With vast changes to your lifestyle, retirement is a time that involves a lot of adjustment. However, with the right planning, you can make these changes smoothly and find this period of your life to be immensely satisfying. Prior to reaching retirement age, different aspects of your living such as your health, time, and finances need to be planned. It is easy to say ‘maybe tomorrow’ to these plans, but the more you delay your retirement planning, the harder it may be to ensure you’ll be comfortable in your late 60s. The retirement calculator will assist you in determining how much money you need to accumulate before retiring and how to prepare for it.
Know what can derail your retirement and how to respond to these risks
As you plan for your retirement, learn to expect the unexpected. There is a slew of post-retirement risks that could affect your family like the death of a spouse, market crashes, a lengthy illness and more. As more retirees live longer, and in some cases, are forced to retire earlier, the risk of outliving your retirement corpus only increases. The more this period of retirement grows, the harder you might find it to be certain that your assets are adequate for your lifestyle. In case you were putting off this financial planning, here are a few risks to be wary of and how you can respond to them.
Some Types of Post-Retirement Risks
1. Employment risk:
It’s common for most retirees to aim to supplement their income either by working part-time or full-time after their retirement age. Some organisations may also choose to hire workers that are older due to their stability and immense experience. Note that, however, to be successful in the job market you also need technical skills some retirees may not easily gain or maintain.
For this reason, the prospects of employment among retirees can vary greatly. Picking the point at which you wish to retire wisely is key to successful retirement planning. Although retiring later is one alternative to saving sooner, there is no certainty that appropriate employment opportunities will remain available to you.
2. Longevity risk:
Another risk that comes with retirement age is that of your savings running out. With life expectancy rising every year (a great feat on its own!), the age at which your savings begin for retirement should be dropping in succession. With longer life, it is not just that your savings can run out. The longer you live, the likelier you are to experience some of the other risks mentioned in this list. Hence, longevity risk is not one to be underestimated.
Some of this post-retirement risk may be mitigated through a pension or annuity plan. These types of plans provide a lifetime income stream. They can definitely ease the financial burden that can come with retirement living. Another key thing to practice is being mindful of your savings. By spending too much too soon, you can risk running out of your savings. Retirement spending is definitely a balancing act of enjoying your fruitful years, while also ensuring your savings are intact.
3. Healthcare risk
A big concern for most retirees is unforeseen medical bills. Older people have greater healthcare needs and are more prone to developing chronic illnesses that require active management. From the cost of medication to hospitalisation bills eating up one’s savings, there might be little left to support a retiree’s day-to-day, in case they didn’t see these costs coming. This risk may be mitigated by opting for a comprehensive health insurance policy and starting one’s retirement planning early.
4. Inflation risk
One of the most common financial risks afflicting individuals post-retirement is inflation. For anyone living on a fixed income, inflation should be an ongoing risk that needs to be accounted for. Even relatively low inflation rates can easily erode the well-being of retirees, so if you just imagine a period of high inflation, the consequences are expected to be devastating. To combat this, investing in asset classes that have historically proven to beat inflation like equity mutual funds, and growth stocks early on in one’s career is a wise move.
Unexpected events can derail even the best-laid retirement plans. But that’s where smart preparation comes into the picture. Adopting the mind set of expecting the unexpected is the best move anyone can make when planning for retirement. With careful and calculated planning, after preparing for all potential risks, you can ensure the post-retirement life is smooth.