Five Key Retirement Challenges (and How to Face Them Down)

Two older men sit on the side of a lake and talk. — (Image credit: Getty Images)

Retirement is one of the most important milestones in life — and one most people look forward to. But like any major milestone, retirement comes with challenges.

It’s not just about saving enough money or making the most from your investments (though those are typically, and legitimately, two of the most talked-about retirement topics). It’s also about planning and preparing for potential obstacles: Some you can predict, and others you might fail to see coming.

With that in mind, here are five key retirement risks, followed by actionable strategies that can help you avoid them — or at least manage them effectively.

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1. Financial instability

One of the most common questions I’m asked by people who are thinking about retirement is, "How can I be sure that once my paycheck goes away, I won’t run out of money?" That’s a reasonable concern. We can’t know what the future will bring to you personally or to the world around us. But we do know a lack of planning can make you more vulnerable to market volatility, unforeseen expenses and other retirement pitfalls.

We’ve also seen, time and again, that individuals and couples often underestimate how much they’ll need to sustain their desired lifestyle in retirement.

2. Healthcare and long-term care costs

Many people I talk to in my office or at educational seminars have no idea that Medicare won’t pay for every medical expense they incur in retirement. And those costs can be a budget breaker for someone on a fixed income.

According to Fidelity Investments’ most recent Retiree Health Care Cost Estimate, a 65-year-old who retired last year can expect to spend an average of $165,000 through retirement on healthcare and medical expenses. And that doesn’t include dental or long-term care costs — both of which can put a serious dent in a retiree’s finances.

3. Taxes

Taxes can quickly erode your hard-earned nest egg, particularly if a significant portion of your withdrawals will be coming from a tax-deferred plan like a 401(k) or traditional IRA. Here’s a little secret: There’s no guarantee your tax rate will be lower in retirement than it is now, which means putting tax-efficient strategies in place before you retire is a must.

4. Inflation

We’ve all gotten a sample of what inflation can look and feel like in the past few years. But for retirees on a fixed income, it can be devastating — especially for those who are forced to withdraw more than they planned from their investment accounts, even in down periods, to cover rising costs.

5. Estate planning oversights

Without proper estate planning, retirees may struggle to pass on their assets effectively, leaving their loved ones with unnecessary legal and financial burdens. Failing to properly document your wishes with a will, trust or power of attorney can create challenges for the family members left to manage your assets or make healthcare decisions.

Putting a plan in place

Implementing a holistic plan that ensures financial readiness and adaptability is fundamental to overcoming retirement risk. And, of course, I recommend working with a financial professional to help you get it right. But whether you plan to DIY it or work with an experienced adviser, your process should include the following:

1. Education

Understanding the basics of retirement planning can empower individuals to make better decisions. No matter where you are in the planning process, make the most of financial literacy workshops (many of which are provided for free by financial professionals) and other tools available online or through your adviser.

2. Evaluation

Identifying gaps in your income plan, insurance coverage, portfolio mix, etc., can help you avoid potential problems in retirement. This is one of the most difficult — and important — steps in planning. Assessing where you are can help you understand what you need to do next to successfully achieve a comfortable lifestyle in retirement.

3. Setting goals

Establishing clear, measurable and realistic objectives is critical. Setting up a timeline that includes both short- (one to five years) and long-term goals (five years or longer), can be extremely useful. It’s also a good idea to separate your retirement needs from any aspirational or nonessential spending. This doesn’t mean you shouldn’t have some fun in retirement, but good planning requires prioritizing.

4. Creating a plan

Once you know what you want your retirement to look like, you can begin to create a detailed roadmap to reach your goals. If you haven’t already, you can set up an appropriate portfolio allocation based on your age, risk tolerance and time horizon.

You’ll also want to research tax-efficient savings strategies and how they might best suit your needs. As you build your plan, don’t forget to factor in when you (and your spouse, if you’re married) should file for Social Security benefits.

And keep in mind that unforeseen events could impact your plan, including personal emergencies, economic downturns, market volatility and periods of prolonged inflation.

5. Implementing the plan

At this point, you’ll need to transition from planning to actionable steps that include:

Opening, closing and consolidating accounts
Setting up automatic contributions to your retirement plans
Building a diverse mix of taxable, tax-advantaged and tax-free accounts to grow your wealth
Making sure your loved ones are protected if you become ill or pass away

6. Monitoring the plan

If you thought this was a one-time deal and that you could just set and forget your retirement plan, you will be disappointed. I advise monitoring your progress regularly, and that includes meeting with your financial adviser at least once a year. That way, you can adjust your plan to reflect important life events, economic conditions and changes in your priorities.

As you close in on retirement, you can take steps to shift your focus from accumulation to preservation.

You should be able to look forward to retirement with excitement and confidence — and that means creating a comprehensive plan that helps you grow and protect your money. If you aren’t sure where to start or how to make all those moving pieces work together for your benefit, don’t hesitate to tap a financial adviser who can assist you in building and managing your plan.

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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The founder and CEO of West Advisory Group, Walt West is a seasoned financial strategist and educator with more than 30 years of experience helping individuals and families achieve their retirement goals. He and his team specialize in crafting personalized strategies for their clients as they transition from wealth accumulation to sustainable income in retirement.