Retirement can be a comforting but challenging event in many people's lives. You want to be able to live comfortably during this time without worrying about how to make ends meet. To do this requires that you have a solid strategy in place that can provide consistent income, protect you against inflation and allow you to live a comfortable lifestyle during your retirement years. In this article, we will examine some of the things that you can do to have an enjoyable retirement without the stress and challenges that so many retirees face today.

Factors That Erode Retirement Assets
There are many factors that can lead to loss in value or purchasing power of your retirement assets, and one of them can create a situation where you might not have enough money to live on during retirement. In this case, knowledge is power, and if you are aware of these factors, you can take steps to ensure that they do not affect you. (If you need more reasons to plan for retirement, or just need help getting started, see our Retirement Planning tutorial.)

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Inflation
It doesn't take a rocket scientist to understand how inflation can affect your everyday life. However, it can also have an effect on your retirement in that it increases your cost of living every single year. Between 1960 and 2009, inflation has averaged a 4% increase per year. This means that something that costs $100 today will cost $180 in 15 years if inflation continues at the same rate. This can be significant when you are living on a fixed income. To be able to continue to live a comfortable lifestyle in retirement, your portfolio must be able to keep up with inflation. (For more on how to accomplish this, see Coping With Inflation Risk and Curbing The Effects Of Inflation.)

Living Longer
People are living longer now than at any other time in history. The average man who retires at 65 can expect to live until 82, while the average woman who retires at the same age can expect to live until 85. This can pose an enormous potential challenge for you in that the longer you live, the better the chance that you will not have enough money to live on when you retire. To be able to live a comfortable retirement, you must be able to structure your income and investments so that they can continue to provide for you, even if you surpass the average life expectancy. (Read more about longevity risk in Unexpected Bumps That Can Derail Retirement.)

Lack of Diversification
Many people don't balance out their portfolios to protect themselves against a bad investment. They usually end up placing a substantial amount of their investments in one particular area or asset class. Far too often, investors assume that a particular area or company is "good" and that as long as they stick with their current strategy, they will retire with more than enough income and assets. Such was the case with many retirees and pre-retirees who invested in Enron stock. When the energy-trading company collapsed, many employees had invested the majority of their assets in the company's stock, and their savings were virtually wiped out. Along with that went the retirement savings that they had accumulated for years. The basic idea here is not to put all of your eggs in one basket. (For tips on diversification, see Introduction To Diversification. To see how this strategy can help your portfolio through a down market, read Bear-Proof Your Retirement Portfolio.)

Medical Expenses
Another area that can affect your retirement income and assets is medical expenses. As you age, the need for medication and healthcare will only increase. Consider too that healthcare costs have been rising consistently over time. According to a March 2008 report by Fidelity Investments, the cost for healthcare had risen by a total of 41% since 2002, with an annual average increase of 5.8%. It is estimated that within the next 10 to 15 years, many retirees will spend half of their incomes from Social Security on healthcare costs. To be able to have a worry-free retirement you must keep up with these costs so that they don't reduce your income or assets. (For more on this topic, see Failing Health Could Drain Your Retirement Savings. For tips on reducing medical expenses, see 20 Ways To Save On Medical Bills.)

There may be other factors that could derail your retirement plans. It may help to use the ones presented here to start a list, so that you can take a proactive approach to implementing ways to protect your retirement assets.

Ways to Protect Assets and Create Income
There are many ways you can protect your assets against some of the risks listed above and create additional income. Diversification is the key to allowing you to maintain stability, growth and income. Below are several tips and tactics that you can use to protect yourself against the challenges that you may face in retirement.

Equities / Dividend Stocks
In order to combat the forces of inflation, your assets and income must grow at a rate greater than inflation. One way to do this is through the use of equities or dividend-paying assets. Over the past 50 years, stocks have averaged 6.6%, while the average inflation rate has been 4%. The average dividend rate of the S&P 500 is 5.3%. What this shows is that investing in stocks and dividend-paying stocks can keep your assets and income growing faster than inflation by giving you long-term growth and strong, consistent dividends. When you put the two elements together, the overall return is much greater than inflation. The important key is to use a conservative approach that can provide you with consistent long-term growth and dependable, increasing dividends. (Read more about dividends in Dividends Still Look Good After All These Years.)

Bonds
Another way that can provide income and stability during retirement is through the use of bonds. Over the past 50 years, bonds have averaged 5.5%. Generally, bonds are considered to be a conservative investment. When you purchase a bond you become a creditor to the company or government that issued the bond. During the life of the bond (five years, 10 years, 30 years) you will earn a consistent interest rate, which is stated at the time of purchase. These interest payments will continue until the bond matures. U.S. government bonds are the safest, followed by municipal bonds and corporate bonds. These types of assets will provide you with consistent income on a regular basis. In retirement, they can compliment your overall strategy by bringing a conservative, income-orientated side to your portfolio, providing you with income stability. (See Advantages Of Bonds and Bond Portfolios Made Easy to learn more about bonds.)

Mutual Funds / Bond Funds
If you are uncomfortable investing in stocks or bonds, consider mutual funds and bond funds. A mutual fund is a company that raises money from investors (shareholders) and invests that money in a portfolio of stocks, bonds or both. The idea is that they will provide you with diversification and balance so that you won't have to worry about which stocks to buy or sell. A bond fund invests in bonds with the purpose of providing income and stability. (See Evaluating Bond Funds: Keeping It Simple and Advantages Of Mutual Funds for more information.)

These two types of funds can provide your portfolio with balance and income without you having to determine which stocks or bonds are the best for you.

Fixed Annuities
An alternative way to protect your assets and create income is through the use of fixed annuities. A fixed annuity is a written contract between you and an insurance company that is designed to provide you with regular payments at specific times (usually monthly, quarterly or annually) and can be for a certain number of years or your lifetime. These types of annuities are not tied to stocks and will pay you a stated guaranteed amount as a worst-case scenario. They can be used to supplement your retirement income and can provide you with diversification as well. (To learn more about annuities, see Exploring Types Of Fixed Annuities and Watch Your Back In The Annuity Game.)

Ideally, your retirement portfolio should have a mixture of some or all of these investment options to balance growth and income. The percentage allocation will usually depend on your risk tolerance, your retirement horizon and your growth and income needs. (Read more about finding your optimal asset balance in A Guide To Portfolio Construction and Five Things To Know About Asset Allocation.)

Conclusion
Your retirement doesn't have to be burdened with the stress and challenges that so many face today. By using a diversified strategy, you can achieve stability, income, growth and peace of mind. This diversification can be achieved by using a variety of tools, such as a balanced portfolio and asset-protection strategies. However, as with all strategies, it is important to first evaluate your own situation to determine the strategies and solutions that are suitable for you. Unless you are an expert in these areas, you may want to work with professionals who can help you to achieve your goals. This will help you to have the worry-free retirement that you've always envisioned.