New research shows that there are five threats that pre-retirees fear regarding their finances, understandably so. The good news is, there are ways to protect yourself from these threats.
Threat One: Living Longer Than Your Money Lasts
This one is a big concern for many people. No one wants to imagine life without the necessary financial resources to maintain the lifestyle you built for yourself. It’s unfortunate that the possibility of outliving your retirement money is a reality for too many people. According to the World Economic Forum, the average 65-year-old will outlive their savings by nearly a decade.
If you’re not sure how much money you should have saved at retirement, you can use the guideline called “Rule of 25”, which encourages you to multiply your annual expenses by 25. By that calculation, if you require $100,000 per year in income, you would need to have saved $2.5 million.
Threat Two: Economic and Market Risk
Most people rely heavily on the stock market for their retirement investments. If the market falls when you’re nearing retirement, it can have a devastating impact on how much you can withdraw on an annual basis.
If that were to happen, you’d be forced to cut back on your lifestyle or even work longer than you planned to work.
Threat Three: Tax Risks
For those saving for retirement in tax-deferred accounts, you really have no idea what your taxes will look like when you begin withdrawing on your retirement. According to the Center for Retirement Research, it’s a challenge when people realize that they only have two-thirds to three-quarters of what they thought they had because of taxes.
Pair that with the fact that we’ve recently had the most extensive federal stimulus programs in history, making for a marked increase to our national debt.
The truth of the matter is that individuals making $70,000 per year are in the top 25% of wage earners in America. If you’re making $118,000, you’re in the top 10%. While this does sound nice, you must remember it also makes you more susceptible to tax hikes.
Threat Four: Additional Health Care Costs Not Covered Under Medicare
Even healthy 65-year-old couples face an average of $500,000+ in health care costs they will have to cover out of pocket (source: Fidelity and Genworth studies). This is another factor to consider when saving for retirement.
Threat Five: Policy Changes
Most retirees rely on Social Security benefits. However, the fund was projected to become depleted within 15 years, and that was before this year’s pandemic.
More of your benefits could be taxed, and changes to the taxation of government-controlled retirement plans like 401(k)s and IRAs are always possible.
Start Planning Today
You don’t have to be blindsided by these factors when it comes to your retirement. By working with a Legacy Today Advisor, you can put a plan in place to help you avoid many of these risks and find peace of mind regarding your retirement plan.
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