Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

Retirees face five key risks to their income...longevity, inflation, asset allocation, withdrawal rates, and healthcare costs. These risks have been rising since the 2008 financial crisis and the economic developments since then.

For example, the risk of inflation eating away at a portfolio's returns is increasing as oil prices rise and global economies expand. Even if the Federal Reserve manages to keep inflationary pressures at bay, prices are still likely to rise by about 2% a year—as they have on average since 1991. Over 25 years, that translates into a 40% erosion of purchasing power. The risk that a retiree will live at least that long is also rising. Today, the chance of at least one member of a 65-year-old couple living to 90 is 50%. This suggests even retirees should take a long-term view towards their investments and prepare to ensure their investments outlive them.

Meanwhile, the 2008 financial crisis has magnified the risks in asset allocation and withdrawal rates. Many investors remain leery of equities following the huge market drop in 2008 and remain in safe, but low-yielding investments that may not provide adequate returns to fund those longer retirements. Further, the market's 2008 decline forced some retirees to increase withdrawal rates to keep their income at the same level even as their portfolios shrank. At a 4% withdrawal rate—considered the sustainable benchmark—a portfolio can last 25 years, whereas at 6% it lasts only 15 years and at 10% only eight years. Finally, the there is real risk that retirees will see the rise in out-of-pocket healthcare expenses outpace inflation as long-term Federal budget pressures mount and the cost of care accelerates. Managing this risk speaks to the need for liquid investments that can be accessed in an emergency, or a long-term care insurance policy.

While these five risks are rising, there are ways to protect your investments from them.  See one of our Financial Advisors today to learn how you can protect yourself.