With stocks richly valued in many cases and with uncertainty rising about the Federal Reserve's interest rate actions and President Donald Trump's Twitter feed, retirement savers face a lot of new risks. How they handle everything from unexpected market changes to longevity will determine how much of a nest egg they amass for their golden years.
Take unexpected market risk, which is top of mind for tons of investors given February's correction and the volatility in stocks ever since then. According to a blog post by Vanguard, unexpected changes in investment returns, inflation and other market-moving variables can cause panic and potentially money-losing moves. A better approach is to make sure that the asset allocation of the investment plan is still intact. That means determining whether your money is properly invested in stocks and bonds, taking into account how many years you have before retirement and your risk tolerance. By checking the allocation and aligning it with your plan, you will be less likely to react to daily movements in the stock market. Vanguard noted that any money you may need to access in the near term should be somewhere safe like a bank account or money market fund.
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Another big risk for retirement savings is longevity. These days, people are living much longer than in the past, which means they can easily spend more than 20 years out of the workforce. That will require retirees to have a larger nest egg, which is something lots of investors haven't planned for. To alleviate that risk, Vanguard said to plan as if you will live to age 95, if not 100. Those thinking about retiring may want to consider working longer or taking on part-time work to add to the retirement savings. The fund company also pointed to an annuity as a way to protect yourself. "You can also use an annuity to guard against longevity risk, by annuitizing enough of your portfolio to cover any basic living expenses that are greater than the guaranteed income you might have from Social Security or a pension," Vanguard said.
As for health risks, which are very real as we age, Vanguard said that, without the proper planning, it can end up draining your entire savings. That's particularly true if you fall ill or are the victim of an accident that requires long-term healthcare. In order to plan for the unknown, Vanguard said to think about how healthy you expect to be as you age, what health needs will be covered by health insurance, whether you will receive employer-provided insurance or will rely on a Medicare plan, and what level of care is important for you to have. For instance, would you be okay staying in a nursing home, or would you want in-home care? Thinking about those things can help you save more to cover any unexpected healthcare costs and thus protect your retirement savings.