Prepare for financial risks in retirement

As you near retirement, your financial focus needs to change from being a saver to being an income creator. It’s time to start thinking about how to best manage your portfolio so you can live on what you saved. One of the most important things to consider is how to manage retirement risks.

Here are the three biggest financial risks you face in retirement

1.  The risk of outliving your money. There’s a 50% chance that you will live to age 89 and a 44% chance that, if you’re married, you or your spouse or partner will live to age 95.1  In addition to regular expenses, you should factor in:
  • Supporting family members: Your parents may need your help supporting and/or funding their  day-to-day living. You may also find yourself helping adult children and grandchildren with living, medical and college expenses.
  • Healthcare: As you age, healthcare spending will likely take up more of your budget. Nearly 14% of annual spending for those aged 75 and over goes towards healthcare expenses, compared with 11% for those age 65-74.2
2.  Inflation risk. Food, medical care, transportation and recreation are likely to cost considerably more 20 years from now than they do today.
3.  Market volatility risk. Market fluctuations may not be a big concern while you’re still working. But when you’re retired, you have less time to recoup losses from market drops. If you retire during a “down” market, your portfolio might suffer a hit and not recover, giving you less money to live on for the rest of your life.

Ways to help manage risk

Everyone’s needs are unique – there’s no “one size fits all” solution when it comes to managing risk. You may want to consider:
  • Putting a portion of your portfolio into investments like annuities that offer guaranteed income you can’t outlive.3
  • Keeping a portion of your portfolio in more growth-oriented investments, like stocks, to help offset the risk of inflation. Keep in mind that doing so could expose you to market risk, and you could lose money.

Speak with a TIAA advisor

A TIAA advisor can help by getting to know you and your situation – and then reviewing your options with you so you can make informed decisions.
1 TIAA-CREF Mortality Tables 2014.
2 BLS, Consumer Expenditures in 2013, http://www.bls.gov/cex/csxann13.pdf.
3 Fixed annuities offer guaranteed income subject to the claims paying ability of the issuing insurance company. If you make a withdrawal from an annuity prior to age 59½, you may be subject to a 10% penalty on earnings in addition to ordinary income.
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