Do you find yourself worrying about your finances? While you may think of your situation as unique, you may in fact be among the majority of seniors wtih financial worries.
A recent survey by the publishers of Senior Market Advisor Magazine revealed several seniors’ responses to the question “How much do you worry about money?”
A little 45%
More than I should 27%
A lot 20%
Keeps me up at night 5%
Source: Senior Market Advisor, Senior Survey 2005 (July 2005)
If the same poll were taken today, there would likely be many more who answer that financial worries are at the top of their worry list.
Notwithstanding these statistical findings, financial worries do not have to control you. A more secure retirement is possible, with smart and prudent financial planning solutions to these common retirement worries:
Retirement Savings Shortfall
Upon reaching retirement, some seniors are surprised to discover that their retirement savings will come up short–an obvious source of financial worry. Instead of pursuing leisure activities, they find that they must curtail their spending habits in order to make their savings last. However even in retirement, you can put your savings to work for you with investment strategies that are designed to help you achieve your growth and income objectives. For example, do you find that your investments are heavily concentrated in CDs and bank account deposits? Although these investments are often a very good source of liquidity and are insured by the FDIC, an over concentration in these safe investments could expose your portfolio to inflationary risks as they simply don’t pay enough interest.
Loss of Investment Value
If you’ve owned stocks, recent problems do not get any worse to cause financial worry. Unfortunately, market corrections are a fact of life and can show up at any time. There are things that can be done to help you weather these storms:
1) diversifying your portfolio,
2) rebalancing your holdings so that stocks never exceed a pre-determined percentage of your portfolio, and
3) following asset allocation strategies designed to reduce your exposure to market risk. Although asset allocation does not guarantee against the risk of loss in a declining market, it can help reduce the overall volatility of your portfolio. Has your portfolio been reviewed lately? If not, now might be a very good time to do this.
Another key is divide your retirement savings into baskets. Your most conservative pot, money market and CDs is money you will use in the next 3 years. The next pot, maybe bonds and preferred shares are to be used in the next 3to 6 years. The next pot, say balanced mutual funds, in the next 6 to 9 years, and stocks or equity funds, to be used in 10 years or more. Using this approach, even when the market does decline, your stocks have 10 years to recover and won’t destroy your retirement income planning.
Annuitize Your Savings
This is a common worry among many seniors, but one with practical solutions. For instance, buying a fixed deferred or immediate annuity with lifetime income guarantees could help to provide you with a reliable and steady source of cash flow for your retirement.
Annuities are long-term investments designed for retirement purposes. Withdrawals of taxable amounts are subject to income tax and, if taken prior to age 59½, a 10% federal tax penalty may apply. Early withdrawals can also be subject to surrender charges. Annuity guarantees are also backed by the claims-paying ability of the issuer.