I’m a Financial Planning Expert: 4 Biggest Forces Threatening To Disrupt Retirement

March 20, 2024

 5 MIN READ

Written by Laura Bogart

Edited by Amber Barkley

For millions of Americans in the workforce, retirement seems inevitable. It’s simply part of the cycle of adulthood: You build a career and work hard before eventually strolling off into the sunset, ready to relax and enjoy the fruits of your labor.

However, the promise of retirement isn’t exactly carved in stone. Like any other part of your financial life, it’s subject to external forces. Anything from economic forecasts to hurricane season destroying that beachfront property you’d purchased can upend your hopes for golden years in the sunshine.

To help you understand the biggest forces that could impact your plans for retirement, GOBankingRates talked to three financial planning experts.

Tax Legislation

If there’s one thing you can plan for in life, it’s taxes. However, the legislative trends around taxation are often far outside of your control — though they can have a major effect on your future retirement.

For Chris Urban, CFP, RICP, founder at Discovery Wealth Planning, future tax legislation is a major threat to the future of retirement.

“No one knows what tax rates will be in the future and how their various retirement and investment accounts will be taxed and at what rates,” he said. “This great unknown makes retirement planning very complex.”

Urban suggested that ensuring you have maximum flexibility when generating income in retirement can help reduce anxieties around taxation. One worthwhile strategy involves building up assets in accounts that have different tax treatments, such as a pre-tax account like a 401(k), 403(b) or IRA; a tax-exempt account like a Roth 401(k), Roth 403(b) or Roth IRA; and a taxable brokerage account.

“If you have healthy balances in accounts with different tax treatment when you get to retirement, you will have more flexibility to tap each of the various accounts in a way that is more tax-efficient than if you just had all of your assets in pre-tax accounts, for example,” he said.

Inflation

Inflation has been all over the news in recent months, for good reason. It impacts so many parts of your financial life, from smaller decisions around grocery shopping to big choices like when and how you’ll retire.

“One of the biggest threats I have seen for retirees is inflation. While this is nothing new, and retirees are well aware of the problem, few of them know the best solutions to combat inflation when many of them have fixed income payments each month,” said John Stevenson, CFF, owner and advisor at Stevenson Retirement Solutions and expert contributor to Annuity.org.

Stevenson added that, while certain forms of retirement income, like Social Security and even some pensions, offer a cost of living adjustment (COLA), many pensions don’t. But even some of these increases may not be enough to combat price increases in consumer goods related to inflation.

One effective solution he’s found to help retirees is purchasing an annuity that provides guaranteed income for life.

“Many of these annuities also offer up to 5% annual increases each year in payments to provide a hedge against inflation. Some retirees will choose to purchase multiple annuities and activate increasing income streams strategically as they age,” he said. “This is an excellent solution for keeping pace with, and possibly even exceeding, the costs of inflation each year.”

Longevity Risk

Living a long, happy life is rarely considered a problem — however, with longevity comes the risk that you may well outlive your retirement savings. With more people living longer these days, longevity does present an actual obstacle toward when many wannabe retirees can clock out for the last time.

John Foard, CCO and co-founder of Crown Advisors, LLC, explained, “Longevity risk is exactly what it sounds like. If you live longer than expected or longer than what your retirement savings can support, we have a major problem.”

Foard quoted recent surveys suggesting that many people listed running out of money as a chief fear — more so even than death itself. He said there were several reasons why people might outlast their savings, including health issues or unforeseen expenditures like helping adult children.

“Too often, we see clients being forced to work a part-time job to make ends meet or even move in with adult children to cut down on expenses,” he said. “This is not ideal, to say the least.”

Foard suggested that meeting with a certified financial planner can help you create a plan that will give you the best chance of avoiding or mitigating these issues.

Health care and Long-Term Care Needs

Of course, the “healthy” in “a long, healthy life” is the key part of the phrase. Sadly, many people aren’t assured of that for their futures — and the costs of healthcare and long-term care can add up.

“Statistics show that over 70% of retirees will need access to long-term care at some point in their lives. The costs can be anywhere from two-to-five times the average costs of monthly expenses and can eat into a retiree’s savings fast,” said Stevenson.

However, Stevenson added that retirees are not without options. He cited the presence of asset-based long-term care policies that offer protection against depleting all your assets if you should encounter a need for long-term care. These policies can also provide a complete return of the funds, if you’re fortunate enough not to need the long-term care benefits.

“The important thing to remember is that long-term care planning should be done as early as possible to avoid any adverse financial effects of not having coverage in place before it is too late,” he said.

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