The top 5 Financial Risks In Your Retirement Portfolio
As you get closer to retirement, you will need to make sure that you have all of the bases covered. All retirees face the same five risks in their retirement financial portfolios. The amount of risk in each of these five categories will depend on your unique situation.
Although you may be eligible to receive a pension income from your employer, have a large 401k/401a balances, substantial savings in IRA/Roth IRA or a large cash portfolio, you are still subject to these five risks. The amount of risk in each of the five categories will vary substantially based on the unique makeup of your portfolio. Regardless of your unique portfolio makeup, work with a financial professional to make sure you have a strategy in place for all five.
These risks could also be more pronounced, based on whether you have a defined benefit or a defined contribution plan. With that in mind, it is important to be aware of what these risks are, as well as to be familiar with some of the possible solutions that you can implement to reduce – or even to eliminate – these financial pitfalls in the future.
According to the administration, about seven in 10 people (69%) turning age 65 today will need, at some point, some type of long-term care services—either at home, in their community or in a facility. Typically, women need care longer (3.7 years, on average) than men (2.2 years). And while about one-third of people who are 65 may never need long-term care, 20% will need it longer than five years.
Based on the 2019 Genworth Cost of Care Survey, the average monthly cost of a semi-private room in a nursing home (in 2019) was $7,513. This equates to an annual price tag of more than $90,000. A private room can cost an additional $1,000 per month, bringing the total to more than $102,000 annually.
When you think about the cost of going to the movies today – as compared to when you were a teen - it’s hard to believe how much things have changed. For instance, back in 1969, the average movie ticket price was just $1.42 per person. But, adjusted for inflation, that ticket would cost $11.40 in 2022. Based on statistics from the Farmer’s Almanac, the difference in the prices of everyday items over just a few decades can be staggering.
While most investors and retirees are familiar with market volatility, inflation, and low interest rates, one risk that many people are not aware of is the order, or sequence of returns (market). But this little-known financial danger can have a big impact on your future income and lifestyle.
Sequence of Returns definition: The risk of receiving lower or negative returns early in a period when withdrawals are made from an investment portfolio is known as sequence of return risk. If you are taking withdrawals from your portfolio, the order or the sequence of investment returns can significantly impact your portfolios overall value.
While saving and investing for the future is a good start, the truth is that a successful retirement requires you to have one or more income streams that will rise over time, that won’t be affected by the ups and downs of the stock market, and that will continue flowing in, regardless of how long you live even if you live past 99, like Betty White.
What are your odds of living to age 95? For the average male today it is 7%, healthy male 20% and in 15 years that is expected to increase to 25%. For the average female today it is 13%, healthy female 29% and in 15 years that is expected to increase to 33%. Will your portfolio last that long?
Even though most people pay taxes throughout their entire lifetime, the amount of your tax liability can be tricky to pin down – especially when it comes to planning ahead financially – because nobody knows what tax rates will be in the future.
If the past is any indication it will be critical to build some tax-reduction – as well as some possible tax-elimination – strategies into your retirement income plan. This is because since 1913, income tax rates have been in excess of 70% forty-nine times! Would you be able to maintain your future lifestyle on only 30% (or less) of your income?