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.

SEE: Retirement Planning

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.

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.

SEE: Common Risks That Can Ruin Your 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.

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.

SEE: Failing Health Could Drain Your Retirement Savings

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.

SEE: Dividends Still Look Good After All These Years

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.

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

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.

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.

SEE: 4 Steps To Building A Profitable Portfolio

The Bottom Line
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.

Related Articles
  1. Retirement

    Will Your Retirement Income Be Enough?

    Find out how to determine whether you're on the path to a comfortable retirement, or financial ruin.
  2. Savings

    5 Ways To Lose Your Retirement Nest Egg

    These common mistakes can put your savings at risk. Find out how to avoid them.
  3. Options & Futures

    Retirement Planning Basics

    Realizing your post-work goals need not be daunting. We'll tell you everything you need to know to get - and stay - on track.
  4. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  5. Investing

    Automating Your 401(k) is Easier Than You Think

    If you like automation, you should check out these features that many 401(k) plans offer.
  6. Trading Strategies

    Only Take a Trade If It Passes This 5-Step Test

    Not every moment is a good trading opportunity. Put each trade through this five-step test, so you're trading only at the best profit potential times.
  7. Mutual Funds & ETFs

    ETF Analysis: United States 12 Month Oil

    Find out more information about the United States 12 Month Oil ETF, and explore detailed analysis of the characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares Ultra Nasdaq Biotechnology

    Find out information about the ProShares Ultra Nasdaq Biotechnology exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  9. Retirement

    Infographic: How Much Money Do You Need to Retire in Hawaii?

    In this infographic we break down cost of living in Honolulu, Hawaii in terms of taxes, rent, food and other expenses and offer comparison to the cost of living in New York, Los Angeles, San ...
  10. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  1. Real Estate Investment Trust - ...

    A REIT is a type of security that invests in real estate through ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  4. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends ...
  5. Security

    A financial instrument that represents an ownership position ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  3. How are non-qualified variable annuities taxed?

    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
  4. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  5. Is the Social Security administration part of the executive branch?

    The U.S. Social Security Administration, or SSA, is an independent government agency under the purview of the executive branch. ... Read Full Answer >>
  6. What are the maximum Social Security disability benefits?

    The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!