What is the greatest risk to retirees today?
Is it long term health care costs?
Is it rising taxes?
Is it the possible downfall of the Social Security system?
These are all risks to retirees, but I don’t think they’re the greatest. Another risk encompasses and overwhelms all of them.
My guess, and the consensus of all my clients, is that the greatest risk retirees face today is outliving their assets and having to rely on potentially failing social services for their elder years. This is so scary that people are taking huge risks with their retirement funds in hopes of greater returns that could “save” them from running out of money.
I think it’s a huge concern, but I don’t agree with taking more risk to avoid that concern. Two wrongs don’t make a right, as the saying goes.
Retirees need guarantees that their income won’t run out, especially at their later years when going back to work may not be an option. Or when they can’t get a job that pays enough to support their lifestyle. (And what kind of “retirement” is it when you’re not really retired? You’re working! How depressing.)
Putting all your money into a stock market portfolio, or a mix of stocks and bonds, or gold, or real estate investment trusts, is taking risk. It’s a little risk or a lot of risk, but it’s definitely risk. Risk means you can lose money. Maybe lose a lot of money. Risk does not mean guarantees that your money will be preserved or always available to you when you need it most.
In contrast, most retirees want to eliminate risk. They want to start collecting a retirement income. And they certainly don’t want that retirement income to run out before their death.
Many of my clients also talk about leaving some sort of “legacy” to their children or grandchildren, or to their favorite charities. These are admirable intentions that can get derailed if all the money is gone.
The truth is that our generation is living longer and longer. I expect more and more retirees will live well into their 90’s. I help my clients plan for income to at least age 100, to make sure they have enough income for the rest of their lives. It’s not “pie in the sky” to plan for life into your 100’s. If you do plan properly for a long life, you’ll be able to enjoy your retirement years and not worry about the money running out.
If you’d like some help evaluating your particular situation, please contact me and we’ll take it from there.