5 Factors that Could Threaten Your Financial Plan

By  Jacqueline Darien –

What could make your retirement plans go awry?

And what strategies can help you keep your plan on track?

The events of the past few years have led to many people rethinking and restructuring their retirement plans. A large percentage of people are planning on postponing retirement as they do not have sufficient funds to retire comfortably.

Investment strategies have changed making risk management an even more important factor. What does your retirement plan need to keep on track? What can be done to reduce vulnerability? Are you saving sufficient monies, allocating assets effectively, and creating and monitoring a solid plan for withdrawing income? Will your portfolio allow you to sustain your desired lifestyle?

The following five threats could push your plans off track

1. Costs of Health Care

Do not fail to provide for the expense of health care. These costs have risen yearly, on average, 2.4% faster than the Gross Domestic Product (GDP).

Although health care reform may help in making this major expense more affordable, for some, costs are projected to continue to rise.

Long-term care is very expensive. Depending on the area of the country in which you live it can range from $70,000 to more than $100,000 annually.

We are living longer and in many cases need progressively more expensive care as we age. Consider purchasing a long-term care policy for at least part of the amount needed currently so that you are not saddled with costly financing if the time comes.

2. Unexpected demands on your capital

Having a contingency fund while you are working is a good strategy. It is just as important in retirement.

Emergency financial needs for you or your family can arise. Keep a reserve fund allocated to cash and other highly liquid assets such as short-term bonds and CDs. This should be part of your overall financial strategy.

You should have a portfolio with various baskets – a liquid one for short-term needs that can be used for special or emergency cash requirements; another to optimize investment opportunities over the longer-term; and a third that contains excess savings for desired legacies.

Having this plan in place will help you stay the course and not use your reserves to pursue other opportunities.

If you are not yet retired, be sure to have other liquid funds to tap in a crisis, e.g., a taxable account from which you can withdraw without penalty, leaving retirement funds untouched.

3. Volatile Markets

As you move closer to retirement, you should shift your asset allocation towards more conservative investments.

You will need to develop an income withdrawal strategy to assure that you are not shifting assets at the wrong time.

This strategy may also prevent you from reacting emotionally to a volatile market by selling stocks and overweighting fixed income. Also, if you do not follow this strategy, you may not keep up with inflation.

To maintain your income in retirement, you might have a mix of low-volatility, income producing assets such as high-quality bonds, Treasury inflation-protected securities (TIPs) and Certificates of Deposit (CDs), along with some securities chosen for growth.

4. Death or Divorce

Your financial security could be threatened by death or divorce. What steps should you take to plan for either?

In the case of planning for death, make sure you and your spouse have up-to-date wills and the correct beneficiary designations.

Next, consider consolidating your IRAs and other savings and investment accounts so that the surviving spouse, already handling a devastating blow, isn’t burdened with locating accounts and finding income.

From a financial perspective, divorce can be very disruptive and difficult, as well. Assets now must be divided and support two households. Tax considerations must be taken into account. Both spouses should make sure they understand the implications of both death and divorce.

You should meet with a tax advisor and financial professional long before the need arises.

5. Fear of Not Having Enough Assets

Another issue for some people is their worry about not having the assets to support their retirement.

They have spent a lifetime preparing for this stage of their life. Shifting from a saving and investing mode to a distribution mode is difficult for many people.

To have confidence in spending your assets, you should consider meeting with a financial advisor. You can look at various options to maximize your income and, that perhaps offer guarantees, such as variable annuities.

With careful planning, you can help protect your future from financial difficulties and realize your retirement objectives.

Jacqueline G. Darien has been a financial planner for more than 16 years and received her Certified Financial Planner® (CFP®) designation in 2000. Previously, she was a fundraising consultant and worked with major arts and educational institutions on capital, annual and planned giving programs. She blogs at http://www.rebootyourretirementincomeplan.com/ and writes a monthly financial planning article for http://www.womensvoicesforchange.org/.