Aside from running out of money, there are a host of things to worry about when thinking about retirement.
I know, you have enough to worry about! Yet most of the major retirement risks are things you can address now, so there’s a lot of good news there.
According to a new study by Wenliang Hou at the Center for Retirement Research at Boston College, there are certainly concerns about retiring with dignity, although a prime risk is not outliving your savings kitty.
“Retirees with limited financial resources face numerous risks, including out-living their money (longevity risk), investment losses (market risk), unexpected health expenses (health risk), the unforeseen needs of family members (family risk), and even retirement benefit cuts (policy risk),” Hou found.
“Under the empirical analysis,” the researcher notes, “the greatest risk is longevity risk, followed by health risk; the longevity risk and health risk are valued less in the subjective ranking than in the objective ranking, because retirees underestimate their life spans and their health costs in late life.”
The bottom line is that you may need to save more for a longer life and health-care costs. How you approach this is best augmented by a number of tools:
- Health Savings Accounts allow you to sock away money for out-of-pocket medical and related expenses. Offered with high-deductible health insurance plans, you can also set them up yourselves.
- Roth IRAs. You can withdraw money from these accounts for any reason without penalty at age 59 1/2. The withdrawals are tax-free since you pay taxes on the contributions. There are also Roth 401(k)s that can be set up through employers. Special rules apply.
- Conventional IRAs. You can use these plain-vanilla savings plans a number of ways. Again, the IRS has a whole set of rules that cover who can contribute — and how much.