Many retirees live on a fixed income. Hopefully, those who plan carefully for retirement will enjoy a generous budget. But even though your income covers all of your current living expenses, no one knows what the future holds. If you’re confident that your retirement income will provide a comfortable lifestyle, you should still prepare for the following four retirement pitfalls.
A rocky stock market. When we enjoy favorable stock market conditions, we can build a sizable retirement fund. But no matter how optimistic you feel, remember that stock market conditions can and do change. Some economists feel that we are currently seeing a peak in the stock market, and that a decline is inevitable at some point in the future. As you draw closer to retirement, talk to your financial advisor about securing your assets so that your income will be more stable.
Fluctuating interest rates. We are currently enjoying very low interest rates, which is generally a favorable condition for bond investors. But interest rates may rise at some point, which might cause bond values to decrease. Since interest rates usually don’t fluctuate quickly, this situation is no cause for panic. But those of you who are heavily invested in bonds should keep an eye on interest rates once you reach retirement.
Beware inflation. The effects of inflation are usually so slow that we barely notice the rise in prices from one year to the next. But inflation will make a huge difference over the course of a retirement that lasts 20 years or more! Your cost of living on the day that you retire will change significantly over the next two decades. Therefore, your budget at the beginning of retirement may not be realistic toward the end of your life.
Personal risks. You may also face other risks, depending upon your individual situation. The real estate market can be unpredictable, so consider how much of your plan for retirement is based on the equity in your home. Your health is another unknown risk factor. The cost of health care is increasing rapidly, and you may need long-term nursing care at some point.
Statistics say that one in five people will live past age 90, meaning you may enjoy 20 to 30 years of retirement. Before you quit working, consult with your financial advisor to be sure you have considered all of the financial risks you may face over the next two or three decades.
14561 – 2015/6/5
