Retirement can be risky business http://www.investopedia.com/articles/retirement/08/post-retirement-risks-outlive-assets.asp if you don’t consider all the factors that can impact your retirement during your planning process. Although it’s hard to know what will happen in the future to you or your investments, these are the main things that should be addressed in your retirement portfolio:
#1 Longevity.If boomers live into their 90’s and Gen X-ers live to a hundred, how long will you live? Medical science and healthier life styles will keep driving this number up. Depending on your retirement age, in the future you will spend more time retired than you did working.
Medical science has impact retirement and will continue to impact how long people may live in an assisted living facility. If the cost of better quality facilities keeps increasing, what will they cost in 2040? For this reason alone you can never have too much money for your retirement years.
#2 Investment Horizon. You may have 30 to 40 years until you retire. One of your biggest risks is procrastination. Will you start saving when your children are older or out of college, or are your priorities the big primary residence and a vacation home? You can never get the lost years back which is why retirement planning and saving should start early. Having the personal discipline to stick to a retirement savings plan will impact your retirement along with your time horizon.
#3 Performance. After you achieve critical asset mass, performance is your number one source of new assets. In fact, it may have 3-5 times the impact of savings. A critical question is who produces the performance? Do you make your own investment decisions? Do you invest in a mutual fund family? Having a financial plan in place and working with a financial professional regularly to monitor performance will greatly impact your retirement assets lasting throughout your life.
#4 Investment Risk. If you don’t take risk when you are young, when should you? Investors in their 30’s and 40’s should be heavily invested in the stock market. Yes, stocks are riskier than bonds, but stocks also outperform bonds over longer time periods, just not every year. The relationship between stock, bond, and money market performance is based on Capital Market Theory. You can afford to take substantial risk if you have more time to recover from bad year. However, you need to be comfortable with the risk associated with your portfolio or adjustments need to be made.
#5 Investment Expense. You get what you pay for. There are no ‘free lunches’ when you invest your assets in the securities markets. And, every dollar of expense is one less dollar you have available for reinvestment and your future use. You should watch investment expenses very closely. This expense could add-up to hundreds of thousands of dollars during your life time.
If you would like to visit to discuss all of these retirement risk factors and how they may impact you, contact our office to schedule an appointment or review.