How to prepare for the six risks that impact retirement

As baby boomers approach retirement, many find themselves in different economic circumstances than what they planned for.
“We are facing a new retirement reality. In the past, most retirees had two things going for them —pensions and shorter life spans, on average,” says Adam Spiegelman, wealth management advisor at Northwestern Mutual. “And if they did live longer, Social Security was there.”
Today, the top fear in retirement is running out of money, while recent economic events have taught Americans the downside of risk.
Smart Business spoke with Spiegelman about how to keep your retirement plan on track and soften the impact of six key risks.
What are the risks common to most retirees? How can you plan around these?
Longevity — Americans can outlive their resources. There is a 10 percent chance that a 65-year-old male will live to 97 years of age and a 1 percent chance the same male will live to 105 years of age, according to Medicare.gov. Yet, average life expectancy is only 85 years.
Your retirement plan needs to weigh the likelihood that you might live to 90, 95 or longer —  and you could be retired longer than you worked.
Long-term care — The cost of care for an unexpected event, or long-term illness not covered by private insurance or Medicare, is requiring more Americans to prematurely deplete their assets. A 2009 Life Insurance Marketing and Research Association survey of people ages 55 to 75 found that health care and long-term care expenses account for 12 to 15 percent of retirement expenses, depending on the household income.
Make sure you include funding for long-term care to help protect your savings and reduce reliance on others. Keep in mind, however, that you cannot protect against the full loss potential.
Health care — Rising medical and prescription drug costs, fewer employer-sponsored retiree benefits and the limitations of Medicare are all impacting income and retirement savings. According to Medicare.gov, estimated health care costs for a 65-year-old range from $3,000 to $10,000, including premiums, deductibles and co-pays but not including long-term care, vision or dental expenses.
Health care expenses can be significant, but many people don’t have a good gauge of what these costs might be. Be sure to take time to adequately plan for this risk.
Legacy — Many Americans want to leave a legacy by leaving a financial gift to a loved one or a charity. You need to balance this desire with the need to fund your retirement. If you’d like to leave a legacy, start planning as early as possible to ensure you can maintain your lifestyle, too.
Inflation and taxes — With inflation reducing purchasing power and taxes impacting liquidation strategies, less money will be available to spend or invest in retirement planning. At a 4 percent inflation rate, if it takes $100,000 a year to support your lifestyle at age 65, it would take almost $200,000 to support that same lifestyle at age 80. The money you’ve set away in a traditional IRA is subject to ordinary income taxes, and if one spouse passes away, the survivor switches to single tax rates and can see a jump in the tax burden.
In retirement, it’s no longer about how much you have; it’s about how much you get to keep.
Market — Participating in the stock market can give your retirement savings and income the potential to keep pace with inflation, but market volatility significantly affects your income and savings. Market risk is always there. You can’t avoid it, and the closer you are to retiring, the greater the risk. All you can do is mitigate the impact by working closely with a financial adviser.
Is there anything else you’d like to share?

Planning for retirement is like planning for the longest vacation in your life. It’s critical that you put in the time. This will help ensure you enjoy it, that you can do everything you want and that your income lasts as long as you do.

Article prepared by Northwestern Mutual with the cooperation of Adam Spiegelman. Spiegelman is a Wealth Management Advisor with Northwestern Mutual, the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, Wisconsin, and its subsidiaries. Spiegelman is based in San Francisco, California.