Five Retirement Risks

Yahoo Finance and U.S. News & World Report both recently published articles based on the Society of Actuaries list of five top retirement risks. According to the articles, they are:

Inflation - The reduction of spending power can significantly reduce the standard of living during retirement. The articles recommend investing in equities, TIPS, and appreciating assets, such as a home.

My main concern is that the stock market may crash in the next few years. We've already had a lost decade from investing in the stock market.

Outliving assets - A colleague of mine had an uncle that retired at sixty-five. He spent his savings as if he were going to die by eighty-five, since his family had a history of dying young. It was a great retirement until eighty-five. Unfortunately, from a financial point of view, he lived into the nineties, making for a very tough decade in his final years.

We've planned our retirement savings to last into our nineties. However, I realize that we could possibly live to one hundred and am looking at potential back-up plans such as selling our house or buying a lifetime annuity later in life.

Loss of spouse - The loss of one or the only wage earner prior to retirement can be devastating. While I was working I carried life insurance to protect against this risk. Now that we're both retired, this risk is not a major one. Should either of us die, Social Security would provide survivor benefits since we still have a minor child. These benefits would augment the retirement savings that we estimate are already sufficient for both of us.

Declining health - This is a major concern. As one lives longer, there is an increasing probability of spending time in a nursing home facility. We currently carry long term care insurance to help cover this.

Medical expenses - Medical expenses and needs are expected to rise as one gets older. At this time, we are carrying retiree insurance from my company. Hopefully, it will continue to be sufficient at a reasonable cost.

In Pondering Our Financial Risks In Our Retirement from late 2007, I contemplated similar risks : 1) Stock market returns; 2) Health issues and 2) Longevity. At that time, I concluded that we were OK. However, the recent stock market performance has caused me to consider going back to work as a way to reduce some of the risk.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC