Despite Ohio being ranked one of the least expensive places to retire in the United States, Ohioans are still at risk of having their financial security tested if they don’t properly prepare for retirement.
In this article, Bryan Bibbo–one of JL Smith’s retirement planning professionals –sheds light on some common factors that could impact your financial security post-retirement. Bibbo also offers up some helpful tips you can use to navigate those complex factors in order to minimize your retirement risks.
Unexpected Personal Events
When it is time to prepare for retirement, there are a lot of unknowns that can impact your financial health. Some of the more common unknowns revolve around unexpected changes in your personal life. Whether it happen to you or a family member, unexpected events such as a loss of a job, an early death of a spouse, and even your own longevity (outliving your money) can pose a significant risk to the level of financial security you experience throughout retirement.
Changes to Employment
“Most individuals will need to have quite a bit more than they realize saved up for their sunset years.” -Bryan Bibbo
For many retirees, it isn’t unusual to supplement a post retirement income by working either a part-time or full-time job. If you plan to take this route, however, it is important to be realistic. Employment opportunities for older generations can vary greatly depending on the demand for specific, industry-leading skills as well as the possibility of unexpected changes to your health, family, or economic conditions.
To avoid financial insecurity and risk to your retirement, it is better to strategize a retirement plan that does not exclusively or largely depend on supplemental income. In doing so, you protect yourself from the possible hardship that may come with the unexpected loss of that income. Instead, focus on building a savings strategy that will last you well into your golden years.
Outliving Your Money
“Between two spouses, there is a reasonable chance one of them lives past 90.” -Bryan Bibbo
Thanks to incredible medical advances, people are living longer and receiving better health care than ever before. Even though this is great news, it does pose some unexpected retirement risks. The prevalent risk with unexpected longevity is that retirees typically need to pay for more health care for a longer period of time. When you pair that with lackluster Social Security benefits and insufficient savings, it makes sense that almost half of Americans report that the fear of running out of money is their primary concern when planning for retirement. In fact, only 36% of American workers report being “very confident” that they will be able to retire comfortably.
To avoid post retirement risks and financial insecurity, our advisors have two suggestions when preparing for a retirement that could last several decades:
- Don’t drain your investments- a small initial annual withdrawal rate is fine but sticking to a lower rate will ensure that your investments last longer.
- Consider annuities- annuities with lifetime income benefits guarantee an income payment for as long as you live.
Unexpected Health Care Costs
“Among the biggest unexpected costs retirees face are healthcare costs.” -Bryan Bibbo
For most of us, it comes as no surprise that health issues can quickly upset a comfortable retirement plan. That is why Bibbo recommends that anyone planning for their retirement should make sure to educate themselves on all the possible health care plans available to them before making any concrete decisions about their future.
Medicare Supplemental Insurance, or Medigap, and Medicare Advantage plans both offer subsidized healthcare services to individuals that meet specific eligibility criteria. Not all health care plans are created equal, however. Medigap may help fill in the “holes” in a health care plan that Medicare doesn't cover, but Medicare Advantage may offer more freedom and possibly even cost you less in the long run depending on your situation.
When you factor in that each Ohio county offers dozens of different health care plans, professional help may be needed to know which strategy makes the most long-term sense for your unique situation. To start educating yourself on the variety of health care plans available to you, Bibbo recommends the following JL Smith articles:
- Medicare 101: What You Need To Know Before Enrollment
- Medicare Supplement vs Medicare Advantage
- Is it Better to Have Medicare Advantage or Medigap?
If you’re still not sure which health care plan makes the most sense for you and your family, Medicare advisors have the knowledge and expertise to help you pick a plan that allows you to maintain comprehensive coverage and offset future costs throughout your retirement.
Market Volatility and Inflation
“Nothing’s going to get cheaper…” -Bryan Bibbo
Just like countless individuals across the nation, Ohio residents are worried about the possible impact current inflation is going to have on their retirement savings. With the Bureau of Labor Statistics reporting a 7% increase in inflation from December 2020 to December 2021 (the largest jump since 1982) retirees have every right to be concerned.
So, with the cost-of-living climbing, how can you possibly prepare for a financially secure retirement? Bibbo suggests focusing on building a retirement plan that is projected to cover 80 to 100% of your pre-retirement income. Bibbo recommends doing this by diversifying your portfolio in order to maximize your investments while minimizing risk.
Not sure where to start? A financial advisor can help you determine which diverse savings approach is right for you, including options like:
- Low-risk investments
- Investments with staggered maturity dates
Changes to Public Policy
“The Congressional Research Service projects that Social Security payouts will exceed its revenues over the next decade. Something is bound to change if the program is to be available to future generations.” -Bryan Bibbo
Today, government policies and programs impact many aspects of our lives, including the financial security of soon-to-be and current retirees. What adds to the complexity and risk of these policies is that they often change over time. Government policy risks to retirement include:
- Increases in Taxes- Next to the health of one’s spouse, taxes and their impact on savings represent the greatest worry among high-earning retirees.
- Adjustments to Entitlement Benefits- The Social Security board of trustees estimates that social security benefits will have to be cut by 21% in 2035 to remain solvent long-term.
- Adjustments to Medicare-Medicare enrollment is expected to soar from 57 million to 80 million Americans by 2030.
It is never good to assume government policy is set in stone. Instead, it is better to find ways you can prepare your finances to weather any potential side effects that may come as a result of shifting policies. Working with an expert like a financial advisor is one way you can stress test these side effects and scenarios to ensure you have a retirement plan that will stay on track.
How to Reduce Retirement Risk
Understanding post-retirement risks is the first step toward enjoying retirement your way. At JL Smith, we recognize that education and preparation are essential when it comes to financial security, that is why our advisors provide comprehensive financial planning services so you can feel confident you are doing what is best for you and your family.
No single strategy fits everyone’s unique situation, which is why every client gets our undivided attention—from planning to execution to follow-up. Contact us today to get started.