Navigating the Top Financial Risks for Retirees

A Guide to Securing Your Golden Years

Retirement is a time when we should be enjoying the fruits of our labor, basking in the joys of newfound freedom and pursuing our passions. However, it’s crucial for retirees to be aware of the financial risks that can pose a threat to their financial stability. In this post, we’ll take a closer look at the top financial risks for retirees and provide some helpful guidance on how to navigate them. It should be noted that most of these risks can be mitigated with diversification and careful financial planning, which is why we always encourage creating a financial plan.

Market Volatility

This one seems like the most obvious but one of the primary concerns for retirees is the fluctuation in the financial markets. Economic downturns, stock market crashes, and unexpected twists can erode retirement savings and have lasting impacts on financial security. To address this risk, diversifying your investment portfolio across various asset classes and adopting a long-term investment strategy can help cushion the impact of market volatility.

Longevity Risk

Living longer is a blessing, but it also presents a unique financial challenge for retirees. The fear of outliving one’s savings is a real concern. To mitigate this risk, careful planning and budgeting become paramount. Create a financial plan to develop a retirement income strategy that accounts for expected longevity, inflation, healthcare costs, and potential unexpected expenses.

Health Care Expenses

As we age, healthcare costs tend to increase. It’s crucial for retirees to have a comprehensive health insurance plan in place that covers regular medical expenses, long-term care, and potential emergencies. Understanding Medicare coverage options, including supplemental plans, can help reduce the burden of healthcare expenses during retirement.

Inflation

Inflation erodes the purchasing power of money over time, which can have a significant impact on retirees’ fixed incomes. To safeguard against inflation, diversify income sources and invest in assets that have historically outpaced inflation, such as equities, real estate, or inflation-protected bonds. Additionally, regularly reassessing your retirement budget and adjusting it for increased living costs is essential.

Fraud and Scams

Retirees can often become targets for financial scams and fraud due to their accumulated wealth and trusting nature. Staying vigilant and educated about common scams is crucial. Avoid sharing personal information with unsolicited callers or emails and consider running any investment opportunities by a trusted financial advisor before taking any action.

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All of these risks are a primary reason why we do financial planning. Planning allows us to walk through hypothetical scenarios and strategize how to maneuver the unknowns of these risks and more.  Within your portfolio there are also a number of risks not often thought of by clients that we as advisors are taking into consideration as we structure your portfolio. Here are just a few:

• Liquidity risk: how easily assets can be converted into cash.
  Solution: Limit how many investments that are ‘locked up’ or illiquid. It is important to review the holdings and your strategy around ‘what if’ you need to get more cash.
  
  
• Market risk: changing conditions in a specific market. As an example, many retailers have had to adapt their business to accommodate consumers’ preferences for online shopping. Not adopting this could be a risk to a company’s business.
  Solution: diversification within and across asset classes.
  
  
• Loss of principal risk: losing value in your portfolio. This can be scary for retirees when they depend on their assets to support them throughout retirement. Losing principal can happen even if you diversify your portfolio.
  Solution: have a strategy for this ‘what if’ scenario. Often in a financial plan we might recommend keeping emergency savings to supplement your retirement income and allow your portfolio to recover before liquidating any additional funds. We are looking to avoid selling low here. 
  
  
• Sovereign risks: we can’t control things like Quantitative Easing and ‘printing’ of money and how it can impact the market.
  Solution: diversification, especially in different currencies and countries.
  

Retirement should be a time of enjoyment and financial security, but it’s important to be aware of the potential risks that can arise. By taking proactive steps like diversifying investments, planning for longevity and healthcare expenses, addressing inflation, and being cautious of scams, you can navigate these risks with confidence. Remember, seeking expert financial advice and staying informed are your allies in preserving your financial well-being during your golden years.

Disclosure

M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. 

This blog has been provided solely for informational purposes and does not represent investment advice. Nor does it provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy.

Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.