Retirement is a phase of life everyone looks forward to. After having worked so hard for so many years, you deserve the break! However, there are risks associated with retirement that can put you in trouble if you do not plan for them. Risks to your retirement that you can plan for include market fluctuations, inflation, and timing for social security.
Prior to retirement, it is important to consider future market fluctuations. Changing values in money, 401K, taxes, and even healthcare can significantly impact your retirement savings. Sequence-of-return risk is the risk that an investor will experience negative returns based on their investments and money withdrawals. Any investments you make will constantly fluctuate with the market. To avoid backlash, it is best to have money independent of your investments and vary your investments to reduce financial risks.
Inflation occurs when natural occurrences in the market economy change. Rising wages and rapid increase in raw materials contribute to inflation. Unfortunately, a dollar today will not buy the same value of goods in ten years. You can protect yourself against inflation by investing in anti-inflation assets like gold and commodities. Gold tends to gain value during inflationary periods because it is seen as an “alternative currency”. Commodities are raw materials used to keep the economy going: gas, oil, electricity, etc. Investing in materials that will never lose value will help hedge you against inflation.
Timing for Social Security
The timing for taking out your social security benefits can make a real impact on your finances. Technically you can take it between the ages of 62-70. However, the amount of money you get is impacted by when you take it out. At 62, you receive 25% less than if you wait for full retirement age. A retired vs working income will also affect your annual cost of living adjustments. If you wait until 70, you can receive 32% more at full retirement age. Of course, this depends on multiple personal factors, but the longer you wait, the more of a positive impact it will have on your finances.
Retirement is a well-earned achievement. It is important to ensure your hard work pays for your financial future. Remain financially secure by avoiding common risks to your retirement like market fluctuations, inflation, and timing for taking out your social security.
Check out this article on how to add some excitement to your life in retirement!