Biggest Retirement Fears

Biggest Retirement Fears

Outliving Retirement Savings

None of us know how long we will live (“longevity risk”).  None of us want to run out of money before we run out of life, but how can we know for sure?  In reality, we can”t.  There are, however, logical steps we can take to minimize this risk.

If you’re thinking about retiring in your late 50s or 60s, you need to generate retirement income for 30 years or more. It simply takes a lot of money to live for that many years. Most current retirement vehicles were not designed to carry a retiree through 20-30 years of retirement. For example, when 401(k)s came out in the late 70’s, life expectancy was much lower, and the save pensions were the corner stone of retirement for most people.

We need to change our approach and how we think about retirement. A guaranteed, monthly stream of income is more important than net worth.

The Increasing Cost of Health Care

The average couple retiring today at age 65 will need $280,000 to cover health care and medical costs in retirement, according to an annual estimate by Fidelity. Notably, the $280,000 estimate excludes the cost of long-term care, such as home health aides or assisted living. Most people are unaware that Medicare does not pay for this so-called custodial care, and such costs can be catastrophic for families. (Forbes Money – April 19, 2018)

Declining health that requires long-term care

Long-term care is incredibly expensive and it’s uncovered by private insurance. Medicare typically doesn’t cover nursing home stays or in-home health services. So workers are right to be concerned. In Transamerica’s survey, 45% of people listed long-term care as a retirement fear.

Americans are living longer than ever before, and that means they’re increasingly suffering illness or injury that limits their independence. More than two out of every three Americans turning 65 this year will require long-term care at some point in their lifetime, reports the Department of Health and Human Services.

If you end up needing long-term care services, costs like these can drain your retirement savings quickly.

Genworth Cost of Care Survey, June 2018

Reduced Social Security Benefits

Almost 47% of workers worry that changes to Social Security to bolster its finances could result in changes to the program that jeopardize its role as retirees’ financial safety net.

Typically, Social Security replaces approximately 40% of a worker’s pre-retirement income, and according to the Social Security Administration, Almost 70% of Retirees currently consider Social Security as their major source of income.

Clearly, Social Security is critically important, but it’s running out of money. According to Social Security’s trustees, the program’s outlays are outstripping payroll tax revenue, forcing them to tap Social Security’s trust fund. That fund is expected to run dry in 2034, and without legislative changes, recipients could face an across the board 21% cut in benefits.

Stock Market Volatility

Those planning to retire in the next few years face many risks. Right now, one of the biggest risk retirees face now is more immediate: Retiring in a bear market.

To put this in perspective, looking at the history of bull and bear markets from 1926-2017, bull markets (which are up or positive market returns) lasted on average nine years. Consider also that the typical bear (down) market lasts 1.4 years, with an average cumulative loss of 41%.

With stock market valuations higher and this bull market overdue, retirees today could be faced with considerable losses, followed by low to poor returns in the first few years of retirement. Many people suffered this fate after 2008, and for many it took more than 6 years just to just recover their losses after the market crash.

Many financial advisers recommend pursuing preservation over growth for mature workers and retirees when it comes to their investment strategy. Suffering a significant loss from a market correction may irreparably reduce your retirement savings and with it, your income and quality of life.

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