A: You've hit upon one of the biggest challenges of planning for retirement: accounting for the unknowns. Health care costs, inflation and market performance can all vary widely. Then there's the biggest question mark of all: How long you might live. Each of those unknowns gives you a good reason to get in the habit of putting away money for retirement, particularly in accounts that offer tax advantages. Getting an early jump on saving gives you extra time to allow your investments to grow. When you know you have that extra time, you might also begin to feel more comfortable about taking intelligent risks. That way you could potentially increase your assets more quickly.
In addition to saving and investing as much as you can, you should look into some of the financial strategies that could help you weather uncertainties and meet unexpected needs. Long-term-care insurance, annuities, Treasury Inflation- Protected Securities (TIPS) and market-linked investments all might help you prepare for unknowns and manage future expenses. As you approach retirement, start thinking about your future spending needs. Once you understand them, you can create a strategy for drawing down your assets so that you have the income you need, both in the short term and over your lifetime.
One final piece of advice: Don't stop pursuing growth in your portfolio. With people living as long as they do, retirees today need to view themselves as long-term investors. For more ideas, take a look at Pitfalls in Retirement.
3 Questions to Ask Your Financial Advisor
- Can I wait to buy long-term-care insurance until I'm closer to the time I may need it?
- What steps can I take to keep my retirement savings from being diminished by inflation?
- How much growth should I continue to pursue in my portfolio after I retire?
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This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.
Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.