Hopefully you know about the potholes in your road to retirement. As a Certified Financial Planner, I’ve help get hundreds of people on the road to retirement. I consistently see overlooked potholes that significantly impact your ability to achieve a successful retirement. So, put on your seat belt, and join me for a look at some of those potholes.
Don’t underestimate how long your retirement may last, and plan for a retirement that could last 30 years or more. With advances in medicine and science, more and more people are living beyond 90 years and more. In fact, The National Institute on Aging Report says “The 85-and-over population is projected to increase to 351 percent between 2010 and 2050.”
Have you considered the impact inflation has on your retirement nest egg. For example, a 1% increase in inflation every year for 20 years significantly reduces your purchasing power. In this scenario, a yearly retirement income of $60,000 has the purchasing power of only $49,000. How long can you comfortably live on $11,000/year less than you have?
Although medical advances have helped improve the quality and length of our lives, expenses have skyrocketed. In addition, it’s likely you will make more trips to the doctor and require more medications as you age. Finally, what happens if a catastrophic illness or major medical event occurs? How will that pothole in your road to retirement affect your savings?
Investing in mutual funds doesn’t mean your investments are diversified. It means you’re invested in the single asset class “equities”, and may not be as diversified as you think. This puts your investments at unnecessary risk.
You’ve planned for positive returns in your retirement portfolio; maybe even a few negative returns thrown in for good measure. But what happens when the market crashes and a large chunk of your money vanishes? It’s not a scenario we like to think about, but it is a possibility to consider.
The first step on your road to retirement is creating a written plan. Just remember to review your plan regularly, and know how you’re going to navigate any potholes that appear along the way.