Retirement can be comforting yet a challenging event in many peoples lives. You want to be able to live comfortably during this time with out worrying about how to make ends meet. To do this requires that you have a solid strategy in place that can generate consistent income, protect you against inflation and be able to live the comfortable lifestyle that you have become accustomed to. In this article we will examine what you can do to have an enjoyable retirement without the stress and challenges that so many retirees face today.

Ways that Erode Retirement Assets

There are many ways that can reduce your retirement assets. Any one of them can create a situation where you might not have enough money to live on once you retire. In this case knowledge is power in that if you know how and in what ways they can reduce your income or assets you can take steps to ensure that this doesn't happen to you.

Inflation: It doesn't take a rocket scientist to understand how inflation can effect your everyday life. However, it can also have an effect on your retirement in that it increases your cost of living every single year. Over the past 50 years inflation has averaged four percent a year. This means that something that cost you $100 dollars today will cost you $180 dollars 15 years from now. This can be huge when you are living off a fixed, consistent amount yearly. To be able to continue to live a comfortable lifestyle in retirement you must be able to consistently keep up and stay ahead of inflation.

Living Longer: People are living longer now more than at any other time. The average man who retires at 65 can expect to live until 82. While the average woman who retires at the same age can expect to live until 85. This can pose an enormous potential challenge for you in that the longer you live the more the odds increase that you will not have enough money to live on when you are retired. To be able to live a comfortable retirement we must be able to structure our income and investments so that they can continue to provide for us long after we have passed the average age of life expectancy.

Lack of Diversification: Many people don't balance out their portfolios to protect themselves against a bad investment. They usually end up placing a substantial amount of their investments in one particular area or asset class and that's it. Far to often they think that XYZ is a good area or company and that as long as they stick with their current strategy they will retire with more than enough income and assets. Such was the case with many individuals who invested in Enron stock that were near retirement or at retirement. When the energy trading company collapsed many employees had invested the majority of their assets in the company's stock were virtually wiped out. Along with that went their retirement savings that they had accumulated for years. The basic idea here is don't put all of your eggs in one basket.

Medical Expenses: Another area that can effect on your retirement income and assets are medical expenses. As you become older the needs for medication and health care will only increase. Combine this with the fact that health care costs have been rising consistently over the

past several years. According to Fidelity Investments the cost for health care has risen a total of 34% since 2002. It estimated that with in the next 10 to 15 years many retirees will spend half of their income from Social Security on health care costs. To be able to have a worry free retirement you must use tactics that can be able to keep up with these costs so they don't reduce our income or assets.

Ways to Protect Assets and Create Income

There are many ways you can protect your assets against some of the above risks and be able to create additional income. Diversification is the key to allowing you to maintain stability, growth and income. Below are several tips and tactics that you can use to protect yourself against the potential challenges that you will face in retirement.

Equities / Dividend Stocks: To be able to combat the forces of inflation requires that your assets and income grow at rate faster than inflation. One way to do this is through the use of equities (stocks) or dividend paying stocks. Over the past 50 years stocks have averaged 6.6% compared with the average inflation rate of 4.0%. While the average dividend rate of the S&P 500 is 5.3%. What this shows is that investing in stocks and dividend paying stocks can keep your assets and income growing at faster rate than inflation by giving you long term growth and strong consistent dividends. When you put the two elements together the overall return is much greater than inflation. The important key is to use a conservative approach that can provide you with consistent long term growth and dependable, rising dividends.

Bonds: Another way that can provide income and stability during retirement is through the use of bonds. Over the past 50 years bonds have averaged 5.5%. Generally bonds are considered to be a conservative investment. When you purchase a bond you become a creditor to the company or government that issued the bond. During the life of the bond ( 5 years, 10 years, 30 years) you will make a consistent interest rate that is stated at the time of purchase. These interest payments will continue until the bond matures on the date in the future. U.S. Government Bonds are the safest followed by municipal bonds and corporate bonds. These types of assets will provide you with a consistent income on a regular basis. In retirement they can compliment your overall strategy by bringing a conservative income, orientated side to your portfolio that will provide you with stability.

Mutual Funds / Bond Funds: If you are uncomfortable investing in stocks or bonds another way to go is through the use of mutual funds and bond funds. A mutual fund is a company that raises money from investors (shareholders) and invests that money in a portfolio of stocks, bonds or both. The idea is that they will provide you with diversification and balance so that you don't have to worry about what stocks to buy or sell. A bond fund invests in bonds with the purpose of providing income and stability. The way that these two areas can benefit you is by providing your portfolio with balance and income without having to become involved in what stocks or bonds are the best areas for you.

Fixed Annuities: An alternative way to protect your assets and create income is through the use of fixed annuities. A fixed annuity is a written contract between you and the insurance company that is designed to provide you with regular payments at specific times (usually monthly, quarterly or annually) and can be for a certain number of years or your lifetime. These types of annuities are not tied to the stock and will pay you a stated guaranteed amount at a worst case scenario. These can be used to supplement your retirement income and can provide you with diversification as well.

Conclusion

By utilizing a diversified strategy that can provide you with stability, income and growth retirement doesn't to have the stress and challenges that so many face today. This diversification can be achieved using a variety of tools such as stocks, strong dividend paying stocks, bonds, mutual funds, bond funds and fixed annuities. However, like all strategies it is important to first evaluate your own situation to determine what amount of income and diversification will be needed to ensure that your assets are protected so that your income will be at a satisfactory level for your lifestyle. This will help you to have the worry free retirement that you always envisioned.

Chris Seabury has over 12 years experience following and writing about financial markets. Over the years he has educated and helped a great deal of investors get their portfolio in order. He currently has a financial blog that is dedicated to helping investors understand how the markets work and what they can do to benefit from them. http://davidsonreports.blogspot.com