When women retire, they may face financial risks that hold the potential to devastate their future retirement security. Therefore, a solid plan for creating monthly income should recognize this and seek to manage the risks. These risks include TIMING, INFLATION, and LONGEVITY risks. Understanding each is essential because managing them is key to enjoying greater retirement security and making income last. In this post, I discuss their potential impact on your income and spotlight one strategy, in particular, that does an excellent job of mitigating the risks.
Depleting your portfolio before the end of retirement is one of the greatest threats you will face. Besides overspending, timing risk is the chief cause of running out of money in retirement. It occurs early in retirement when spending from the portfolio during a market downturn prematurely depletes portfolio assets, creating a difficult hurdle that cannot be overcome even if the markets rebound later in retirement. A strategy to source income from assets less impacted by a market downturn is critical to maintaining sufficient savings to fund future spending.
Over recent years, inflation hasn’t been a big problem. But it’s always a threat, and more recently, it seems to be making a return. Inflation is a problem for everyone, especially retirees because it robs them of their living standards and they have limited options to supplement spending. No one wants to become systematically poorer in retirement, but imagine a retiree who enters retirement with an income of $50,000. Unless their income keeps pace with inflation, their true income will be reduced to $23,880 by the end of a retirement lasting just 25 years! Retirees must have a strategy that seeks to keep pace with inflation.
A long life is wonderful, but it costs. It may become commonplace to begin planning for a retirement that could exceed twenty-five (or more) years. This increases the strain on assets already stretched to the limit. The worst possible outcome in retirement is not having your income last as long as you do. No one wants to become financially dependent upon family, friends, or government programs, but this is a real outcome for those who don’t have a strategy to create lifetime income.
No retiree stops needing income, which brings us to the central issue in retirement: How do you create income when you have savings that are at risk of market volatility around the start of retirement (timing), high inflation, and an unknown retirement time frame (longevity)? A strategy that doesn’t have solutions for these 3 risks is not a sound strategy for spending from savings. The optimal strategy should provide a roadmap to source reliable, inflation-adjusted income for as long as needed.One such strategy is the Women & Income Plan, which provides a clear path for efficiently spending from the portfolio while protecting spending from the 3 retirement risks. It addresses the issues women will face in retirement - producing safe inflation-adjusted monthly paychecks over their lifetime and an investment strategy to remain disciplined, no matter what the markets are doing.