THREATS TO POSTRETIREMENT INCOME – VOLUME 1
Special Retirement Planning Bulletin
Six Threats You Must Fight
Maintaining a regular income is the primary goal for most retirees. With a dependable income, retirees know they can support themselves in comfort and can deal with the emergency expenses life sometimes throws their way. Many preretirees work to secure this postretirement income by purchasing an annuity and learning about Social Security maximization strategies. They might then downsize, prepare a budget that helps them avoid overspending, and create additional income supplements as a safety net.
These are all great steps to take, but they may not be so valuable if retirement savers don’t also learn about the various threats that threaten to reduce, remove or squander that income. In this series, we’re going to teach you about the six major threats to postretirement income that every senior must face and fight against.
Here is an overview of the six topics we’ll be covering in more detail throughout this series.
Threat 1: Market Volatility
The market often swings up—but then eventually comes crashing back down. Sometimes the drops are short-term, lasting a day to a week. Other times, like in 2008, the drops are huge and last for years. These ups and downs can both benefit and hurt your retirement income.
Threat 2: Interest Rate Fluctuations
High interest rate environments mean higher fixed income product rates—but they also mean higher auto loan, mortgage and credit card insurance payments. Low interest rate environments mean lower auto loan, mortgage and credit card rates, but also lower returns on fixed income products and more inflation. Finding a way to shift easily between these two extremes is a must.
Threat 3: Lack of Guarantees
The word “guarantee” is not something that’s used in financial circles very often—with good reason. Most of the products savers invest in, including fixed investments like bonds, are not risk free and not entirely guaranteed. This lack of guarantees on things from dividend payments to interest payments can really wreck income plans.
Threat 4: Sequence of Returns Risk
The overall performance of the market when you first start liquidating your investments has a lot of influence on the way your investments will be able to maintain your lifestyle as you age.
Threat 5: Shifting Tax Environment
Tax rates, deduction limits and allowable credits shift and change every year. Whether you’re in an election cycle or not, the tax environment is constantly fluctuating and can both help and harm your postretirement income.
Threat 6: Inflation and Legacy Planning
When the cost of goods and services rises, it reduces the impact of your overall income. Not only can this hurt your ability to live on the income you’ve secured, it can also make legacy planning hard. We’ll discuss ways you can combat inflation and still plan for your desired legacy.
In the next issue of the THREATS TO POSTRETIREMENT INCOME series, we look at the first threat; Market Volatility.