Retirement Risks? What Retirement Risks?
Do You Know Your Retirement Risks?
Retirement is such a colossal undertaking and taking that plunge can be a frightening jump for many. Not only do you have the standard concerns such as outliving your money, maintaining your health and using your new freedom and time properly to avoid boredom but you have other retirement risks to also be concerned about. What else could you possibly be worried about in retirement? Those risks that effect your retirement investments; which by the way, you have some but more like no control over. So what can you do about these other retirement risks? Be practical, keep your emotions in check and study up.
Market Risk
This risk is basically the volatility of the stock market. The value of your retirement accounts will move up and down based on the gains and losses of your investments. You can offset market risks a bit by diversifying your investments. In other words, spread the risk around. Invest in low risk, balanced risk and maybe a small amount of high risk. Invest in stocks, bonds, money market and cd’s. You decrease the impact of market risk if you vary your investment risk and type. Do not put all of your eggs in one basket, so to speak.
Inflation Risk
This risk affects the cost of goods and services over a period of time. Inflation risk causes items to become more expensive resulting in your money not going as far. Inflation erodes your purchasing power. For example, in the 80’s a new car would cost you approximately $12,000. Today, the cost of a new car has jumped to approximately $30,000. Since you will need more money to buy a new car, you will have less to spend on your other expenses. That is what inflation risk does and there is not too much you can do about it offsetting that effect.
Knowledge Risk
Your negligence in learning about investments can impact your retirement account balance. If you procrastinate throughout your working years and do not contribute to your retirement plans, you run the risk of not having enough money to retire at all. If you do not monitor your investments, you run the risk of them declining in value just when you need the money to retire. You, personally can greatly offset the impact knowledge risk has on your investments. Invest wisely but not too cautiously. Seek out financial advice. If you invest in a 401k plan at work ask your employer’s if they offer an advisor, most 401k retirement plans do.
Retirement planning can be an overwhelming task. If you understand the different risks that effect your investments and make the effort, when possible, to offset those risks, you will keep more money in your account working for you.