5 Things Putting Your Retirement at Risk

Many of us want to enjoy a comfortable retirement. We think about what we can do, and we save up, doing our best to build up our nest eggs so that we can do what we want in retirement (or semi-retirement, as the case may be). However, while you are think about your comfortable retirement, you might actually be missing some of the items that put your retirement at risk. Here are 5 things that could be putting your dreams of a comfortable retirement at risk:

1. Inadequate Savings

Many of us are putting something away for retirement. But is it enough? Many of us have an unrealistic view of how quickly our money will grow, and by how much. While the most important thing is to get started with retirement saving, if you are still only putting in $50 a month after you have a better job and a company match, you are doing your retirement a disservice. Get real about how much you need to be setting aside. There are retirement calculators out there from CNN Money, Kiplinger and Bloomberg, among others. At the very least, use a simple savings calculator to estimate how your money will grow.

2. Not Securing Income Streams for Retirement

Once you quite your main job, your steady income evaporates. This means that you need new income streams. Whether you plan to live off interest (and withdrawals) from your nest egg, or whether you have another plan, you need to start thinking about income now. If the market crashes right before your retirement, earnings from your nest egg probably won’t be adequate. Think about income investments, how you can get royalties, how you can get steady income from doing a web site, or even how you can work part time or work online in order to provide a little extra income. Think about where your income is coming from, and remember that government income benefits might be cut in the future, so relying on that for income might be a problem.

3. Inflation

Inflation is a largely silent problem. It erodes your real returns, reducing your buying power. If inflation is growing at 3% a year, but you’re only seeing an increase of 2% a year, in real terms you are actually losing money. It is important to do what you can to find ways of creating a portfolio that at least keeps up with inflation, preferably beating inflation handily. You can protect part of your retirement portfolio with help from inflation protected securities in the form of special government bonds, but it is a bad idea to put everything in such low risk/low yield securities, since you risk winding up with inadequate savings.

4. Debt

Making interest payments, and saddling yourself with obligations is a surefire way to risk your retirement. Instead of putting money to work for you, debt takes your money and puts directly into someone else’s pocket in the form of interest payments. Paying off as much debt as you can before retirement, and carefully living within your means to avoid incurring further obligations is necessary if you want a successful retirement.

5. Long-term Care

It seems a long way off, but long-term care is a very real possibility. With longer lifespans, the chance that you will spend time in a long-term care facility has increased. While there are some government long-term care facilities, many of them do not provide the comforts that many would like. Other facilities, though, can be expensive and drain your accounts quickly. You can consult with a financial professional to help you figure out how to provide for this possibility with long-term care insurance, annuities or some other means.

5 Responses to 5 Things Putting Your Retirement at Risk

  1. if you have the ability to save 15% of your income and you are only saving 5% and spending the rest you are not helping yourself out at all.

    if you can only save 5% and you do save the full 5% that is great.

    we all go through phases where we earn more in a given year. the most important lesson is to save as much as possible to ensure your success in the future.

  2. While we can be hopeful that inflation remains benign (which it won’t), our health holds out (which depends on factors often beyond our control), our debt is manageable (not only in retirement but on the way as well), the markets perform historically (which they probably won’t considering the volatility of the last decade), and we invest enough for the future (which many of us still don’t do), taxes loom as the biggest unknown threat.

    If I might make a suggestion on how to hedge against that possibility. A person concerned about the future should invest up to 10% in their tax-deferred plans and then create a taxable account (such as maxing out a Roth IRA) and then, once that is done, return to your employer sponsored plan and max out your 401K. The Roth could serve as your long-term care account, your 401K could serve your post-work income as a compliment to your Social Security payment (yes, I do believe it will be there) and if you do live longer than anticipated, you might outlive your money.

    An old football coach of mine once said that potential simply means “ain’t done nothing yet”. We all have the potential to have a well-funded retirement. The hardest part is convincing everyone to invest based on not only the potential but the possibilities.

  3. Including long-term care in your retirement planning is one of the best ways to preserve your assets and savings. In this way, you can explore the different types of long term care policies, compare costs and benefits, and thus you’ll know exactly how much it would cost you to buy long term care insurance. And by planning early, you can enjoy lower premiums. If you don’t want to be financially ready once retirement comes, make sure to include ltc in your future plans.

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