Retirement Planning Is a 'Juggling Act,' Says Suze Orman. Here Are the 3 Biggest Risks

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No one wants to run out of money in retirement, and these risks can drain your nest egg.

Key points

  • Research has found that people incorrectly rate the risks they face in retirement.
  • By understanding the risks, you can improve your retirement planning and better protect yourself.
  • Your longevity, your health, and the state of the market can each pose risks to your retirement income.

In her “Money Monday” newsletter, Suze Orman recently called retirement planning a juggling act, because you need to deal with multiple risks simultaneously. You could have costly medical bills to manage. Your portfolio may take a hit from market volatility. Or you might outlive your retirement fund.

It’s important to account for all these potential issues when retirement planning. However, recent research suggests that we don’t correctly prioritize retirement risks. According to that research, these are the three biggest risks in order.

1. Longevity

It’s somewhat ironic to think of living longer than expected as a risk. But if you make it to age 85 or 90 and run out of money, that’s a serious concern. The goal is a comfortable retirement, not struggling to get by on Social Security or relying on loved ones for financial support.

People rank longevity as the second-biggest retirement risk, but it turns out to be the biggest. To protect yourself, aim to have a nest egg that can last you well into old age. Orman says that if you enter your 60s in good health, your retirement plan should assume that you’ll live until at least 90, and 95 is even better.

2. Health

As we get older, the odds of health issues go up. Most retirees will need treatment for illness or injury at some point. And according to the U.S. Department of Health and Human Services, 70% of Americans will need long-term care in retirement. The median annual cost of that is over $100,000.

There’s a tendency to underestimate healthcare costs in retirement, which is why people rank this as the third-biggest risk. But medical bills can be much more expensive than many realize. Even with Medicare, there are still plenty of out-of-pocket costs you’ll need to pay.

3. Market

People rank market volatility as the biggest risk in retirement. It’s actually third, and the research suggests that retirees have exaggerated views of market volatility. It’s still a risk, just not to the same extent as longevity and health.

Since most retirement plans contain a mix of investments, a market downturn can be harder on retirees than on younger adults who have plenty of time to wait it out. That’s why it’s recommended to gradually adjust your asset allocation as you get closer to retirement.

When you have decades of your career to go, a portfolio that mainly focuses on investing in stocks is fine. Over time, shift to investing in bonds so that a greater portion of your retirement is in safer investments.

Suze Orman’s tips to improve your retirement plan

Longevity and health tend to be the two most underestimated retirement risks. To protect yourself from those potential issues, here’s what Orman recommends:

  • Save more in retirement accounts. It’s a simple, but effective strategy. Specifically, Orman says to contribute to a Roth 401(k) or a Roth IRA for tax-free withdrawals in retirement.
  • Plan for how you can delay Social Security. If you wait longer to collect Social Security, you receive a larger benefit amount. It’s a guaranteed way to get more money, so it’s worth finding a way to manage it.
  • Check out long-term care insurance. Even though it’s expensive, it’s still much cheaper than what long-term care costs.
  • Take care of yourself. Exercise and eat a healthy diet. Not all health issues are in our control, but we can at least reduce our risk by following these habits.

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