Retirement planning always comes with various planned and unplanned risks.
Retirement plans are always prone to risks, some predictable and others unpredictable. The key to managing risks lies in efficient planning; the following are types of financial risks in retirement plans that we may come across:
- Market risks
Most financial products are vulnerable to market risks. Mutual funds and saving schemes (government-backed) are good ways of exposure to equity markets. Though funds also invest in fixed-income instruments, including bonds, equity markets are the most turbulent. It’s never wise to depend on equity markets alone; portfolio diversification is key to effectively managing market risks. When investing in equities for retirement planning, always balance out this risk by also investing in relatively more stable debt simultaneously to have a substantial sum after retirement.
- Inflation risk
When planning for retirement, the risks associated with rising prices can never be overlooked. The rate at which prices of services and products rise in a country is known as inflation. To get a clearer picture of the rate of return when investing for retirement, always deduct the inflation rate from returns and look at the real rate of return.
- Health risks
With rising pollution levels, health issues are also rising in the country. As a result, healthcare costs are also increasing, creating a challenging situation for retirees. Most youths avoid purchasing health insurance, and with an increase in age, health problems also increase, and so do health insurance policy premiums. Health insurance policies bought early in life cost substantially less than those taken at more mature stages. Group health insurance policies provided by rompers prove less beneficial because certain benefits are lost in this way. To avoid costly hospitalization to eat gnaw at retirement savings, it is wise to buy health insurance as early as possible.
- Inadequate insurance
In the unfortunate incident of an individual’s tragic death, their family is the biggest sufferer. Unforeseen circumstances like the death of an earning individual often catch them off-guard with little to no planning; having adequate life insurance will ease these difficulties to some extent. It gets confusing for most people to select the quantum of the essential cover. A thumb rule to apply here is to have life insurance coverage equal to at least ten times the annual salary. It is also critical to keep in mind the existing liabilities, including home and car loans, and proceed accordingly. Harding Financial Group offers advice on mitigating risks when planning your retirement.
- Tax obligations
It is essential to remember tax obligations on investments while planning for retirement. When planning for retirement, it is critical to invest tax-efficiently so that minimal tax obligations arise from current assets. Heavy tax burdens can make severe dents on the monthly income.
Retirement planning always comes with various planned and unplanned risks; an action plan will help overcome them. A clear picture of post-retirement expenses and liabilities will help develop an effective retirement plan. Chalk out potential post-retirement costs, and add to that inflation rates and health risks; this will help calculate an accurate retirement plan estimate.