If you are nearing your retirement years or if you are already retired, you should be aware of financial planning problems that present challenges for a comfortable retirement. None of us know how long we’ll live so there’s always the chance that we’ll out live our money. We also can’t forecast our eventual expenses including medical needs through the aging process. On the flip side, we don’t want to live so frugally that we don’t enjoy our retirement and end up living an unfulfilling life. Simply put, the potential for serious financial problems during the retirement years is real. Let’s take a look at some of the top considerations.
5 Financial Planning Problems
Low Investment Returns
Interest rates are at record lows so the typical savings account isn’t generating a sizable return. The solution is not to put all of your retirement funds into a bank savings account; the interest that it will earn likely won’t keep pace with inflation. If you adopt strategies designed with the goal of reducing your portfolio expenses and taxes, you could significantly increase your overall portfolio returns. Consider investing the majority of your retirement funds in tax efficient and low cost investments. A portion of your savings can then be directed toward riskier investments with the potential for higher rates of return.
The Problem Of Longevity
While living a long life sounds like a blessing, it can become a nightmare without proper financial planning. For some, the prospect of outliving their savings is a very real possibility. Human beings are living longer than ever before and the final years of our lives are becoming more expensive. If you are concerned that you’ll outlive your money, consider investing in either longevity insurance or immediate annuities.
Low Quality Of Life
While it’s easy to overspend in your golden years, many become too conservative and spend so little that their quality of life significantly deteriorates. You should aim to reach a happy medium between the two extremes. When you plan for your retirement, make sure to build in a savings component that accounts for your hobbies and interests. This way you won’t have to spend a couple decades sitting in front of the television or reading novels from the library.
Many retirees find out too late that they’ve underestimated their everyday costs. As money devalues due to inflation and your free time increases in retirement, you’ll likely spend much more than you anticipated on everything from gasoline to food and hobbies. The old adage that a retiree can live on two thirds of his prior income is a fallacy. Many seniors need even more money in order to stay busy. Consider the cost of socialization in terms of club memberships, casino trips, tourism and the like. Those who are worried about paying for their everyday expenses in retirement should consider taking out a reverse mortgage. It’s similar to a home equity line except that you can put the wheels in motion without actually borrowing.
When you’re young, you are in a better position to manage the market’s ups and downs as you have time on your side. As you age, investment volatility becomes quite scary. Seniors should almost always be in a position where they feel comfortable liquidating their investments. When there’s a downswing in the financial markets, liquidation is typically very difficult or a very bad decision as investment values are lower than normal. The appropriate strategy to this problem is multi-fold. Hold on to a significant amount of cash and establish a portfolio that is well diversified. This way, your risk will be spread across numerous sectors of the economy and varying levels of risk. (1)
Financial planning problems can be managed with the help of an experienced and trusted financial planner. Contact the dedicated professionals at MultiGen Wealth Management Services to get started today!
1 There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing