Market declines can increase seniors’ worries that they won’t have enough assets to support themselves.
However, it appears that there may be other financial risks that retirees should be aware of.
According to recent data from the Center for Retirement Research at Boston College, longevity, or the possibility that retirees may live longer than planned and run out of money, is actually the biggest financial hazard. Both actual and perceived dangers for retirees were ranked in the report.
According to researchers, market risk ranked highest among retirees’ perceived hazards, which “reflects retirees’ exaggerated assessments of market volatility.” The main objective risk that older persons ignored was lifespan because they were “pessimistic about their survival probabilities.”
Only two of the five key retirement hazards that individuals and couples confront are longevity and the market, which takes into account housing and investment conditions. The other three are hazards to one’s health, family, and policy.
Retirees may incur unforeseen medical costs and long-term care needs when it comes to their health. These medical costs include the total of uncovered expenses for prescription drugs, insurance premiums, inpatient and outpatient care, hospital stays, nursing home care, and doctor and dentist visits.
However, the study discovered that older persons generally underestimate the expenditures they may incur because their expectations for medical spending don’t alter much with age.
A retiree’s family situation can put them at risk
Unexpected events like divorce, a spouse’s death, or the illness or unemployment of adult children are examples of family dangers. According to the study, over a two-year period, about one-third of households with adults 65 and older transfer money to family members. However, a lot of people don’t consider the reasons why they could decide to help out their family financially.
Retirees are also at danger from changes in policy, particularly given the uncertain future of Social Security. As a result, between now and 2035, when the Social Security trustees predict the programme will no longer be able to provide full benefits, the research included a one-time benefit reduction. The study finds that today’s retirees are unlikely to be impacted by any changes brought about by Congressional reform.
According to the research, longevity was the greatest risk of all five for both single men and married couples. Risks related to health, markets, families, and policies came next, in that order.
However, single males ranked markets first, then lifespan, health, family, and policy, in that order, when asked to assess the risks on their own.
“Retirees do not have an accurate understanding of their true retirement risks,” according to the research.
Wenliang Hou, the study’s lead author, believes that this may affect how people choose to spend and invest their money in retirement as well as the age at which they choose to retire. Hou was a research economist at the Center for Retirement Research before joining Fidelity Investments as a quantitative analyst.
Retirement income should be assured because longevity is the main risk, therefore retirees should carefully arrange how to get it.
“That just highlights the need for a lifetime income source for retirees,” Hou said.
They may be able to find a way to maximise their retirement income by carefully considering when to file for Social Security. Up until age 70, when recipients stand to receive the greatest benefit, it pays to wait to file a claim; however, this can change depending on your health and marital status.
Private sector annuities, in which you make a one-time investment in return for regular payments, may also be beneficial. According to the research, life annuities may help retirees with little financial resources shield themselves from catastrophic risk because long-term care is a major issue.