Retirement has the potential to be a relaxing and fulfilling stage of life. As with any major change, though, it presents a new set of challenges that may cause anxiety. How do you manage health care costs? How do you keep from outliving your money? What if you still have debt?
By laying some financial groundwork now, you can ensure a smooth transition to retirement. Here are the four biggest financial concerns (on average) about retirement.
Health Care Costs
Health care costs are the top retirement concern for Americans. According to the survey, 28 percent of people are worried their medical expenses will be too high. But fewer than 15 percent of those nearing retirement age have estimated how much they will spend on health care in retirement, according to a 2014 survey by Merrill Lynch and Age Wave.
What to do about it: Unanticipated medical expenses can derail years of retirement preparation. Our process will help you to prepare for these expenses.
Saving Enough Money
Today, nearly 25 percent of all 65-year-olds will live to age 90, according to the Social Security Administration, and almost as many worry that they will outlive their money.
What to do about it: You may be able to reduce retirement anxiety by estimating how much you need to save to cover a long retirement. Look for ways to boost savings, including taking advantage of catch-up contributions to retirement accounts (if you haven’t already) and adjusting your asset allocation to meet your changing circumstances.
Maintaining an Income Stream
Eighteen percent of Americans are worried that they won’t be able to afford daily expenses in retirement—and they’re concerned that Social Security income either won’t be available or won’t cover enough of their expenses.
What to do about it: When it comes to income planning in retirement, keep in mind that working for even just a few more years may help you suspend drawing income from Social Security and savings while taking advantage of available pensions and benefits.
Having too Much Debt
More than 1 in 10 Americans worry about having too much debt in retirement. In 2015, the average 65-year-old had more than $48,000 in debt, compared to less than $34,000 in 2003, according to data from the New York Fed Consumer Credit Panel. During this time frame, debt increased by about 60 percent for all borrowers between 50 and 80 years old.
What to do about it: There are different ways to tackle debt and many strategies for paying it off. If debt feels overwhelming, a credit counselor might be able to help.
Retirement can be about having the time to enjoy the things you have always wanted to do. Put your retirement concerns at ease by planning ahead and laying a good foundation for your financial security.
Fixed Indexed Annuities (FIA) may have the potential to outperform bonds in the near future and smooth the return pattern of a portfolio.
With bond yields at such low levels, people are looking for other ways to avoid the risks of the current market and the overall economy, especially as they approach retirement. In his latest research, Roger Ibbotson, the economist known for his Stock, Bonds, Bills and Inflation chart click here for article, argues that fixed indexed annuities have the potential to outperform bonds in the near future and smooth the return pattern of a portfolio, given their downside protection.
A fixed indexed annuity is a contract issued and guaranteed by an insurance company; it is a tax-deferred accumulation vehicle whose growth is benchmarked to a stock market index, rather than an interest rate. In good years, when the market has positive increases, you may realize positive growth; In part because, you are limiting your equity exposure due to the index. And when the stock market is very risky, you may limit downside risk by have the peace of mind knowing that the returns will never fall below 0%.
Ibbotson simulated different portfolios to demonstrate how they would perform in below median bond return environments—which he believes we’re heading into—versus above median bond return environments. During below median bond return environments from 1927 to 2016, a 60/40 (stocks and bonds) portfolio returned 7.6 percent, on average. That compares to 8.12 percent for a 60/20/20 (stocks, bonds, and fixed indexed annuities) portfolio and 8.63 percent for a 60/40 (stocks and fixed indexed annuities) portfolio .
Does a FIA make sense for your portfolio? It may, or it may not. The point is, everyone's needs, risk tolerance, and goals are different. Investment recommendations and decisions cannot be given or made until the whole picture is reviewed. Let’s start that conversation to allow us to help you determine what is best for you by examining where you currently are and where you want to be. Once we know that, we can assist you with putting a plan in action that fits you.