Effective Retirement Planning Means Guarding Against Key Risks of Retirement

Story by Nick Taber, for Montana 55

How long will you live in retirement?

The answer to the age-old question truly is: we never know our own mortality. Sure, we may have an idea of our family medical history and longevity. We understand healthy eating habits and regular exercise should keep us on the right side of the ground for as long as possible. However, the answer holds profound impact on our retirement and estate planning. A sound financial plan takes into consideration the key risks in retirement. Longevity (yes, living long!) is the multiplier of these risks.

According to the Center for Disease Control and Prevention’s December 2017 report, Americans’ life expectancy has decreased for the second year in a row. Several factors contribute to this. Obesity, the opioid crisis and increasing terminal illnesses all point to the lowered life expectancy.

However, the opposite also is true. We are living longer. A Pew Research Center article from April 2016 said that centenarians, by percentage, are the world’s fastest growing population segment. We are living past 100 more prevalently than ever before. How cool is that? Live long and prosper: this is what we’re supposed to do. However, this is also the key risk to most retirees’ retirement plans.

Five clear risks exist to retirees’ retirement portfolios: interest rate risk; market volatility or economy risk; inflationary risk; health care costs; and longevity risk.

First, retirees must consider interest rate risk. This risk addresses the consequences of rising interest rates and/or a prolonged low interest rate period. Rising or falling interest rates can have a significant impact on retirement assets.

Second, market volatility or economy risks address how market loss can impact retirement portfolios. A natural tendency exists for advisors and those at or near retirement to compensate for lack of savings by being overly aggressive with their portfolio. Market volatility can impact our portfolios.

Third, inflationary risk addresses the fact that over time, the price of the goods and services increases. Americans over the age of 55 remember when gas was below $1, a stamp was 10 cents, and houses were close to the price of a new car today.

Fourth, the health care costs, both short-term and long-term, will impact retirement. The ever-increasing costs of health care, prescription drugs and long-term care are well-documented. Perhaps one of the biggest wealth-eroding factors in families’ estates is the cost of long-term care or end-of-life care.

Fifth, longevity risk, also known as the risk multiplier. What a double-edged sword: we all want to live as long and as meaningfully as we can. Longevity is a risk, you say? Yes – the longer we live, the more likely we are to experience one of the first four risks and with bigger impact. The longer we live, the more likely we will face interest rate changes. The longer we live, the more likely we will experience marginal to significant market fluctuations. The longer we live, the more we will recognize inflationary challenges on our portfolios. The longer we live, the higher likelihood we have to experience health care setbacks, prescription drug expenses and the more likely we are to need long-term care at some level.

It takes proper planning to work toward our goal of live long and prosper. One final note regarding health in retirement: we have it until we don’t. We see many retirees and advisors organizing retirement income and portfolios to take advantage of the most active years in retirement, usually between 65 and 80 years of age. This great idea requires diligent planning with an experienced and qualified professional.

Retirement is called “the golden years” for reason. These years are meant for luxury, relaxation, enjoyment and reflection on hard work, cherished relationships and life’s many blessings. Working
with trusted advisors to help facilitate the financial aspects of the golden years is of the utmost importance.

Live long and prosper. MT55

Nicholas Taber is a registered representative of Park Avenue Securities LLC (PAS). Securities products offered through PAS, member FINRA, SIPC. Financial representative of The Guardian Life Insurance Company of America® (Guardian), New York, New York. PAS is an indirect, wholly-owned subsidiary of Guardian. Northern Rockies Financial Group is not an affiliate or subsidiary of PAS or Guardian.

Disclosure: This material contains the current opinions of the (author) but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal or investment advice. Therefore, the information should be relied upon only when coordinated with individual professional advice. 2018-55546 (exp. 03/20)