When we think about retirement, most of us have a great picture in mind. Maybe we imagine ourselves relaxing on the beach with a cold drink in our hand. Or maybe it’s a picture of us smiling as we hand over our resignation letter.
But just like your career or your family life or in any stage of life, retirement doesn’t always play out the way you expect it to. And when your expectations don’t match up with reality, that can create a lot of stress and anxiety in your life.
So that’s why it’s smart to take some time now to think through the biggest traps you might face in your later years. This way you can avoid them and make sure that your retirement life will be more enjoyable and less stressful. Take in mind that other risks — like a health crisis or a market downturn — can’t be avoided, but can be managed. Here are seven of the most common retirement risks you have to prepare for:
Long-Term Care
When preparing for retirement, you might want to consider the possibility of needing long-term care unless you’re extremely lucky or rich. As early as now, you should plan as if most of your retirement savings will be spent on medical care and nursing homes.
By 2030, more than a quarter of Singaporeans are expected to be 65 years and above and this will continue to increase to half the population in 2050. The number of older people will grow in the coming years and the odds of needing assistance from others will more likely increase. When we age, we will no longer be able to rely as much on our loved ones to help us out. Fewer able-bodied caregivers will be around to look after us. In addition to this, our children may have their own families and responsibilities, and it will be challenging for them to support us.
That means getting long-term care insurance, which covers the costs of your needs and assistance when you’re no longer able to look after yourself is necessary. Long-term care insurance is expensive and hard to get once you start showing signs of disability, so it’s wise to get it as early as you can.
Arising Medical Costs
You might expect that as your Careshield coverage begins, you may face rising medical costs, fewer medical benefits from employers, and high potential risks for health care-related problems. Retirees and those who are approaching retirement must carefully evaluate their health care costs, since their golden years can bring about a lot of financial issues. It’s crucial to consider your health expenses and take action in order to ensure that you have sufficient protection from major bills.
Asset Allocation
Some people are uncomfortable with the risks involved in the stock market, so they stick to fixed income investments. However, by doing so, you’ll most likely give up long-term growth potential and risk depleting your savings before your retirement. To make it work, you need to determine an appropriate asset allocation in order to achieve your investment goals. Younger investors should take on higher levels of risk because they have many years before retirement to recover from downturns in the market.
Longer Life-span
Singaporeans are expected to live up to 86 years. Half of the population will live longer than their life expectancy, so estimating longevity may underestimate how long you will need your savings to last. To help your assets last long until your retirement, consider creating a retirement income plan for yourself. This way, you can take care of your many expenses you wish to cover no matter how long you’ll need them.
Market
Even though many have attested how a market can grow your savings over time, you have to remember that it has ups and downs. This may have short-term dips that will affect your investments and yield long-term consequences. If the market drops right on or early in your retirement, your assets may lose value. Although the market can return to its upward trend, you may never recover the losses incurred in those years.
Before that happens, you need to shift your portfolios to more conservative investments as you near retirement. This can help you offset losses on account of a bear market.
Inflation
Inflation is a general increase in the price level that erodes the value of money. It can have a particularly negative effect on retirees because it chisels away at savings and investments that were presumably set aside to help meet future expenses. Even a small rate of inflation can cut into your spending power over time. And there’s no better time to consider the impact of inflation than when you’re planning for retirement.
Taking care of yourself by living sustainably can keep your life balanced and allow you to be there and provide for others in the ways you want to over the long term.
Excessive Withdrawal
Even a well-thought-out asset allocation strategy can fail without a well-planned withdrawal strategy. The withdrawal rate greatly influences the fund’s longevity. To ensure that you’ll have enough money to sustain your needs, you need to determine when you can withdraw from your retirement fund, how much you can withdraw, and the ways in which you can avoid depleting the fund entirely. A budget will help you stay on track.
Getting ready for retirement is much more than just saving for a comfortable nest egg. You’ll need to consider all of the long-term risks and make sure you have the right insurance and investment mix to meet your financial goals.