Common Obstacles Affecting Retirement Planning

Your vision for an ideal retirement may not be the same as someone else's. However, there are several common obstacles that you should consider addressing when planning for your retirement.

Market risk

Different types of investments carry different risks. Sound retirement planning involves understanding these risks and how they can influence your available income in retirement.

Investment or market risk is the risk that fluctuations in the securities market may result in the reduction and/or depletion of the value of your retirement savings. Stocks are typically most susceptible to market risk, although bonds and other investments can be affected as well. Market risk can significantly impact retirement plans, affecting retirement savings and income strategies. Because all investments involve some level of risk, it's important to be aware of how much volatility you can comfortably withstand before you select investments.

Inflation

Inflation can cause the purchasing power of a dollar to decline over time, due to the rising cost of goods and services. The need to outpace inflation doesn't end at retirement; in fact, it becomes even more important. For instance, if you're living on a fixed income, you may need to adjust the amount of withdrawals you take from retirement savings just to keep up with rising costs. Otherwise, you may have less buying power in the later years of your retirement because your income doesn't stretch as far.

Taxes

The effect of taxes on your retirement savings and income is an often-overlooked but significant aspect of retirement income planning. Taxes can eat into your income, significantly reducing the amount you have available to spend in retirement.

Taxes can impact your available retirement income, especially if a significant portion of your savings and/or income comes from tax-qualified accounts such as pensions, traditional 401(k)s, and traditional IRAs, since most, if not all, of the income from these accounts is subject to income taxes. Understanding the tax consequences of these investments is important when making retirement income projections.

Health-care expenses

At any age, health care is a priority. When you retire, however, you will probably focus more on health care than ever before. Staying healthy is your goal, and this can mean more visits to the doctor for preventive tests and routine checkups. There's also a chance that your health will decline as you grow older, increasing your need for costly prescription drugs or medical treatments.

Despite the availability of Medicare coverage, you'll likely have to pay for additional health-related expenses out of pocket. You may have to pay the rising premium costs of Medicare optional Part B coverage (which helps pay for outpatient services) and/or Part D prescription drug coverage. You may also want to buy supplemental Medigap insurance, which is used to pay Medicare deductibles and copayments and to provide protection against catastrophic expenses that either exceed Medicare benefits or are not covered by Medicare at all. Otherwise, you may need to cover Medicare deductibles, copayments, and other costs out of pocket.

Long-term care may be needed when physical or mental disabilities impair your capacity to perform everyday basic tasks. As life expectancies increase, so does the potential need for long-term care.

Paying for long-term care can significantly impact retirement income and savings, which can be of particular concern to married couples. While not everyone will need long-term care, ignoring the possible necessity of such care and failing to plan for it can leave you or your spouse with little or no income or savings if long-term care is needed.

All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.

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