5 Risks In Retirement
The words “risk” and “retirement” gives many people concern when applied in the same sentence. We think immediately of market risk, losing an accumulated nest egg, and other forces that seem out of our control. However if we both know and understand the risks, they can be managed and even overcome.
At Bender Advisors we isolate 5 critical risks to and in retirement for our clients and it is these 5 risks I wanted to discuss in this article.
The Five Risks
- Market Volatility Risk
- Longevity Risk
- Inflation Risk
- Liquidity Risk
- Health Risk
Let’s address each risk one at a time and before we get started, let me say, much more can be said on each of these risk areas. However the purpose of this blogpost is simply to begin the thinking process as these risk areas apply to your life.
Market Volatility Risk
Market Volatility seems to be at the forefront in this era of market watching and instant information technology. Quite simply, market volatility risk is that which exists when assets such as equities fluctuate or have the potential for substantial loss. It not only encompasses ups and downs, but the overall timing and sequence of the ups and downs. The steps to take in the planning process move in the direction of diversification, rebalancing, and proper asset allocation which can address this risk. A portfolio is never set it and forget it.
We are living longer, we truly need a far larger asset base to sustain retirement than we did decades ago. In short, if one retires at 65, and lives until 95, you need to be sure that your assets are ready for 30 years of distributions. You want to make sure you have the ability to sustain your chosen lifestyle.
This is the basic principal that your money needs to out pace inflation, or you are truly devaluing. Lifestyle costs and basic needs increase in cost, it is not getting cheaper to live nor is the dollar increasing in it’s purchasing power but decreasing as the Federal Reserve prints money. You must make sure your plan factors inflation in.
Liquidity is not often spoken of, yet if your assets are money are all tied up and you need cash you have a liquidity issues. At Bender Advisors we believe it is critical to have assets that are immediately liquid ( accessible ) for our clients, as ‘life happens.’ Too often, we see portfolios that have assets which are illiquid, and when needs arise it forces you to sell the wrong assets at the wrong time to bridge a liquidity gap, which can have a negative long term impact on a portfolio and a retirement plan.
Like longevity risk, health risk might also mean a loss that is not only far too premature, but completely unexpected. We believe in protecting client families for health risk using sound insurance strategies. All the growth and gains in the world are of little worth if you are unprotected or ill prepared for living a long-life.
Understand your risks, and you will be one step closer to managing around them and achieving the retirement and lifestyle you are dreaming of. Risks can be managed, and the victory that results is your desired outcome!