3 Events That Can Ruin Your Retirement Plan
People are frequently unprepared for what lies ahead and disregard indications to pursue a safer path. Many people have never had their portfolios stress-tested to determine how they would perform if circumstances changed or there was an economic disaster.
Here are a handful of events that could derail your retirement plan:
1. The stock market is volatile
When you're in the accumulation phase of your financial life (late twenties to early fifties), the stock market can be an excellent approach to building the cash you'll need to fund retirement. However, as you become older, particularly if you're within five years of retirement or have already retired, protecting your nest egg should be your first priority.
It can be tempting to continue with a riskier portfolio mix when the market is performing well. However, the stock market is similar to an iceberg in that you cannot see what is going on beneath the surface. When you're approaching or in retirement, it's generally a good idea to shift a larger portion of your portfolio to more stable, lower-risk investments that can generate income.
2. Taxes
Tax rates are about to undergo significant modifications. The Tax Cuts and Jobs Act of 2017, which increased the standard deduction and reduced tax rates for many Americans, will expire at the end of 2025. This implies that your future taxes may be significantly higher than anticipated, especially if you're withdrawing funds from a tax-deferred retirement plan such as a 401(k) or traditional IRA.
Withdrawing funds from these retirement plans may also result in a tax on some of your Social Security income. If you are a Medicare recipient with an income above a certain threshold, you may be charged an additional monthly fee on your Medicare premiums.
3. Long-term care expenditures
Long-term care bills can swiftly deplete a retiree's hard-earned savings. According to the Genworth Cost of Care Survey, the average annual cost of home health care in 2021 is $61,776; care in an assisted living facility is $54,000; and a semi-private room in a nursing home costs $94,900. Based on 3% inflation, Genworth estimates that the average cost of home health care by 2041 will be $111,574, $97,530 for assisted living, and around $171,400 for a semi-private room in a nursing facility.
Do your retirement income projections include this potential expense? According to data from the Administration on Aging and the Administration for Community Living, people turning 65 today have a nearly 70% chance of requiring long-term care services as they age. Now is the time to check into long-term care insurance coverage and other solutions that may assist in paying this expenditure.
