For most retirees, their biggest fear is running out of money. You want your retirement to be a fitting reward to a lifetime of hard work. But it's hard to know exactly how much money you'll need to achieve your unique retirement goals, without sacrificing your quality of life. In this video, we break down the three biggest risks to your retirement nest egg:
1. Longevity Risk: Today, a couple at age 65 has a 50% chance of living beyond 90!
2. Changes to Social Security: A holistic financial plan will account for any future changes to Social Security.
3. Inflation: High inflation means you'll have to use more of your retirement savings each year to maintain your same quality of life. Designing a holistic and proactive retirement plan that addresses these risks is key to maintaining your quality of life, no matter what.
Erin: Ryan, good to see you. Today we're talking about three retirement risks that could cause you to run out of money, which is of course everybody's number one fear in retirement. Today if a couple who's aged 65, they actually have a 50% chance of living beyond 90. Life expectancies have never been so high. Which brings up our first risk, it's known as longevity risk.
Ryan: Yeah, for sure. People are living longer and longer. I just read the other day that I think a third of people that are born today are going to live to be age 100.
Erin: Really? Wow.
Ryan: Yeah. I mean, who knows how long people are going to live? 50 years, 100 years from now. My grandmother lived until she was 102, so people are definitely living longer. And that's definitely a good thing. We get to enjoy life longer, we're healthier longer, and all of those things. But from a financial standpoint, when we're talking about retirement planning it does pose more of a risk because longevity risk is a risk multiplier. You take a look at here, a male has a 50% probability of living until they are 85 years old and a female has an 50% probability of living until age 88. But what's even more telling is if you're married and you're both 65 years old today, you have a 50% chance of at least one of you living until you're 92 years old. So the need here to have to plan for 20 years or 30 years or more in retirement is very real.
Erin: So, risk number two here, changes to Social Security. It's very likely benefits or qualifications will have to change. And I was surprised to recently learn that among those who rely on Social Security, that benefit makes up 50% of their income.
Ryan: It makes up a very large amount. And that's why you want to do everything that you can to save and invest on top of Social Security. Because I definitely believe Social Security is going to be there for many, many years to come. But I absolutely believe that they're going to have to make some tweaks and changes, which could reduce some benefits in the future. And in fact, the most recent Trustee's Report, I'm taking a look right here, was just released a couple of days ago, and in 2033 they're now estimating that you're only going to get 77 cents on the dollar. Now, that assumes that nothing changes between now and then. I think something will change between now and then, but it's hugely unpopular. It doesn't matter what side of the aisle you're on, Democrat or Republican, to make any changes here. But these are the current estimates. So something's going to need to happen in order to shore up the system long term and make sure that the money is there to provide for these promised benefits.
Erin: All right. The third risk known as good old inflation, talk about something else that is wildly unpopular. And high inflation simply means that you'll have to use more of your retirement savings every year to maintain your quality of life.
Ryan: For sure. And you said good, but it cannot be so good sometimes. The thing about inflation is it's kind of that silent killer because it just kind of creeps up on you. In recent years, up until the last couple of years, inflation's been pretty low. You could see since 2011 it's averaged 1.97% and this chart goes through 2021. If we had 2022 on here, those numbers would be off the chart. So we've definitely seen that inflation has really shot up big time over the course of the last two years.
Erin: All right. So Ryan, I think the good news is at least these risks are known, so we can address them now, but what are some specific strategies that do address these risks?
Ryan: Well, you got to make sure that your money is keeping up with inflation, or perhaps even outpacing inflation, especially the money that you're planning to use some years into the future. Because the longer it is until you need that money, the more of an effect inflation could have over time to reduce that purchasing power. So, whether it's investing in a diversified portfolio of stocks and bonds, depending on whatever types of investments make sense within your particular retirement plan, you've got to make sure that you're invested in such a way that your money is keeping up with the cost of living.
Erin: Right. Ryan, I really appreciate being able to talk this through with you, especially to talk through some of those strategies. So if somebody has questions about anything we've covered today, what's the best way to reach you?
Ryan: Can call 714-462-9155 the other way. Simply go to the website, CravitzFinancial.com, go to the contact page there and submit a message.
Erin: All right. Perfect. Ryan, thanks so much.
Ryan: Thank you.
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