Retirement; like your parents, but way cooler
In 1991 Billy and Akaisha Kaderli retired at the age
of 38. Now, into their 4th decade of this
financially independent lifestyle, they invite you
to take advantage of their wisdom and experience.
Risk Management and Retirement
Benjamin Franklin said that the only things
certain in life are death and taxes. However, if you live long enough,
retirement is also guaranteed, and as the Scout motto states, you always
have to be prepared. There is a popular misconception that you have plenty
of money but little energy and time once you are old.
While there is some truth regarding the
amount of time and energy for retirees, the financial part is a bit stretched
because the amount of money you will have during retirement will largely depend
on the choices you make in your youth.
You can start planning for your retirement
if you know the type of risks that you might face. Therefore, letís take a look
at some of the post-retirement risks to enable you to
develop a risk management plan.
Living to a ripe old age is almost
everybodyís wish, but sometimes that could change from a blessing to a curse due
to the longevity risk. This risk refers to the likelihood that you will grow so
old that deplete all the resources you have saved for retirement. As a result,
you will be forced to depend on Medicare and Social Security benefits only.
It may appear like something you should not
be concerned about but remember that the life expectancy for US citizens stands
at 78.7 years. The higher life expectancy means that the longevity risk is high;
hence it is better to overestimate how long you will live than underestimate to
prevent you from squandering your retirement income.
Now that you know the average life
expectancy, you can start making changes. Therefore it could be time you thought
about purchasing an immediate annuity because
you cannot outlive it.
Health Care Risk
Well, your body is not as youthful as it
once was. You experience aches now, and your immunity has gone down; thus, even
the slightest infection has you on bed rest. You may assume that the pension and
Social Security benefits will be adequate for out-of-pocket medical expenses but
keep in mind that your insurance does not cover some healthcare costs.
Medicare does not cover hearing aids and
exams to fit them, dentures, and eye exams to prescribe glasses. Such expenses
will therefore affect your retirement nest egg, and that could distort the plan
you had to live large in your golden years.
You can avoid selling your assets to cover
your medical bills by investing in long-term care insurance and making a sound
financial plan for you and your spouse.
Market risk is the
possibility to make investment losses. While it could be your dream to
accumulate wealth through stocks, not everyone can be Warren Buffet, and some of
the shares you invest in will crash which will ruin your retirement plan.
The stock market is volatile, and if your
investments are affected during the first four years of retirement, the
likelihood of you ever recovering from the impact is slim. Therefore, instead of
maintaining the high-risk, high-return investment strategy, adopt a conservative
one to reduce the massive impact if the market does not do well.
Better still, it would be best if you
diversified your portfolio to minimize market risk and have a financial advisor
to help with asset allocation. These moves ensure that you have enough liquidity
hence avoid selling assets that could bring additional income.
Family risk involves the unforeseen needs
of your family members. You could be traveling the world and making memories,
but that life could change in an instant when you have to step in and care for
A few instances include paying school fees
for kids or grandkids or caring for aged parents when they can no longer sustain
themselves. You cannot leave family behind, but it helps to let them know in
advance what you are willing to put up with to avoid draining your retirement
If you plan on helping someone, it is best
to keep your retirement savings separate from the money you are setting aside
for such causes.
The Social Security Trust Fund ensures that
you have some money every month, but its future does not look promising. The
trust fundís cash flow has been negative for the past ten years, implying that
it does not
collect enough money through taxes.
The negative cash flow has been covered by
interest earned since 2016. From 2021, interest will still not be enough to
cover the deficit. Therefore chances of the benefits being reduced soon are very
high since it is predicted that the fund will be depleted by 2028.
Cutting down on your expenses, saving more,
and purchasing long-term insurance policies will see you live to the fullest
during retirement since you are guaranteed independence. If you have a sound
financial plan, you might retire
early and start going on the adventures you have been postponing due to a
hectic work schedule. So, take charge of your life and make the necessary
To read more about Retirement
About the Authors
Early Lifestyle appeals to a different
kind of person Ė the person who prizes their
independence, values their time, and who doesnít
want to mindlessly follow the crowd.
Retire Early Lifestyle Blog
About Billy & Akaisha