If you’re in or nearing retirement, you’re likely thinking about it as a time to relax, check items off your bucket list and enjoy what you’ve earned. But from a financial standpoint, it’s important not to get too comfortable. Once you leave the workforce, you will likely be reliant, at least in part, on your savings to cover living expenses. So it is important to stay diligent and be aware of potential risks to your financial security. Here are three key risks to keep an eye on in retirement:
1. Not Revisiting Your Investment Strategy
As you approach or enter retirement, you may have to re-assess your risk tolerance and make sure that your portfolio aligns with your goals, the lifestyle you want in retirement and your financial situation. Remember that you may have less time to recover from market swings, so consider protecting your portfolio as you prepare to live off your savings. With that said, being too conservative isn’t always the right solution. With many retirees living decades in retirement, you will likely have time for your assets to grow or at least, keep up with inflation. Plan to periodically review your portfolio in retirement to make sure you’re comfortable with your progress and risk tolerance.
2. Spending Too Much Too Quickly
When retirement rolls around, you may find you have more money accumulated than you’ve ever had before. This can lead to a false sense of financial security and prevent you from adjusting spending in retirement. But if you begin spending at an unsustainable level in the early years of retirement, you risk depleting your nest egg too quickly. If you dream of traveling or starting a business after you step away from the workforce, factor those activities into your retirement budget. That way you can feel good about enjoying what you’ve earned while also being cautious about not outliving your assets.
3. The Rising Cost of Living
Many retirees believe the amount of money they can generate from their investments and other sources of income, such as Social Security, will be sufficient when retirement begins. But keep in mind that, historically, the cost of living has risen over time. For example, if you live for another 25 years after you retire and the cost of living rises by an average of 3% per year, your annual living expenses could potentially double in that time. Consider the possibility that retirement may be much more expensive as time goes on. Accounting for inflation impacting the most prominent items in your budget, such as healthcare or travel, is a good place to start.
The Benefits of Being Prepared
Preparation and discipline can keep you on track and feeling secure about your finances in retirement. You can take steps to help address these risks prior to leaving the workforce with proper planning, diligent saving and a portfolio that is aligned with your goals and risk tolerance. If you’ve already entered retirement, these risks deserve consideration to help you continue to manage your assets on the way to achieving long-term financial security.
Rocco A. Carriero, MBA, CRPC, is a Private Wealth Advisor with Ameriprise Financial Services, Inc. in Southampton, NY. He specializes in fee-based financial planning and asset management strategies and has been in practice for over 16 years. To contact him: 631-283-8482, 1673 County Road 39, Southampton, NY 11968 or roccocarriero.com. Advisor is licensed/registered to do business with U.S. residents only in the states of NY, NJ, TX, MA, PA, NC, NH, UT, NV, CA, NM, WA, VT, MS, MD, RI, FL, MO, SC, GA, MN, CT, AZ.
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