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Retirement Risks
By JLP | January 23, 2007
I was flipping through the February 2007 issue of Kiplingers and found an interesting article that contained a graphic about 3 retirement risks:
- A long life – Normally a long life would be a good thing. However, when it comes to retirement planning a long life means you need a bigger retirement account. According to the article, there’s a 50% chance that at least one member of a healthy 65-year old couple will live to age 92. That means there’s a good chance that one of them could have a 30+ year retirement.
- Inflation – A serious threat to a retiree is inflation. Think about it: at 3.5% inflation, $75 worth of groceries will cost $150 in 20 years. And that’s at 3.5% inflation. Who knows how fast healthcare prices will rise.
- Investments – Without the right balance of stocks and bonds it will be difficult for retirement savings to continue to provide the necessary income. Kiplinger recommends at least 50% of a retiree’s assets be placed in stocks.
One very real risk that they didn’t mention is the cost of healthcare (which I mentioned above) and long-term care. I think every retiree should have a long-term care policy unless they simply can’t afford it.
Thinking about all this makes me glad my wife and I have at least two decades to get ready for retirement.
Topics: Retirement Planning | 7 Comments »
January 23rd, 2007 at 2:48 pm
This points to some disparity that I see all the time and I feel it’s a National, if not a Global issue.
I realize this is a tangent, but real wages aren’t keeping up with inflation. What’s going to happen when we have a fallout? Depression? Long recession? And to tie this to your post, what’s this mean for retirees?
It just worries me, carry-on
!
January 23rd, 2007 at 3:07 pm
Great Blog!
http://www.millionsinthemaking.blogspot.com
January 23rd, 2007 at 3:59 pm
Being the spreadsheet junkie that I am, I decided to replicate my financial planner’s model so I could run my own scenarios. Also, I just wasn’t believing the shocking inflation-adjusted retirement numbers my planner was coming up with until I could replicate them myself. I’m still playing around with it, but the biggest levers seem to be:
1) The age of retirement (even a year or two can make a huge difference holding life expectancy unchanged).
2) The rate of inflation (like you said). Even a percentage point can make or break your nestegg by hundreds of thousands of dollars.
3) The withdrawl rate – there seems to be a threshold where if you exceed that threshold by even a small amount, you run out of money real fast.
As my wife and I keep saying to each other – If we feel relatively unprepared and uncertain about the future, then what does that say for the other 99% of the population.
January 23rd, 2007 at 7:11 pm
It’s great u r thinking about retirement early, but you should still manage it as if you’ll need it in a year.
January 25th, 2007 at 7:09 am
Deflation is also a risk.
January 26th, 2007 at 5:23 am
Star Money Articles for the Week of Jan. 22
Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: MightyBargainHunter highlights a free how-to course. Five Cent Nickel lists the most common financial resolutions. Blueprint for Financial Prosperity tells us h…
January 26th, 2007 at 9:27 pm
Weekly Roundup – 01/26/07
Here’s a quick look at some articles that caught my eye over the past week:
JLP talked about retirement risks.
Jim talked about when frugality is a fault.
Flexo is having trouble with his TIAA-CREF SEP-IRA.
FMF talked about the best place to sa…