“Recent studies and surveys show that pre-retirees and retirees fear these five threats to their retirement finances most – and with good reason,” Pamela says. The top threats are:
5 Threats to Your Retirement Security
Outliving Your Money
The average 65-year-old will outlive their savings by almost a decade, according to a recent study by the World Economic Forum. To determine how much money you’ll need to have saved by the time you retire, a good guideline is the "Rule of 25," which says you should multiply your total annual expenses by 25. By that measure, to have $100,000 per year (don’t forget to adjust for inflation) to spend in retirement, you’ll need to save $2.5 million. It’s also important to consider that you may well live longer than you imagine, and studies show people tend to underestimate their life expectancy.
If, like most people, you have a big portion of your assets in stock market investments and the market falls as you’re nearing or already in retirement, it will have a devastating impact on how much you can withdraw each year. You’ll be forced to cut back significantly on your retirement lifestyle, and/or you’ll have to work longer than you planned – possibly much longer.
If you’re saving in tax-deferred accounts like 401(k)s, IRAs, and 403(b)s, you have no clue what your tax bill will be when you start taking withdrawals over a retirement that could last 20 or 30 years. According to the Center for Retirement Research, after the IRS takes its cut, “It’s a very big deal when people realize they only have two-thirds or three-quarters of what they thought they had.” And that assumes tax rates don't increase long term.
Health Care Costs Not Covered by Medicare:
Even healthy 65-year-old couples face $500,000+ in health care costs they will have to cover out of their own pockets (source: Fidelity and Genworth studies).
These may include cuts to Social Security benefits and increases in the taxes retirees must pay on their benefits.
To bypass all of these risks, Pamela recommends The Bank On Yourself safe wealth-building strategy. Advantages of this method include:
- Guaranteed, predictable growth and retirement income
- Funds can be accessed tax free, under current tax law
- Income from these plans does not cause your Social Security benefits to be taxed and doesn’t hike your Medicare premiums, unlike 401(k) and IRA withdrawals
- Guaranteed lifetime income options are available ensure you won’t outlive your money.
- Can be structured to provide money to cover costs of care for chronic and terminal illnesses
- No changes can be made to these plans unless you agree to them
- Peace of mind and long-term financial security
“You can stop worrying about when another market crash will wipe out 50% or more of your savings, Pamela says. “This strategy has a 160-year-plus track record of positive growth.”
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About the Author: Pamela Yellen is founder of Bank On Yourself, a financial investigator and the author of two New York Times best-selling books. Readers can get a free copy of her latest book, "Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans — and How to Avoid Them" here for a limited time.