Will You Have Enough to Retire?
5 factors that may affect your retirement savings
(1) Inflation
- Reduces how much you can buy today, compared to last year
- Historically, inflation averages 3% annually
- Your investments need to keep pace with or outpace inflation
(2) Investment Risk
- Determine how much potential gain you are aiming to achieve with your investments, understanding that also means you may potentially lose a similar amount
- More risk equals more volatility in returns and account values go up and down more
- Diversify your portfolio by allocating money to multiple asset classes so you are not totally exposed if one asset type (such as stocks) drops dramatically
(3) Healthcare and Long-Term Care Expenses
- A number of studies show that the average 65 year-old couple can expect to spend hundreds of thousands of dollars on healthcare in retirement
- The combination of increasing life expectancy and growing medical treatment costs can have a huge negative impact on savings
- Consider obtaining Long Term Care insurance
- The premiums can be significant, but having the coverage in place may help avoid disrupting your overall retirement planning strategy
(4) Taxes
- Employer-sponsored and individual pre-tax accounts offer a variety of ways to receive tax breaks when making your retirement savings contributions
- Pre-tax contributions provide a current reduction in taxable income, and therefore a reduction in the taxes you pay each year as you are adding to your accounts
- Roth contributions are done on an after-tax basis, which does not provide a current year tax advantage, but does allow you to make withdrawals on a tax-free basis in retirement
(5) You
- Set goals for what your financial needs will be in retirement
- Evaluate your personal risk profile and asset allocation strategy
- Take full advantage of any employer matching contributions you may be eligible for
- Roll over assets from former employer plans rather than cashing out those accounts
- Seek out trusted professional guidance or use available self-help tools
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