You've been saving and investing for your retirement for many years. And now that retirement is closer, you might think it's clear sailing ahead. But in many ways, the retirement journey is just beginning.
That was the theme of a panel discussion focusing on retirement risks held recently during TheStreet's Retirement, Taxes & Income Strategies Symposium.
Mitigating risk is an important part of retirement planning that is often overlooked, panelists said. The biggest risks to your retirement portfolio are longevity, healthcare costs and expenses/inflation.
"So there's new medical technology... that's one thing people can't forget, that's number one," Sharon Carson, executive director and retirement strategist on the J.P. Morgan Asset Management Retirement team. "Number two, plan for the endpoint, not the midpoint ... You're planning not just for your life expectancy, but what might happen. And three, the longer you live, the longer you are likely to live because you have survived so far -- your life expectancy keeps extending."
People tend to underestimate just how long they will be living in retirement. They underestimate the progression of medical technology and instead of planning for the endpoint, they plan for the midpoint.
In addition to longevity and inflationary concerns, another risk to your retirement savings is healthcare costs, said panel moderator and Retirement Daily Editor Robert Powell.
"Numerous institutions, EBRI, Fidelity, others have estimated the cost of healthcare and retirement and I think Fidelity's latest number was that up for a couple age 65 today retiring would spend upwards of $285,000," Powell said.
The next risk identified by the panel was the expense risk, or the risk of a change in value caused by the fact that the amount of expenses incurred over the course of retirement outpace expectations.
"If you have expenses early on in retirement, large expenses, then your portfolio balance goes down just as fast as if you had a really bad sequence of returns," Dirk Cotton, a retired executive, and a retirement adviser and author of The Retirement Cafe blog.
"Typically, retirement spending goes down at a rate of around 2% a year for a retiree, but not for everybody. So we can't plan by saying, 'Oh, you know what, your expenses are going to go down 2% a year because we know that they might not, in fact it might go up.' So if you're doing a plan for an individual household, you can't know that."
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