Are Your Retirement Plans Resilient to Crises? Many Aren't. Here's How to Assess Them
Chill, let's talk about ensuring your retirement plan can weather the storm. According to Allianz, over six in ten Americans fret about a future crisis potentially messing up their retirement, but only about half have factored such risks into their plan.[1]
If your retirement strategy is like a ship sailing in calm waters, it might be time to prepare for rough seas. To safeguard your financial future, consider the following strategies:
- Diversify, baby!Carlie Ransom, co-founder of Equal Path Investments, suggests a three-pronged approach to investment diversification: time horizon, tax treatment, and asset class.[1] This means mixing both fixed and variable income sources, such as Social Security, annuities, rental income, dividends, and bond ladders, to ensure you don't rely too heavily on any one source.[1]
- Factor the overlooked risksLong-term care costs, changes in tax policy, and inflation are often underestimated risks. According to Ransom, long-term care is a significant concern since there's a 69% chance someone turning 65 will require care at some point. The annual cost for a private nursing home room averages $127,750.[1] Additionally, beware of longevity risk, unexpected life transitions, and potential tax law changes.[1]
- Stay flexibleFlexible tools like bond ladders, hybrid life insurance with long-term care riders, and adaptable withdrawal strategies make it easier to adjust your plan when life takes unexpected turns.[1]
- Regular reviews and stress-testingRecall that a retirement strategy should be a living, breathing document, not a set-in-stone plan. Ransom recommends conducting annual reviews and stress-testing for various scenarios.[1] If you inherit a large sum of money or consider early retirement, it's wise to reevaluate your options.[1]
Now, you might already plan for market volatility, but these additional considerations will help ensure your plan is truly resilient. Aim for durability, not doom – your retirement deserves nothing less! Seek out vetted and fiduciary financial advisors to help you navigate this process. Start stress-testing and get prepared today!
[1] Allianz, 2021. Retirement 2021: The Retirement Gender and Confidence Gaps. Accessed January 31, 2023. https://www.allianzlife.com/dam/Allianz/Assets/PDF/Retirement/TheRetirementGapReport.pdf
- To further secure your financial future, consider diversifying your investments, as suggested by Carlie Ransom, co-founder of Equal Path Investments, considering factors such as time horizon, tax treatment, and asset class.
- Beyond market volatility, overlooked risks like long-term care costs, changes in tax policy, and inflation should also be factored into your retirement plan. For instance, there's a 69% chance someone turning 65 will require care at some point.
- Maintaining flexibility in your retirement plan is crucial, as life can present unexpected changes. Utilize tools like bond ladders, hybrid life insurance with long-term care riders, and adaptable withdrawal strategies to adjust your plan seamlessly.
- Regular reviews and stress-testing of your retirement plan are essential to ensure its resilience, especially when faced with various scenarios such as inheriting a large sum of money or considering early retirement.
