Retirement Planning and
5 Important Risks Every Investor Should Consider
Saving for retirement? Not sure what type of risks you need to take into consideration in your retirement plans? Then read on, since in the following section we will try to look into these issues and try to provide solutions for the same.
Saving for Retirement and Associated Risks
Family and Personal Risks
Employment Risk – Longevity Risk – Meeting Unforeseen Needs
There are retirees who try to earn supplemental income by taking up a full time or part time job during retirement. However, job prospects tend to vary due to several aspects such as changes in health, need to acquire new skills, economic and family conditions. Thus, deciding about your retirement age is the most important aspect in retirement planning which any retirement advisor would take into consideration. As such, working after retirement can be quite uncertain and you should preferably avoid such plans while creating your retirement income goals.
This is one of the risks which many people can face where they run out of money before their death. The longevity risk has become a genuine problem with the rise in life expectancy.
It is therefore quite inadequate to create a retirement plan for your financial needs up to a specified age. The solution to this problem lies in having a annuity or a pension, since you are assured to steady income stream for your entire life.
Meeting Unforeseen Needs
A situation may arise where after retirement you face a situation where it becomes necessary to financially assist someone in the family, such as, your children, parents or siblings. You family members might require financial support in case of a sudden and unforeseen change in employment, health or marital status and in such situation you will have no option but to step in and provide required financial assistance.
Some very common types of financial support you may have to provide you consist of bearing health care expenditure for your elderly parents, financial assistance for unemployed kids, having to pay costly education fees for kids or similar other financial problems. Thus, your retirement advisor should take into consideration these financial situations and develop a retirement plan that will help you bear such unforeseen expenditures.
Inflation Risk – Interest Rate Risks
In retirement you will have a fixed income to live on and inflation will be a major concern you will have to face. A retirement advisor should take necessary steps to offset risk of inflation. Some of the steps which can be taken would include:
- Investment in equities
- Investment in home or other similar assets
- Investing in annuities (having features for cost of living adjustment)
Interest Rate Risks
If you have investments with lower rate of interest then your retirement savings will grow slowly and as such, will have less amount of funds during your retirement. If you are investing in annuities then at the time of their purchase if the long term rate of interest is low then you will get less income over its term. Similarly, if market value for bonds starts dropping then the interest rate will rise and will have a similar negative effect on your retirement income. Thus, it will be quite important to take into consideration these factors and select investment products which can provide you adequate returns over a period of time.
To conclude we can say that proper planning is necessary when you are saving for retirement so as to ensure that there are enough funds to support the lifestyle you are accustomed to.