NEW YORK – On July 1, the oldest of the nation’s 76 million baby boomers will start to turn 59-1/2, the age at which people can begin taking money out of their tax-sheltered IRAs and 401 (k) plans with no penalties. But according to American Express Financial Advisors, these boomers face a new set of risks that could affect their quality of life during retirement.
“This is a new kind of retirement because many are not covered by pension plans like their parents or grandparents. They’ll have to fend for themselves to create a retirement plan that they won’t outlive,” says Jeff Van Keulen, region vice president of Retirement Wealth Strategies at American Express Financial Advisors in Minneapolis.
Some of the new risks are:
n Outliving your assets. Because people are living longer and healthier lives than ever, longevity presents a financial risk. “They can expect to live as much as 40 years in retirement, and that’s a long time to plan for no adequate income stream,” says Van Keulen.
n Taxes. As people continue to work well into their 60s, taking money out of IRAs and 401 (k) plans, which are subject to income taxes, might push them into higher tax brackets.
n Investment decisions. Being financially secure throughout retirement can mean walking a line between too conservative investing, which could lead you to outlive your assets, and too risky investing, which you might not live long enough to recover from.
n Inflation. As inflation increases, you lose purchasing power and the value of your investments declines. As the cost of health care, for example, continues to rise at a rate higher than the inflation rate, your retirement plan must ensure that you’ll stay ahead for several decades.
n Retirement leisure. “The boomers are accustomed to living an active, high-level lifestyle, and unlike their parents and grandparents, many don’t see themselves downgrading their lifestyle,” says Van Keulen. “They see themselves traveling more, so controlling spending will be an issue.”
n The unknowns. High medical bills, an abrupt ending of your employer’s retirement benefits, or any other unforeseen emergency can be high risk for those planning for retirement.
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