With market performance in 2016 off to a bumpy start, many Americans, particularly those at and near retirement, are keeping a close watch on their portfolios in the New Year. On January 15, the Dow Jones Industrial Average (DJIA) dropped nearly 400 points in one day, thanks to lower crude oil prices and concerns about China. When the market shows such an extreme drop, it can be easy for emotions to lead investors to make impulsive decisions that can hurt their long-term success, including selling low and buying high.

In addition to market volatility, conservative investors seeking consistent income today continue to face a near zero interest rate policy, making yields from traditional investments like bonds, CDs and similar investments severely lacking. This has left many in a state that has been termed “a war on seniors and savers.” While we saw our first interest rate increase at the end of last year since 2006 and incremental increases are anticipated to continue in 2016, we are a long way from average yields keeping up with the rising costs and daily living expenses in retirement. A few of the key considerations and challenges to discuss when planning your investment strategy for immediate or upcoming retirement plans include:

  • Overall cost of healthcare: One of the largest and fastest-growing expenses in retirement is that of healthcare. According to a study by Fidelity Investments in 2015, the average retired couple age 65 can expect to pay significant medical expenses above and beyond what Medicare will cover throughout the course of their retirement. Factoring in coverage for medical and potential long-term care costs into your financial plan for retirement is more important today than in years past.
  • Life expectancy: Retirement today is spanning years, even decades longer than in previous generations. According to the Social Security Administration, the average male life expectancy in 1930 when the program was introduced was 58 years and 62 for women. Today, a male turning 65 is expected to live until they are age 84.3 and a woman turning 65 today is expected to live until age 86.6. Designing a financial plan that can provide retirement income for this increasing longevity is essential.
  • Rising inflation and taxes: Despite what the Consumer Price Index may reflect in this year’s lack of a cost of living adjustment for Social Security, many retirees are seeing a noticeable increase in daily living expenses from groceries to medications. Similarly, with a national debt exceeding $19 trillion, an increase in taxes is a serious potential factor to consider over the next several decades.

The overall challenge becomes financially preparing for these eventualities without taking on too much risk in retirement. The good news is that there are proactive steps that can be taken to prepare your family’s finances to help rise to the occasion. In our next article, we will be sharing tips for where you can start preparing your investments for the retirement challenges ahead: understanding your risk tolerance. Until next time, please give our offices a call with any questions and concerns preparing your retirement for today’s modern challenges at (803) 547-7853 for our Charlotte office or (843) 757-9400 for our Hilton Head office.

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