What are potential pitfalls or risks of retiring in the next few years?
Folks that are contemplating retiring in the next few years should be aware that their are several risks associated with this undertaking. Principally, there are 3 major concerns or risks associated with retirement in the next few years and these include,
1. A Potential Rising Inflation Environment.
2. Outliving your assets due to increasing Life Expectancy.
3. Rising Long Term Care Costs due to inflation.
1. Rising inflation.
According to financial planners, "the principal concerns among both retirees and people nearing retirement age identified inflation as the top retirement concern and they were concerned that the value of their savings would not keep up with inflation." But despite these concerns, majority of these folks have only one source of income that is inflation indexed,and that is Social Security. Economists and Financial Experts now agree that Inflation is going to increase over the coming few years due to the financial bailout crisis and fiscal stimuli of the last few years.
Clearly, it is important to have a diversified asset base which would be a hedge against inflation, and these include investing in stocks, mutual funds, owning a personal home, perhaps even owning a Variable Annuity (that would be a good hedge against inflation) and owning Gold, an important hedge against inflation.
2. Retirees Outliving their assets.
With the current live expecatancy for an average male being 82 aand that of a women at around 85, the principal risk is the potential retiree outliving their assets.
There are some investment strategies that can be deployed to preserve these assets as having a Defined-benefit pension plans (applicable mostly to self-employed folks), Social Security, deferred annuities that annuitize at a higher age such as 75 or 80. These strategies can all help protect a retirees assets.
3. Long-term care Costs are spiralling out of control.
"Long-term care" which includes home care, adult day care centers, assisted-living facilities, and nursing homes. The major concern for retirees are that these costs are spiralling out of control and are very expensive.
In fact, financial and retirement planning experts who are familiar with Long Term Care Costs, state that the these "Long Term Care cost may possibly amount to $800,000 to $1,000,0000 for a couple, with nursing home costs projected to hit around $60,000 annually.
Long-term-care insurance would greatly assist and minimize the Long Term Care Costs. This is an important cost component of retirees.
As always, a potential retiree should always consult with a financial adviser prior to contemplating retirement, but I recommend that everybody should start their retirement planning early. A financial planner can jump start your retirment planning and help navigate through the potential problems in this process,