Creating a Retirement Contingency Plan: Three Essential Steps
Concerns about financial security in retirement are widespread. Many people worry about affording retirement, with some having no savings.
According to an AARP report, 20% of adults aged 50 and older have no retirement savings, and 61% are anxious about not having enough funds to sustain themselves in retirement.
1. Consider Inflation
When developing your financial contingency plan, it's crucial to account for inflation. Overlooking inflation can lead to financial difficulties later on. Invest in assets that typically outpace inflation, such as equities and real estate, to combat this. Inflation-protected bonds are also a viable option.
2. Diversify Your Investment Portfolio
A critical part of your contingency plan is to create and maintain a diversified investment portfolio. Balance your asset allocations to manage risk, extending beyond stocks and bonds. Include mutual funds, ETFs, and real estate to strengthen your portfolio. Additionally, consider high-yield savings accounts and IRAs. Regularly rebalance your portfolio to manage risk and minimize potential losses over time.
3. Plan for Healthcare Costs
Healthcare planning is a significant and often stressful part of retirement, especially given today's longer life expectancies. The CDC reports an average life expectancy of just under 75 for men and 80 for women. As we age, the risk of illnesses and health conditions rises. While Medicare is beneficial, purchasing long-term care insurance can be wise. This insurance can help cover costs associated with in-home care, nursing homes, and assisted living facilities.
