Building Retirement Fund Just the Begining


Filed under Planning & Money

You’ve worked. You’ve saved. You’ve invested. You now have accumulated a significant retirement nest egg. It appears you have a “lock” on a secure financial future. Still, for many either nearing or in retirement, you can’t help but wonder, “Is it really enough?”

This nagging question reveals one unavoidable fact: Building a significant retirement fund is no longer the “end game” of financial security; it is a beginning point.

Five challenges make it imperative that those in their 50s, 60s and 70s carefully manage their retirement dollars:

• Due to increased life expectancies, many boomers will have retirements lasting 20 years or more. In fact, the National Center for Health Statistics reports that the median life expectancy for someone age 65 is 18.6 years. This means about half the population will live longer in retirement. With increased longevity comes increased risk of potentially outliving one’s retirement assets.

• Retirees need to account for inflation. Inflation is the sustained increase in the general level or prices for goods and services over time. As inflation rises, every dollar owned buys a smaller percentage of a good or service. As prices go up over time due to inflation, the value of investments can erode. This is particularly true over a long time period, like 20 or 30 years.

* Responsibility for funding retirement is shifting from the employer to the employee. Many traditional company pensions (defined benefit plans) are being phased out or frozen, even by financially healthy companies, and are being replaced with defined contribution plans (like 401(k) and 403(b) plans). This means the burden of managing one’s retirement income is increasingly falling on individuals.

* Unplanned personal “life events” will happen. No one can know what lies ahead in their retirement journey. While everyone hopes for good health and the ability to determine “when” to retire, life holds no guarantees. Planning for one’s retirement years must include consideration of life events that have the potential to complicate their retirement years.

* Investment markets will continue to fluctuate (up and down). Typically, investments generating the potential for greater returns also have greater potential for loss.

“Funding your retirement years is a financial balancing act among playing it safe, taking risks and spending wisely,” says Ann Koplin, director of Retirement Marketing for Thrivent Financial for Lutherans. “If any of those areas gets out of whack, troubles may result.”

Koplin says products offering a guaranteed income – like annuities and certificates of deposit – may help retirees establish an income floor they cannot outlive. Ideally, individuals can add to this income base over time as they experience investment gains and convert a percentage of their assets from equities (and growth) to income. This is also dependent on the retiree’s personal circumstances and spending.

Koplin also notes that certain protection products – like life insurance and long-term care insurance- are also needed during one’s retirement to protect against the potentially devastating impact of unexpected life events like death and chronic illness. She likens this protection to that of safety net for a tightrope walker.

“While you may retire, the fact is your money never should,” says Koplin. “Having a financial strategy that is flexible enough to adapt to a person’s changing needs and circumstances is a must. Retirement can truly be great, but that means carefully managing your money throughout your golden years.”

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