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Making a million retirement dollars last

The road to a comfortable retirement is full of risks and they don’t end when you stop working. In addition to longevity risk (the risk that you could outlive your retirement dollars), here are four additional risks that remind us the importance of early retirement planning:

Inflation: 

The inflation rate has been relatively low over the last five years, averaging about 2.25% per year. But even that level can eat into the purchasing power of your retirement dollars. And long-term inflation trends have been higher, averaging 2.85% annually over the last 30 years.1

Unexpected Events:

A recent survey of Americans aged 50 to 70 found that the average respondent had experienced four “derailers” that temporarily knocked them off track in saving for retirement, with an average loss of $117,0002. This may sound daunting, but setbacks for your long term goals can be mitigated by maintaining an emergency savings fund.

Social Security:

According to the 2013 Annual Report of the Board of Trustees, Social Security benefits should be fully funded at current levels until 2033, when the trust funds may be exhausted. After that, payroll taxes would be able to fund only about 77% of scheduled benefits.Depending on your age, you might need to scale back your expectations for Social Security as a major source of retirement income.

Sequencing:

The most complex challenge could be sequencing risk, which refers to the timing of unfavorable portfolio growth, especially in the early retirement years. This could result from adverse financial conditions and/or an inappropriate withdrawal strategy.

Each of these risks presents its own challenges and potential solutions. But, you may benefit from professional help in analyzing and addressing these risks as they apply to your own situation. Don’t try to plan for retirement on your own.

Sources:
1) Thomson Reuters, 2013, Consumer Price Index for the period 12/31/1983 to 9/30/2013
2) BenefitsPro.com, June 26, 2013
3) Social Security Administration, 2013

Freeman Owen, Jr - Host of "Safe Money Talk" on CBS Radio The Big Talker 1580AM For better money management and to plan more effectively for your retirement, contact me for a free consultation.
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