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3 Ways to Help Safeguard Your Retirement

Jan 09, 2018 3 min read Susan Johnson Taylor

Key Takeaways

  • Annuities can turn a lump of cash into long-term income.
  • Hoping to outpace inflation? Consider the stock market.
  • Long-term care insurance can help with expenses.


Do you find yourself up at night worrying about retirement planning? You’re not alone. A recent study from the Employee Benefit Research Institute Opens in a new window found that some four in 10 Americans (39%) are not confident they’ll lead a comfortable lifestyle in retirement.

Even so, a few basic strategies could help you combat your sleepless nights. These three moves can be a key part of any retirement strategy.

 


Stocks

Saving money for your future is critical, but storing it in cash or cash equivalents such as money market funds or certificates of deposit (CDs) is unlikely to help you achieve the financial security you may need for a retirement that could last 30 years or more.

The reason: Inflation eats away at your spending power, so you’ll likely want at least some of your savings to grow faster than consumer prices, particularly while you’re tapping your nest egg for living expenses. The relative safety of CDs and money market accounts tend to make them a good vehicle for short-term goals like saving for a down payment on a home, but they generally don’t earn enough to keep pace with inflation.

Investing in stocks can help your money grow over the long term because, historically, their returns have beaten inflation over time.  Of course, stocks lie on the other end of the risk/reward spectrum from cash, and are also generally considered riskier than bonds. Market fluctuations can mean sharp downturns, so stocks often aren’t suitable for shorter-term investing. If you’ll need the money within five years, you might want to consider choosing a high yield savings account or CD instead. But over the long term, in exchange for the higher risk you take when investing in stocks, you may also enjoy higher average returns.  Please remember that past performance is no guarantee of future results and it is possible to lose money investing in securities.

If you are not comfortable purchasing individual stocks you might want to consider mutual funds. Mutual funds tend to invest in diversified portfolios of securities such as stock and bonds. Since a mutual fund includes a pool of securities, it can help reduce the risk that poor performance of a single investment will have a disproportionate impact on your overall portfolio.  When selecting a mutual fund, you should consider among other things your specific needs, investment objectives and risk tolerance.  Always keep fees in mind; over time, they can take a real bite out of your returns.  You can also lose money by investing in mutual funds. Like any investment, mutual funds involve risk, and some funds have more risk than others.


Annuities

Annuities are designed to provide income during retirement, so you won’t run out of income before, well, you run out of time. When you buy an annuity, an insurance company provides steady payments for a specific time period, often for the remaining years of your life.

Annuities vary in their features, returns, time period and cost. For example, some offer a standard death benefit for your spouse or other family members or tax-deferred growth on interest, dividends and capitals gains. Key types to consider:

  • With an immediate annuity, you pay a lump sum now and begin collecting income right away.
  • A deferred annuity provides income later, perhaps in your elder years, when health care costs may be higher.
  • Fixed annuities offer a set rate of return.
  • Variable annuities offer fluctuating returns tied to the markets, so you can take advantage of growth but may be susceptible to market losses.

Annuities can be complicated. A financial professional can help match the right product to your risk tolerance, age and income needs

 

Long-term care insurance

What happens if you suffer an injury or illness and need ongoing help with daily activities like feeding yourself, dressing or getting out of bed? You can’t count on Medicare or health insurance to cover the kinds of costs such care entails—and it’s a good bet they’ll deplete your retirement savings quickly.

Long-term care (LTC) insurance covers benefits such as home services, assisted-living facilities, skilled nursing or hospice care, but policies—especially those that offer the most coverage—can be expensive. So you’ll need to weigh your potential needs against the potential costs. The U.S. Department of Health & Human Services reports Opens in a new window that 70% of people turning age 65 can expect to need some form of long-term care during their lifetime.

What’s more, the cost of LTC coverage generally rises as you age, and you may not qualify for—let alone be able to afford—a policy once you actually need it. So it’s smart to plan ahead and consider purchasing long-term care insurance while you’re still relatively young and in good health—and premiums are typically lower.

 

What you can do next

An ounce of planning is worth a pound of potential expenses, you may want to seek guidance from a financial professional about a strategy that can help safeguard the money you’re saving for retirement.

 

Susan Johnson Taylor has written about personal finance and business for The Atlantic, the Boston Globe, Fast Company and U.S. News & World Report

 

 

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