5 Ways To Protect Your Retirement Income

protect your retirement income


Retirement is a time to enjoy the fruits of your labors after working hard and saving for decades. The last thing you want to do after retirement is to worry about money. However, many retirees experience unexpected financial anxieties because they find that they have not set aside enough for retirement. A retirement planner at Firma Financial Planning can help you anticipate your needs and reach your goals. Here are some other considerations that can help you protect your retirement income and ensure it will be sufficient.

1. Prepare for Inflation

Retirement planning goals that seemed reasonable when you initially started saving may not be adequate by the time you actually get to retirement age. This is because inflation can increase the costs of goods and services, decreasing your purchasing power over time. A lot can change even due to a relatively low inflation rate. The good news is that certain retirement plans have automatic cost-of-living adjustments built in.

2. Avoid Withdrawing Too Much From Savings

Rather than earnings and wages, your retirement income comes entirely from your savings. Therefore, it is best to be conservative when withdrawing savings, especially during the first year of retirement. A retirement planner can help you to decide on a reasonable withdrawal rate, one that will allow you sufficient funds for essential expenses while preserving income for the next 20 to 30 years. A general guideline is to withdraw only 4% to 5% initially. During subsequent years, you can adjust that amount for inflation.

3. Reassess Your Allocations

While you want to be careful not to endanger your savings with investments that are too risky, you also want to avoid making investments that are too conservative. That is one circumstance in which inflation can really take its toll. A lack of growth potential can be as detrimental to your long-term retirement planning as overly aggressive investments. It is important to strike the right balance between the two.

4. Plan for Longevity

Due to active, healthy lifestyles, as well as medical advances, people are living longer. Expectations of longevity may continue to increase as well, and as this happens, it is necessary to factor this into your retirement plan. Social security income likely will not allow you to maintain your same standard of living if you outlive your retirement savings, and may not be enough to sustain you at all. Your retirement plan should include sufficient income to last at least 30 years. One possible way to set up an efficient stream of guaranteed income payments is to use some retirement savings to set up an annuity.

5. Think About Health Care Costs

Living longer doesn’t necessarily equate to living healthier. Despite your best efforts, you may experience health conditions that require extensive treatment. The odds are also good that, sooner or later, you will require long-term care of some point, as 70% of people over age 65 eventually do. Unfortunately, long-term care does not come cheap. Home health care services and assisted living facilities can cost more than $48,000 per year, and a room in a nursing home can cost $89,297 annually. You can also expect to incur medical costs over and above long-term care. These are estimated at $285,000 over the course of your entire retirement.

There are two strategies that may help you prepare for health care-related costs in retirement. The first is to set up a separate account dedicated to saving for health care expenses. The other is to consider an insurance policy specifically for long-term care. Enrolling in long-term-care insurance coverage while you are comparatively young means that you will pay premiums for a longer period of time, but the premium amount is likely to be lower because your age is usually the determining factor.

The right saving and investing strategy for you depends on your particular circumstances. Contact us to learn more about retirement planning services from Firma Financial Planning.

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