5 Ways You Could Be Blindsided In Retirement

(Is your retirement strategy really enough?)

You think you have done everything you should to secure your retirement future. … Then you actually retire. You are hit by any one or all of the BIG 5 Retirement Blindsides. Your plans go out the window.

Instead of leaving for that Big 5 Safari you are leaving for a part time job. If you think this cannot happen to you, check out the BIG 5 below…and resolve to prevent them:

#1. Blindsided by inflation: Inflation is one of the great enemies of retirees. The “modest,” recent 2% inflation will cut your standard of living by 20% after 10 years. It doesn’t happen overnight, but it is painful over time.

As the longevity of our population explodes, you will see fewer and fewer opportunities for cost-of-living increases.

Social Security, pensions, even post-retirement work contracts for consultants often had cost-of-living increases or COLAs. Not so much any longer. As we live longer, these inflation fighting cost-of-living increases are becoming a thing of the past. They are too expensive.

Source: Hands on Banking

Source: Hands on Banking

#2. Blindsided by interest rates: If you own bonds or any other interest rate sensitive investment, you are likely to lose 10% the moment that the FED raises interest rates by 1%. That means the policy of the Federal Reserve is a very big part of your future. Their policies are not 100% predictable.

You may read a report that the Fed intends to raise interest rates in the next session and it never happens. You may be blindsided by the belief that interest rates are staying stagnant; and some days later the FED raises rates.

 

Bond funds have no maturity date. So, if their value goes down you will not be able to recover simply by waiting until maturity.

It’s logical. If someone could buy a government bond, a CD, a corporate bond at 5% interest why would they pay the same price for 4% interest? They would not. They might settle for 4% interest; but, only at a discount. That discount tends to be about 10% for every 1% that rates go up.

Yet, when the stock market is dicey most planners will send you into bonds or other interest-bearing types of investments.

If interest rates then go up, you have two losers… Both the stocks and the bonds lose value. This is a devastating blindside.

#3. Blindsided by the market: Bull markets don’t last forever. Most of us have lived through at least eight recessions in our time. So, how do we stave off being blindsided by the market?

Don’t be scared away by ads bashing annuities. The right one could save your future. Ask someone already in retirement for years. They are likely to tell you that they rely on their annuity income.

As for money management, consider using both active and passive approaches. That means your portfolio will take advantage of an upswing in good times, yet not go up and down in volatile lockstep with market conditions in volatile times.

Anyone who lived through the year 2008 knows that things work fast in the stock market.

If you procrastinate in making changes to your portfolio you can, in the vernacular, lose a bundle. That’s why we protect your risk level with a specific risk number. If your asset allocation exceeds that number we will automatically reduce that risk.

We use a process that gives you an early warning if your portfolio allocation does not match up with your risk tolerance. Not only does this prevent procrastination, it may save your future.

#4. Blindsided by Taxes: At age 70 1/2 the Required Minimum Distribution that you MUST take out of qualified assets is 3.65%…for each $100,000 of IRA, 401(k), or retirement plan money, you’ll have to pull out $3,650. And that just to start. By age 80, that’s up over 5%.

We’re often advised to let deferred money stay put as long as possible. Then we find we were just growing a tax!  Will you be in the same or higher tax bracket after retirement? If so, consider taking some money out of retirement plans earlier, if that money is going to be taxed at a lower rate than if you wait until you’re 701/2.

#5. Blindsided by political risk: Runaway debt, changes in the strength of the dollar, global chaos and other political and regulatory risk affect us in our everyday lives! Just the week before this writing, the national debt grew more in one swoop than in the past 200 years!

With investments that directly involve securities, there are no guarantees against loss or performance because of political risk.

You cannot control retirement lifestyle unless you have some basic assets that will give you income and safety despite market conditions.

A generation ago, it seemed like retirement planning was a lot easier because 82% of people had paychecks for life in the form of traditional defined benefit plans (pensions—mailbox money every month). Now it’s the exact opposite. Over 80% of us don’t have pensions.

We need to put a system in place to cover the BIG 5 surprises we could get in retirement. That’s why our super-team is always there for you. The door is always open, even if there are only one or two items on this list that you currently deem important.