Five Key Risks (to your retirement nest egg)

Last Updated: May 08, 2015

You know how much is at stake as you set aside money for your future.  You understand that retirements don’t just happen, and you are willing to make small sacrifices now so you can enjoy a more fulfilling retirement later.  The problem is, unless your action plan includes strategies to address Five Key Risks, that nest egg you’re working so hard to build up may not be enough. Here are Five Key Risks to your retirement nest egg and how to address them
  1. Inflation Investing too cautiously may actually be exposing you to a significant amount of risk – the risk of inflation eroding the value of your savings. And the longer you have to invest, the more that inflation could potentially become a serious problem. You need to earn enough on your money to keep up with inflation.  Make sure your mix of assets includes an appropriate amount of stocks, which can outpace long-term inflation, without too many low-yielding assets like money market accounts, which might not keep up.
  2. Overconcentration Another risk to your retirement nest egg is overconcentration, putting too much of your money in one area of the market.  The problem is, if all your eggs are in one basket, what happens when the bottom drops out of that basket? Diversification is the answer to overconcentration. Spread out your money in a variety of investments and asset classes. When one drops in value, another one might rise, smoothing out the volatility and lowering the level of risk.
  3.  Volatility But what if the whole market goes down in value?  Asset allocation, considered by many to be the most important factor in investing, is the answer. Allocating your assets effectively means more than just putting your money in a variety of funds. It means positioning your money in a way that fits you and your life situation. Take into account both your risk tolerance and time horizon.  Complete a Risk Tolerance Questionnaire to determine your investing style.  Then make sure your money is invested appropriately for someone your age who can tolerate that level of risk. If asset allocation models are available, use them to help you see how other investors in a similar situation might position their money so it has more potential to grow without more risk than you can handle.
  4. Medical Expenses Medical costs can quickly erode retirement savings. According to a 2014 study by Fidelity Benefits Consulting1, a 65 year old couple retiring this year will need $220,000 to pay for medical expenses throughout retirement, not including nursing-home care. That’s why adequate health insurance is so important.  Educate yourself about Medicare and Medicare Supplement insurance options well before turning 65 so you can sign up for the coverage you need.
  5. Longevity People are living longer today than ever.  A married couple at age 65 faces nearly a one-in-five (18%) chance that at least one of the two will live to age 952. Are you confident your money will last as long as you will?
Sit down with a Certified Financial Planner™ professional for a Retirement Checkup analysis and make sure you’re on track to have the resources you’ll need.  If the analysis shows a shortfall, work with your adviser to identify ways you can increase your chances for success. It’s not easy working toward your retirement dreams, but it’s worth the effort.  If you want to evaluate how well your strategy addresses the “Five Key Risks” to your retirement nest egg, the Certified Financial Planner™ professionals at Pension Consultants can help. Give us a call at 800-234-9584. Your choice is your future!
1. Source: Fidelity Benefits Consulting, 2014 as quoted at The estimate is based on a hypothetical couple retiring in 2014 at age 65 or older, with average (82 male, 85 female) life expectancies. Estimates are calculated for “average” retirees but may be more or less depending on actual health status, area of residence, and longevity. The estimate assumes that individuals do not have employer-provided retiree health care coverage but do qualify for Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services, and long-term care.
2. Source: Society of Actuaries Perspectives on SOA Post-Retirement Risk Research and What it Tells About the Implications of Long Life, Anna M. Rappaport, FSA, MAAA, Presented at the Living to 100 Symposium, Orlando, Fla., January 8–10, 2014, based on “Key Findings and Issues: Longevity,” part of 2011 Post Retirement Risk Survey Report. ©2014 Society of Actuaries.
PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.


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