Retirees face a variety of challenges as they enter retirement. Here are some broad talking points for retirees to consider:
1.) Daily life in retirement
A big question involves how time will be spent in retirement. Retirement is no longer the "lazy boy" retirement that past generations envisaged. People are often working in retirement and spending time in a variety of productive ways. Boredom is a major concern for many retirees.
2.) Portfolio rate of return
Many people don't have a pension, so it will be up to them to design a portfolio that will generate enough return to last throughout retirement. This can be a daunting task, but one that the retiree needs to take seriously.
3.) Portfolio withdrawal rate
Closely related to the portfolio rate of return is the portfolio's sustainable withdrawal rate (SWR). The retiree needs to ascertain how much can be safely withdrawn from her portfolio in order to try to make the portfolio last for up to 30 years or more in retirement. Start out too aggressive and the portfolio could be depleted; too conservative and one could have a surplus.
4.) Life expectancy
How long will the retiree live? Family background, current health, and other factors play into this discussion, but it's important to start with a reasonable and informed assumption about life-expectancy.
Inflation is a major risk to retirees. The retiree needs to ensure that her portfolio is not eroded by inflation. Keeping a portfolio too conservatively invested can result in a portfolio being far from "safe".
6.) Health care expenses
Health care is a major concern for most retirees. This is a complicated topic, but one in which the retiree needs some familiarity heading into retirement.
7.) Sequence of returns
Returns, unfortunately, don't come in the form of a nice average return every year. Returns vary, and if a retiree faces negative returns early in retirement, there's a chance her portfolio will not recover from this early negative sequence. Conversely, if the retiree has good luck and gets positive returns early in retirement, this can disproportionately affect her portfolio in a positive way. The sequence in which portfolio returns come is therefore critically important, and retirees need to have a plan in place to protect against early negative return sequences.
Original Post over here: 7 Things Prospective Retirees Need to Think About