It's a marathon, not a sprint, to reach retirement, and you may find you still need to clear some formidable hurdles. Positioning yourself for the long haul could mean building flexibility into your retirement plan to accommodate emergency expenditures or adjustments in income or expenses. You'll need to take into account likely fluctuations in housing costs, taxes, health-care outlays, investments, and other items in your budget. Consider these seven obstacles and figure out how to get past each of them:
1. Market uncertainty. Stock market volatility always will be a wild card, whether retirement is still far in the future or has become your everyday life. There are no guarantees for how well your investments will perform. Therefore, you need a long-range plan that takes into account both your objectives and your ability to tolerate investment risks. It helps if you diversify your holdings among stocks, bonds, mutual funds, real estate, and other kinds of investments. And you'll need to review your plan at least once a year to check your progress and see whether adjustments are necessary.
2. Eldercare for relatives. As your parents and in-laws age, they may need financial help from you. And this is an expense that can sneak up at a time when your children still may be at home or running up tuition bills. You may want, or need, to help out the older generation with costs for housing and nursing care. Having conversations with the entire family can make everyone aware of the situation and could help you find solutions you hadn't considered.
3. Financial help for adult children. These days it can take a while for young people to find their way and establish themselves with their own careers and families. Some will move back into their old rooms after college while looking for a job; others may need a financial boost to help them buy a home, start a business, or handle money emergencies. You'll need to balance your desire to help them with your own financial needs as you move toward retirement.
4. Long-term care. It's not only parents, grandparents, and in-laws who age; you and your spouse, as you move into your 60s, 70s, and beyond, may have to confront your own need for care in a nursing home or another facility. That's an expense that can bankrupt a family, and buying long-term care insurance while you are younger and premiums are lower could help you be prepared for whatever comes. But this insurance is complicated, with many options and riders, and your costs could vary widely. To make a good choice, you'll need to educate yourself about what's out there and then shop around to find a policy that works for you.
5. Inheritances. Are you counting heavily on inheriting money from older family members as a way to bolster your retirement savings? That can be a risky proposition. You—or your parents or grandparents—may overestimate what may be left for you, especially considering today's longer life spans, rising retirement costs and end-of-life costs. You won't really know how much to expect until an estate has been valued, debts have been paid, and will provisions have been attended to. Though it may be impossible not to think about a possible inheritance, you'll do much better if you don't include its expected value in your retirement planning.
6. Outstanding debts. Paying off credit card balances or your mortgage during retirement will drain away money that you undoubtedly could put to better use. If possible, pay off your debts before you retire, and be careful about taking on additional loans. If it will take a while longer to pay what you owe, you could consider staying on the job an extra year or two to improve your household balance sheet.
7. Inflation. Living costs have risen slowly during the past several years, but that doesn't mean inflation isn't still one of the biggest threats to your retirement security. Even if it matches its long-term average—and doesn't spike higher at just the wrong time for you—prices will double in about 20 years. Staying ahead of inflation is one reason why you may need to hold some stocks or other growth investments even after you retire.
These and other factors could stand in the way of your plans for retirement. We can help you assess where you are now and work with you on a strategy that will help you achieve your goals for life after work.