Your financial plan outlines the path to your goals and dreams, and protecting your assets from risk is an important part of that journey. From early career through retirement, the better you can identify risks and prepare for the unexpected, the closer you'll be to achieving your financial goals.
Some risks are easier to see than others as you work through the process of setting your goals and implementing the financial plan to achieve them. Learn from others’ experience and talk with a financial representative about possible risks, including the following, which have the potential to delay or deter your long-term financial security.
Family Financial Support
You might be planning to offer some financial help to children or grandchildren, but how much, and for how long? A lump-sum gift for each child might be in your plan, but what if adult children (or their families) need help through challenging times such as job loss, divorce, or starting a new career? If they were to live with you for a period of time, it could increase your costs or delay your plans to downsize. You may want to increase the funds you allocate for this or think about setting time or resource limits if the issue arises.
Health Care and Related Expenses
Longer life expectancies, rising medical and prescription costs, and ever-changing insurance benefits mean health care costs can consume assets before and during retirement. If you don’t have insurance coverage for dental work, vision exams and glasses, hearing aids, or orthotics, you will have to pay for these services out of your own pocket. Take control of these costs where you can – practice healthy habits to avoid medical issues, keep insurance in force during your working years, and obtain Medicare supplemental insurance in retirement. Be sure your retirement plan sets aside funds for these expenses, and keep in mind that some services may be available at lower cost through association memberships or other discount programs.
Many people plan to pay off their home before or during retirement and don’t anticipate further house-related expenses after that. But if you need to hire help to maintain your home, or to retrofit it for handicap accessibility, or you want to live elsewhere for part of the year, you may incur unplanned expenses. It’s best to plan for some housing expenses in your retirement budget to accommodate these possibilities.
Cost of Supportive Services
Consider that you or a loved one might want to hire help in the future for tasks that you currently handle for yourself. You may have a life insurance policy to provide income after a spouse’s death, but what about assistance for the household chores and day-to-day tasks that you need to live independently? If you or your spouse become unable to handle daily responsibilities or personal care, or at some point you want to hire a helping hand, be sure you are prepared to pay for services such as housework, laundry, lawn care or home health care.
Disabling Illness or Accident
Losing income due to disability, illness, or injury can have a major impact on your financial plan and long-term goals. Disability insurance helps protect your income during your working years, providing funds for critical expenses so you can preserve and continue building retirement assets.
There’s a 50 percent chance that a woman who turns 65 today will live beyond the age of 90 and the same chance that a man of 65 will live beyond age 87.1 Yet, according to the Northwestern Mutual 2013 State of Planning in America study, just slightly more than four in ten (44 percent) of Americans say they’re financially prepared to live to age 85. As people live longer and potentially face health or employment reasons to retire early, it’s critical to prepare for a longer retirement than you might expect.
Investing in the stock market can give your income and retirement savings the potential to keep pace with inflation. However, it also means taking the risk of market losses. Your financial plan should include investments that are allocated based on your risk profile, time horizon, and goals. As retirement nears, you should consider allocation strategies that provide a high probability of providing needed income throughout a potentially long retirement. Talk to a financial representative about the best strategy for you.
Inflation and Taxes
When planning for the long term, both taxes and inflation can take a bite out of your retirement savings. Inflation can decrease your purchasing power, while taxes can reduce your income and leave you with less money to spend. Protect your assets from these risks by ensuring you have adequate income streams, including tax-efficient options, in your retirement distribution plan.
Long-term Care Needs
The cost of care for an unexpected or long-term illness could require you to prematurely deplete your retirement assets. Be sure your plan includes a strategy for managing the cost of care for an illness or injury not covered by private health insurance or Medicare.
Leaving a Legacy
If you want to make an impact beyond your lifetime by leaving a financial legacy to loved ones or charity, you will need to balance that desire with the need to fund your retirement. With sound planning and the right mix of assets, it is possible to have a comfortable retirement and leave a legacy.
There are many financial challenges that can get in the way of our goals. The most important action you can take is to plan for these risks—thus taking a critical step toward achieving financial security. Contact a financial representative today to get started or to review your existing plan and be sure it is updated it for your current needs.
1Annuity 2000 table with mortality enhancements determined using projection scale G2.