Retirement Risks

The Balance

As life expectancy in the United States has dramatically increased, more and more people are going into retirement– some even remaining in retirement longer than they were working. This longevity can wreak havoc on the best of financial plans. But, not to worry. Here are the five biggest risks associated with retirement and how best to prepare for them.

Healthcare Headaches

A man retiring in 2018 can expect to spend about $245,000 on healthcare on average during retirement, according to the book, Common Financial Sense. In order to avoid these costs as much as possible, retirees should save money while looking for a life insurance policy that includes long-term care rider. If care is needed, the amount of the death benefit is the same amount that can be used for long-term care expenses. If the coverage hasn’t been used up in the retiree’s lifetime, the balance is paid out to the beneficiary.

Housing Expenses

To reduce the cost of housing, homeowners should buy a home they can pay off before retirement. This way, retirees won’t incur extra costs they could have taken care of while they were working. Renters, on the other hand, won’t have to worry about repair costs but will have to live with a housing expense that never goes away. If you rent, save sooner rather than later for housing expenses in retirement.

Inflation And Investing

According to data from the U.S. Bureau of Labor Statistics, the inflation rate has averaged 4% annually over the past 50 years. It can even exceed that. To address this issue, maintain exposure to more aggressive investments during retirement, including equities. Being too conservative with investments can be costly if inflation spirals out of control.

Losing A Spouse

The premature death of a spouse can be devastating. During retirement, it can make finances even more difficult. The best way to avoid this risk is for both spouses to understand how their income is generated and what would happen if one spouse were to die. Planning for these scenarios will keep retirees safe and secure.

The Cost Of Free Time

Now that retirees have all this free time, they have to fill it. This is one expense many retirees do not plan for.

The best way to prepare for an excess of free time is to begin saving early. Create a well-thought-out retirement plan to occupy any extra free time that comes up. Minimizing expenses wherever possible is huge with this one, so retirees may want to opt for a trip to the library than Cancun if they’re feeling a little bored.