No matter where you’re starting from, your path to retirement may include unexpected twists, turns and slides. Preparing for what lies ahead can make the journey a little bit more enjoyable. Here are some of the twists you might encounter through the path of retirement.
Market volatility is inevitable
Changing interest rates, global developments, even investor psychology can cause markets to move higher or lower. In uncertain times, it can be tempting to reach out of fear. But a balanced portfolio that reflects your goals, risk tolerance and time horizon can help you weather market volatility while still taking advantage of opportunities. Investing involves risks and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. International investments carry additional risks, which include differences in financial reporting standards, current exchange rates, political risks unique to a specific country, foreign taxes and regulations and the potential for illiquid markets. These factors may result in greater share price volatility.
Inflation is an upward movement in the average level of prices over time. Over time, inflation can act like a thief, stealing purchasing power from your retirement savings. But in the same way that you might protect your possessions from robbers, there are wise financial strategies that can help prevent financial losses due to inflation.
Health care costs could be one of the biggest expenses you will face in retirement. One survey found that health care costs for a couple, both aged 65, rose 11% in 2015 and have increased 29% overall since 2005. While you may have paid for Medicare Part A during your working years, you may want to prepare for the cost of other supplemental health plans, such as Medicare Parts B and D. Note that Medicare Part A is available if you have worked and paid Social Security taxes for at least 40 calendar quarters (10 years). If you have worked and paid taxes for less time, you will have the option to pay a monthly premium for the service. Also, remember to plan for extended care. Someone turning age 65 today has almost a 70% chance of needing some type of extended care and support in their remaining lifetime.
Your retirement years may also be a longer season of your life than you anticipate. The average person’s life expectancy has risen by 25 years over the last century. Living longer can require more retirement savings. For some, it may mean changing their stance on working during retirement. 67% of today’s workers expect to keep working after they retire. However, only 24% of retirees actually remain on the job.
Perhaps the biggest trap to avoid on your journey is that of unrealistic expectations. Retirement, like the rest of your life, will be full of changes, challenges and opportunities. Preparing yourself mentally and financially can help pave a clear path so you can enjoy all the adventures that lie ahead.