The Top 4 Challenges Your Income Faces in Retirement

Saving for retirement is a subject that you may or may not have given much thought to, largely depending on your age. Young professionals in their 20s are aware of the fact that they should be saving for retirement, even if that awareness does not include many specifics. People closer to middle age tend to take retirement savings more seriously, and may begin exploring options beyond just a 401(k). People approaching retirement age within a decade or so tend to be the most focused for obvious reasons.

The concept that becomes clearer to the average worker over time is that eventually the income from their job will stop when they retire. With no money coming in from a job, you need to have a certain amount of money set aside to make sure that you can live comfortably and achieve any goals you had hoped to set for your retirement.

But what exactly does “a certain amount” mean? And why can it be so difficult to come up with enough money to last throughout the average retirement?

Let’s take a look at the four biggest challenges that might be standing in between you, and successful retirement planning.

Living in Retirement

1. Market Volatility

When the market takes a nosedive, it can have a tremendous impact on your retirement accounts. Now, if the market takes a major dip when you are 28 years old, chances are you didn’t even notice it. Of course, if you are 63 and looking at the same market, your palms are probably sweaty.

It is absolutely true that the market has ups and downs, and as much as investors and financial advisors try to beat the market, some events are truly unforeseen. Still, this doesn’t mean that you have to be completely at the mercy of forces beyond your control.

Part of successful retirement planning is having a diversified portfolio. If you have all of your money in the stock market, then when the stock market go south, so does your money. However, if only a quarter of your money was in the stock market, with the rest of it split up among real estate, bonds, cash, etc. then you will not feel the impact as keenly as others might.

One last thing to keep in mind is the fact that the market always grows over time. A trusted financial advisor will be able to help you set an appropriate retirement age given your goals, lifestyle, and the market.

2. Spending Behavior

Within the first 5 to 10 years of retirement, your spending will likely go way up. This is perfectly understandable when you consider the fact that you have worked your entire life, and suddenly have the leisure time to travel and take part in all those experiences you’ve been putting off until now.

However, losing sight of your long-term goals and overspending could mean that you run out of money in your retirement fund.

Certainly, there are unavoidable expenses that you will run into every month. Food, utilities, insurance and other everyday costs should already be factored into your retirement plan. However, there are a few things you can do to stack the deck in your favor.

Paying off your home is one way to save thousands of retirement fund dollars. Some retirees accomplish this by downsizing to a smaller home, while others simply make a push to pay off the remaining mortgage. The same concept applies to vehicles; if you and your spouse no longer have work commutes to consider, downsizing to a single vehicle can help reduce your monthly expenses.

Your financial advisor will be able to take a look at your unique situation and advise you on other ways to reduce monthly spending, and to maximize the life of your retirement fund.

3. Taxes and Inflation

With very few exceptions, taxes tend to go up over time. Tax increases can begin to eat away at your retirement savings, and if tax hikes outpace your saving potential, you could wind up in trouble towards the latter end of your retirement.

Of course, inflation is another issue faced by many retirees. As an example, consider the price of cars – whatever it cost to purchase the car you drove to your first job will come up far short of what a car would cost at the time of your retirement.

It is absolutely essential that your retirement planning take taxes and inflation into account. If you have concerns in this regard, bring them up to your financial advisor right away. Together, you can begin working on plan to beef up your retirement savings enough that they can absorb tax increases and inflation without leaving you in the lurch.

4. Longevity

People are living longer now than they were in previous decades. In the 1950s, retirees planned to have enough money to get through their mid to late 70s, but today, the average retiree should plan to see their mid to late 80s, if not longer.

To put it mathematically, that means the average worker of today needs to provide 10 extra years worth of monthly payments in their retirement planning. And of course, spending tends to change for retirees as they progress through their retirement. Whereas at the beginning, retirees tend to spend their money on experiences and travel, towards the end, the focus of the spending shifts more towards medical needs and long-term care facilities.

Living longer means you have more years to enjoy, but also that you will need more money. Your financial planner will be able to take a look at your investments as they stand right now, and give you an estimate of how long you can expect them to last you. If you don’t like the number you hear, it is time to reevaluate your current retirement planning.

Planning for retirement is challenging, but with a trusted financial advisor you can plan to work around these top 4 issues faced by workers and investors. For a more complete guide on how to maintain financial health and independence all throughout your retirement, download the free white paper “Living in Retirement.”

Living in Retirement

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