Retirement income planning involves various financial strategies for achieving your reliable and rising income during retirement. This strategic planning allows you to live with confidence and peace of mind that you have the highest probability that you will not deplete your nest egg. Although there is no specific time to start planning for your retirement income, the earlier you start, the better.
A major component of retirement income planning is risk management. Of course, investments have inherent risks, and retirement comes with uncertainty. But failing to manage risks appropriately can be detrimental to your retirement income. Therefore, making plans with proper knowledge and understanding of these factors is crucial.
There are three major risks to a reliable and rising income in retirement. The first is having a long term care event. This is not a medical event but a custodial event. When a person needs hands on help or supervision for activities of daily living. Help with eating, dressing, bathing, walking, incontinence. Age is not the only reason for this help, it could be the result of an accident or complications from a chronic disease. Medicare does not cover these costs.
Market volatility is another risk factor. Sudden downturns in the financial market early into your retirement will shrink the value of your nest egg and can cause significant damage to your future income that may be difficult to recover from, especially if you sell your investments in a panic. Most portfolios are designed this way. Designing your nest egg to give you predictable and reliable income for every on-going five year segment with no risk will allow you to disregard what the market is doing today. Another myth associated with retirement investment is no concern about outliving your money. Some estimate their life span by gauging that of their parents or relatives. However, accurately estimating how long you will live is virtually impossible. And research also shows that with technological advancements, Americans are living longer than before.
According to the Center for Retirement Research at Boston College, in 2021, the average retirement age for women in America was 62. This data shows that individuals could spend two decades or more in retirement. The longer you spend in retirement, the more money you will need. There is also the problem of the possible increase in medical costs and unforeseen expenses during your retirement years.
That brings us to the third major risk to a reliable and rising retirement income. Healthcare costs. A study by Milliman in Sept. 2022 showed that for a 65 year old women retiring in 2022 will spend about $300,000. This is with original Medicare, Medigap, part D and co-pays. A good retirement income plan will take these figures into account.
Finally, when designing a reliable and rising income in retirement you must seek to plan for, reduce or eliminate the three major income risks. A long term care event, higher healthcare costs and constructing an investment nest egg that gives you reliable income and no fear of a large stock market decline.
