impact of these changes can be a heavy burden on the surviving spouse’s finances, leaving them less prepared for the future. To prepare for the death of a spouse, it’s essential to have a plan in place for the loss of income. Review your Social Security options carefully, as the surviving spouse may be eligible for the larger of the two Social Security benefits. Additionally, understand how pension benefits work and ensure you’re aware of what happens to them after one spouse passes away.
- Economic Factors
Broader economic factors—such as recessions, interest rate changes, and market volatility—pose significant risks to retirees’ financial stability. Economic downturns can cause investments to lose value, and when interest rates fall, the income from fixed-income investments like bonds may decrease. These fluctuations can have a major impact on retirement savings, especially if you rely on portfolio withdrawals for income. The best way to reduce the impact of economic factors is diversification. By spreading your investments across a variety of asset classes—such as domestic and international stocks, bonds, real estate, and even alternative investments—you can reduce the risk that any single downturn will drastically affect your entire portfolio. Additionally, it’s a good idea to keep a small portion of your portfolio in cash or other low-risk assets to provide stability during volatile periods.
- Inflation and Increased Spending
Finally, inflation and increased spending are risks that many retirees underestimate. Inflation can erode the purchasing power of your retirement income, making everyday purchases more expensive over time. On top of that, many retirees find that their spending increases in retirement. To protect against inflation, it’s important to invest in assets that tend to outpace inflation, such as stocks, real estate, or bonds. These types of investments can help preserve your purchasing power over the long term, ensuring that your money keeps up with rising costs. It’s also essential to regularly review your budget and make adjustments as necessary. If you find that your spending is increasing, consider setting clear financial goals for discretionary expenses, and track your spending to make sure you’re staying within your means. If your costs are becoming overwhelming, consider downsizing your home or relocating to a lower-cost area to reduce your living expenses.
In conclusion, while retirement offers many opportunities, it also presents a significant risk. By planning ahead and using the strategies I’ve shared, you can mitigate these risks and set yourself up for a more comfortable and secure retirement. As you consider these risks and strategies, you might be wondering how well your current retirement plan is positioned. If you’re unsure or want a professional review of your financial situation, contact Pure Financial Advisors for a free financial assessment.
Subscribe to our YouTube channel.
IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
• Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
CFP® – The CERTIFIED FINANCIAL PLANNER® certification is by the CFP Board of Standards, Inc. To attain the right to use the CFP® mark, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. 30 hours of continuing education is required every 2 years to maintain the certification.
AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.