Watch Out For These 7 Retirement Ups And Downs
1. The stock market could go down. People are quick to forget the hard lessons learned from previous stock market downturns—such as in 2008 and 2009, when the market lost about half of its value. Volatility in equities is inevitable and if the market drops while you're making withdrawals, the value of your retirement portfolio could plummet. Suppose you have a portfolio valued at $1 million and you anticipate withdrawing 5% a year, or $50,000 a year, during retirement. If your holdings drop 25% next year, you'll be left with $750,000—and that same withdrawal amount rises to almost 7% of the portfolio, a withdrawal rate that would be very difficult to sustain.
2. Your health care costs could go up. Some people think they'll have it made when they reach age 65 and become eligible for Medicare. While Medicare may reduce your health insurance outlays, you'll still likely need supplemental insurance, and there will be out-of-pocket expenses. And what if you need long-term care? In 2016, the average cost of a private room in a U.S. nursing home was $7,698 per month, according to the Genworth Cost of Care survey. That's more than $92,000 a year.
3. Inflation could go up. Inflation has been negligible during the past decade. Nevertheless, steep price increases could return quickly, and even if inflation doesn't spiral dramatically like it did during the 1960s and '70s, it's safe to assume that your expenses are likely to go up during your retirement years, while your savings may lose value. If you withdraw the same amount from your portfolio each year, expect that money not to stretch as far as it once did.
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